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Pension fund watchdog zeroes on climate targets

Canadian pension fund analyst Shift Action takes an educational and advocacy role in urging the industry to decarbonize and use their economic heft to make better climate-friendly investments. (Courtesy Shift Action)

The call to decarbonize the financial system has led the $2 trillion Canadian pension fund industry to announce its steps toward a cleaner economy. Notable institutional investors like the CPP Investments have recently announced net-zero targets and strategies for divestment from oil and gas.

But who keeps the pension funds in check? Toronto-based non-governmental organization Shift Action for Pension Wealth and Planet Health ("Shift Action") is a watchdog of the industry that seeks to keep the pension funds accountable to their sustainability promises.

Pension funds have “massive pools of capital . . . So even if we can move 1 per cent of that capital out of fossil fuels and into sustainable climate solutions, then that actually has huge impact in reducing emissions and avoiding the worst outcomes of climate changes,” said Patrick DeRochie, Shift Action’s senior manager in an interview with SustainableBiz.

“So if you can get these big financial institutions like Canadian pension funds to take the climate crisis seriously . . . then it sends a very strong signal to the market and to governments that we need to get serious about this problem,” he added.

He noted every Canadian is a member of at least one pension plan, which adds gravity and stakes to the situation.

How Shift Action works

Shift Action is part of the philanthropic platform MakeWay. The group analyzes publicly available information about Canadian pension fund portfolios from their investments in fossil fuels to renewables, asset allocations and their latest climate policies. Then it publishes analysis on how the strategies outlined in sustainable investment reports may or may not align with a sustainable future.

They collaborate with experts from organizations like the Canada Climate Law Initiative, Ecojustice, Environmental Defense Canada and Oil Change International, and receive expert guidance from pension law experts to raise climate-related financial concerns with large public sector unions whose members are often beneficiaries of pension funds.

It also organizes and educates pension beneficiaries to engage pension managers on climate change, move for better management and disclosure of climate risks and push to redirect pension funds from fossil fuels to climate solutions.

A steering community consisting of members like Julia Langer, the CEO of The Atmospheric Fund; Toby Heaps, the CEO of Corporate Knights; and Laura Zizzo, co-founder and CEO of Manifest Climate, offer strategic insights on campaign plans and updates on the sustainable finance sector.

“We reference and cite everything we put out and we have it vetted by experts in the pensions and environmental sector. (We) have not been challenged yet on some of the public reporting that we’ve got out,” said DeRochie.

He stressed the urgency of Shift Action’s work, citing research from the Intergovernmental Panel on Climate Change and the International Energy Agency that have stated avoiding the worst outcomes of climate change requires immediate divestment from fossil fuels and reducing emissions.

As “massive owners of the real economy,” encompassing physical infrastructure, DeRochie said the pension funds have “a clear interest in avoiding the worst impacts of climate change, hardening this infrastructure to those impacts and finding out how they can protect their portfolio as these impacts get worse,” as well as ensuring a return to their beneficiaries.

Shift Action’s latest reports

CPP Investments, the management organization of the Canada Pension Plan with $523 billion in assets and 21 million Canadians under its umbrella, made a net-zero commitment for 2050. Shift Action said it lacked a “credible plan for achieving it” due to its remaining $17 billion fossil fuel exposure. It also argued CPP Investments “continues to hold a number of assets which greenwash their actions and are taking us further from Canadian and international climate goals.”

A similar theme was discovered in the Ontario Teachers’ Pension Plan (OTPP) ESG report released in September. Shift Action said the $242.5 billion pension manager is “clearly communicating the urgency of the climate emergency” and “pursuing a pathway to some of the most stringent portfolio decarbonization targets of any pension fund in Canada,” based on tens of billions of investment into the green economy.

Yet it also found fault with OTPP’s $7.4 billion investment in oil and gas exploration and production and an undisclosed stake in the state-owned Abu Dhabi National Oil Company’s fossil gas pipelines.

But Shift Action’s latest quarterly report did find bright spots like The University Pension Plan’s climate action plan becoming a Canadian first by committing to net-zero emissions by 2040 and the Caisse de dépôt et placement du Québec (CDPQ) holding the line on oil divestment.

The examples to lead by

DeRochie believes Canadian pension sector are a straggler compared to its international peers. “It fits quite squarely into Canadian governments as well. We are climate laggards,” he mused.

He said part of the reason why Canadian pension plans are dragging their feet may be due to the oil and gas sector’s “tentacles” in the Canadian economy. They include having oil and gas executives on the board and senior management levels of Canadian pension plans.

Pension funds in the U.S., U.K. Europe, Australia and New Zealand have moved much quicker than their Canadian counterparts on climate risk policy management due to better disclosure and transparency, DeRochie added.

Some specific role models range from fossil fuel divestment policies from the New York State Common Retirement Fund and Dutch pension fund Stichting Pensioenfonds ABP, or the U.K.’s National Employment Savings Trust with strong climate risk management policies. Sweden is an exemplar in climate risk policies among pension plans, DeRochie noted.

DeRochie urges more robust divestment and engagement policies and massive scaled-up investments in renewable energy, clean transportation, sustainable agriculture and decarbonizing heavy industry.

He has heard from beneficiaries that they are demanding climate action, as well as pension funds being pressed to meet their legal obligation to meet the fiduciary duties of their young and old members.

Despite the obstacles, DeRochie believes Shift Action is moving the dial. Since Shift Action started, he said seven-out-of-ten pension funds they analyze have announced net-zero targets and CDPQ put an exclusion on oil producers by the end of 2022. More pension funds are listening to their beneficiaries on their climate concerns, and pension fund boards are discussing Shift Action’s work at meetings, he said.

“So just in the last two or three years that we’ve been doing this work, we’ve seen some huge progress from the pension funds on this issue,” DeRochie said. “I think that they’re recognizing the opportunity here as well, not just the downside of continuing to invest in companies that are making the planet uninhabitable.”

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