Time to Climate-Risk-Proof the CPP
FOE Pension Fund Campaign
Many scientists are observing changes in the climate. In the Paris agreement, countries agreed to take the action necessary to limit global temperature rise to 1.5 degrees
Even if we are successful in limiting emissions and containing temperature rise, damage is already done. So in addition to reducing emissions we must learn to adapt to a changing climate
The human tragedy of severe storms, wild fires and floods properly receive most of the attention. In the short term, we must respond with humanitarian aid and support. Over the long term we must invest wisely in new infrastructure and energy systems. Everything that’s built must recognize the risks of climate change. Will the development contribute to our emissions problem? Will it be physically or economically impacted by changes in the climate.
Governments are not solely responsible for climate action – all business and institutions have a responsibility.
Canada’s largest investment institutions are pension plans. The biggest is our own Canada Pension Plan. It has an investment portfolio of nearly $300 billion. The CPP along with most of the other pension plans (link to pension power) give lip service to climate change while pursuing aggressive investment polices without regard to how climate change puts pension funds at risk.
The French and the Norwegians and others are beginning to apply “climate risk assessment” to investment plans.
It’s time all Canada’s pension plans do the same. Starting with the biggest.
You own a fracking oil company
The Canada Pension Plan, our pension plan, spent $900 million of our money to bail out the struggling Canadian oil company Encana by buying its Colorado fracking operation. We own an oil company that fracks in Colorado’s Denver Julesberg (DJ) Basin. Where local communities have been fighting to impose moratoriums on plans to drill 15,000 wells.
It may not end there. Canada Pension Plan Investment Board former CEO, Mark Wiseman said “I don’t think we’d go buy Exxon, but we might buy a piece of Exxon if it were for sale.” A company that not only contributes to climate change directly but has also been accused of funding climate change deniers.
This is the climate cavalier attitude of Canada’s largest public investor.
An attitude that is costing us and one that we must change. Sign the petition to tell Finance Ministers to climate risk proof your pension.
Friends of the Earth Canada asked Corporate Knights to look into investments of the five biggest public sector pension funds. Turns out they are foregoing $20 billion profit every year by not fully incorporating climate risks into investment decisions. The Canada Pension Plan likely missed out on US$6.5 billion in profits by sticking with climate polluting industries.The Canadian Centre for Policy Alternatives has also investigated pension funds and found the CPP is more heavily invested in fossil fuels than other funds. This means the CPP is more exposed to climate risk. Fossil fuel producers or pipeline companies make up about 22% of the CPP’s Canadian investments and about 6% of its foreign investments. In these same investments, CPP owns 34 companies involved in the worst climate polluting industries – coal mining and coal burning utilities.
Many pension funds have signed the “The Montreal Carbon Pledge” agreeing to measure and disclose the carbon footprint of their investments and joined the Portfolio Decarbonization Coalition, a group of global investors working with the United Nations Environment Programme. The Canada Pension Plan has not!
How safe are our contributions if fund managers don’t take climate risk into account? If they’re putting our pension money into the old dirty economy’s fossil fuels?
All pension plan trustees have what’s called fiduciary responsibility – it requires them to invest funds to the benefit of the members. Fund managers insist that this means profit is the only important consideration. Yet even by this low standard the Canada Pension Plan fails.
Today’s prudent investors are taking climate change into account and making money. Would a condo complex next to the ocean be a wise investment with sea levels rising? Is it responsible to buy a fracking oil company? CPP trustees must incorporate climate risk into their fiduciary responsibility.
Let’s tell the Finance Ministers, our trustees for the CPP, we don’t want to own a fracking oil company.
Let’s insist that the CPP tell you the carbon foot print of your funds. Then let’s make sure that climate risk becomes a fundamental calculation in investment decisions.
19 million Canadians own the CPP – that’s 19 million reasons to climate risk proof CPP investments.
Sign the petition to tell Finance Ministers to climate risk proof your pension!
At the end of the third quarter fiscal, the CPP fund totaled $282.6 billion of pension plan contributions. The Canadian Pension Plan Investment Board touts a diversified portfolio ranging from investments in public and private equities, private debt, real estate and infrastructure. As of March 2015, 37% of the CPP assets were in foreign developed equities, with 38% of the total CPP assets invested in the United States. Some recent and notable investments made by the CPPIB include a 40% stake in Glencore Agricultural Products for $2.5 billion, global travel services provider Hotelbeds Group for €1.165 billion, and a 95% stake of Encana Oil & Gas Inc. a fracking company operating out of the Denver Julesberg Basin in Colorado for US$900 million. Although the CPPIB speaks about being able to make investments with the long-term horizon in mind, some investments convey a different message. Making investments in fossil fuels and assets that perpetuate the use of fossil fuels such as toll roads suggests that the CPPIB is not considering how factors like climate change will harm the returns of their investments over that same long-term horizon.
WHAT ARE THE OTHER BIG PUBLIC FUNDS DOING?
Other sophisticated and international financial institutions such as the Norwegian Government Pension Fund Global, the Dutch healthcare pension fund and the French insurer AXA have already begun to make the transition to green investment strategies. They systematically place a buffer between their funds and the exposure of climate change. Some strategies are as simple as negatively screening or selling off stock from companies that could be considered to have unsustainable business models like the Norwegian Oil fund has. Similarly, the finance Minister Mr. Bill Morneau could take notes from France which amended legislation to require that institutional investors like the CPP disclose their exposure to climate risk, GHG emissions related to their financial assets, and more closely align portfolios with energy and ecological transition in the future.
One way to begin this process is to sign onto the Montreal Pledge, which requires signatories to annually measure and publicly disclose the carbon footprint of their portfolios. The next step would be to join the Portfolio Decarbonization Coalition (PDC), part of the United Nations Environmental Program, which is a multi-stakeholder initiative that mobilizes institutional investors to gradually decarbonize their portfolios. Another useful strategy for managing climate risk, according to Dirk Schoenmaker and Rens Van Tilberg of the Sustainable Finance Lab of Utrecht University, is to put investments through a stress test. Stress tests assess a range of risk exposures like sudden changes in government policy and point investment managers in the direction of more resilient and sustainable investment opportunities.
CLIMATE CHANGE – WHAT THE CPPIB SAYS:“At CPPIB we recognize that climate change has the potential to significantly impact our investments. We encourage companies to adopt a more long-term mindset, and to provide better disclosure regarding climate change-related risks and opportunities to allow us to make better long-term investment decisions. We believe that engaging with companies on this topic and pressing for improvement is necessary to protect long-term value. We seek enhanced disclosure from the largest greenhouse gas emitters in Canada. This year we continued to lead an engagement along with other Canadian investors requesting enhanced disclosure regarding the greenhouse gas emissions strategy and performance of a large Canadian company with significant direct emissions. We provided feedback to the company on the type of disclosure most relevant to long-term investors, including emissions reduction initiatives. The company agreed to consider our input as it enhances its reporting going forward.”
Want to Learn More?
At Pension Power you can ask your pension plan how it’s addressing climate risk.