The Canada Pension Board Investment Board (CPPIB) suggests it would be unreasonable to expect them to divest themselves of all investments in fossil fuel companies, yet Ireland has just chosen to take this measure, in July 2018.

The CPPIB should remain invested in profitable, law-abiding, progressive companies who are making a significant effort to reduce their carbon footprint and are embracing green technologies for example–providing that they can first pass a meaningful climate risk assessment.

In 2018 the year began with New York City divesting from fossil fuels. In July 2018, Queens College, Cambridge divested, and a few days earlier it was the Church of England threatening to divest from fossil fuel companies, if they don’t align with the Paris Agreement by 2023; few believe that alignment will occur.

Ireland has now joined the chorus. In July 2018, the government of Ireland became the first nation on earth to commit to fully divesting from fossil fuel companies, says Bill McKibben of, in his document “Ireland’s on the Right Side of History–What About Canada?” McKibben goes on to say that once the bill has been ratified in its parliament: “…Ireland’s €8 billion sovereign fund will start to ditch all its oil, coal and gas assets. This is exactly the kind of leadership we need in the midst of a climate crisis.”


A report released this month [July 2018] by the Institute for Energy Economics and Financial Analysis (IEEFA) details the growing rationale for divesting from the fossil fuel industry. The report–”The Financial Case for Fossil Fuel Divestment”–is aimed primarily at trustees of investment funds that continue to hold stakes in a sector that is freighted with risk and is not likely to perform nearly as well in the future as it has historically–regardless of whether oil prices rise or fall.

Kathy Hipple, an IEEFA financial analyst and co-author of the report, said fund trustees everywhere have a pressing fiduciary duty to re-examine their investment commitments to fossil fuel holdings.

“Given the sector’s lacklustre rewards and daunting risks, responsible investors must ask: ‘Why are we in fossil fuels at all?’” Hipple said. “The sector is ill-prepared for a low-carbon future, based both on idiosyncratic factors affecting individual companies, as well as an industry-wide failure to acknowledge, and prepare for, an energy transition that is gaining momentum and changing the very nature of how energy is produced and consumed.”

The report describes divestment “…as a proper financial response by investment trustees to current market conditions and to the outlook facing the coal, oil and gas sectors.” It concludes that “…future returns from the fossil fuel sector will not replicate past performance.”

It details how the global economy is shifting toward less energy-intensive models of growth, how fracking has driven down commodity and energy costs and prices, and how renewable energy and electric vehicles are gaining market share.

And it cautions that fossil fuel companies’ exposure to litigation on climate change and other environmental issues is expanding and notes that campaigns in opposition to fossil fuel industries have become increasingly sophisticated and potent.

The report makes three key points:

  1. The fossil fuel sector is shrinking financially, and the rationale for investing in it is untenable. Over the past three and five years, respectively, global stock indexes without fossil fuel holdings have outperformed otherwise identical indexes that include fossil fuel companies. Fossil fuel companies once led the economy and world stock markets. They now lag.”
  2. A cumulative set of risks undermines the viability of the fossil fuel sector. Climate change is hardly the only challenge facing the fossil fuel industry. The broader factors bedevilling balance sheets stem from political conflicts between producer nations, competition, innovation, and attendant cultural change. These risks can be grouped into a few broad categories, such as “pure” financial risk; technology and innovation risk; government regulation/oversight/policy risk, and litigation risk.”
  3. Objections to the divestment thesis rely upon a series of assumptions unrelated to actual fossil fuel performance. Detractors raise a number of objections to divestment, mostly on financial grounds, arguing that it would cause institutional funds to lose money or that it would undermine their ability to meet their investment objectives, thus ultimately harming their social mandates. Such claims for a dangerous basis for forward-looking investment and are a breach of fiduciary standards.”

Tom Sanzillo, IEEFA’s director of finance and the lead author of the report said, “Historically, fossil fuel companies were drivers of the world economy and major cntributors to the bottom line of institutional funds. This is no longer the case. Whether oil prices are rising or falling the investment thesis cannot replicate the sector’s strong past performance. In the new investment thesis, fossil fuel stocks are now increasingly speculative. Current financial stresses–volatile revenues, limited growth opportunities, and a negative outlook–will not merely linger, they will likely intensify. Structural headwinds will place increasing pressure on the industry, causing fossil fuel investments to become far riskier.”

For thirty years financial institutions like the Canada Pension Plan Investment Board have given lip service to climate change while continuing to invest in coal, oil and gas literally fueling climate change and indirectly funding climate deniers. This has spawned a global divestment movement calling for the complete divestment from fossil fuels. Doing so will hasten the replacement of fossil fuels by depriving them of capital while making capital available for investment in the growing renewable energy.

The entire IEEFA report can be found here:  


Divestment can be viewed entirely in economic terms which is how institutions like the Canada Pension Plan Investment Board that argue sell off fossil fuel assets will reduce the profits in short term and not impact fossil fuels and other investors will replace them. The Canada Pension plan says it prefers “engagement” and uses its shareholder status to push companies to improve their environmental performance. Ignoring the fact that the product of even the cleanest fossil fuel company is the cause of climate change.

The real questions divestment raises are moral. Should we profit today from the destruction of the climate. The Canada Pension Plan Investment Board despite its pronouncements on focusing only financial issues does take moral positions on other issues such as landmines, human rights and gender parity. Why is climate change not treated the same way?

The CPPIB holds biennial general meetings open to to public. In 2018 there will be nine meetings in cities across Canada, from October 9 through November 30.

The document: “Briefing: Pension Funds’ engagement with fossil fuel companies” produced by Friends of the Earth England, Wales and Northern Ireland (March 2018), outlines five arguments for engagement often used by funds. Each argument is listed here, accompanied by related questions that should be asked of the CPPIB at their public meetings.



  1. Engagement Goals


One argument for engagement often used by pension fund managers is: “Engagement is effective at achieving change.” The questions that should then be asked of the CPPIB are:


  • What are the current goals of engagement with fossil fuel companies? What assessment have you made of these companies’ progress towards those goals?What is you planned response if these goals are not met?
  • Do the fossil fuel companies you’re investing in support a Paris-compliant strategy? (ie., are they committed in working towards a global temperature increase of <2 degrees C.?)
  • A Paris-compliant strategy for a fossil fuel company would be to commit to no new fossil fuel capital expenditure by the end of 2019, a managed decline in production, and a commitment to reduce their overall GreenHouse Gas (GHG) footprint to zero by 2050, with compatible interim milestones for 2025, 2030, and 2040. Will you commit to strengthening your engagement strategy in line with these goals and deadlines, and divest if companies do not set these goals? 


  1. Shifting Engagement Focus

Another argument for engagement commonly used by pension fund managers is: “If we divest, we will lose power to engage with the relevant [fossil fuel] companies.” The CPPIB should then be asked the questions:


  • Has the CPPIB conducted analysis of where it can most effectively use its limited capacity for engagement on climate change issues?
  • Will the CPPIB commit to setting a rapid “end-game” situation for its engagement with fossil fuel companies, and, if these companies do not respond, divest and redirect its engagement resources into engaging with government and companies in the automotive, power generation, and heavy energy-using sectors?


  1. Incentive for Fossil Fuel Companies to investment more in clean energy sources

A third argument for engagement often employed by pension fund managers is: “We work with fossil fuel companies to increase their positive (ie., green) investments.” If presented with this argument from the CPPIB, they should be asked this question:


  • We support efforts to increase the percentage of cleaner investments; we consider this to be an essential element of a comprehensive strategy to protect funds from climate change risks. Will the Board commit to producing an overarching climate change strategy for the CPPIB, covering all risks?



  1. Could the CPP meet its obligations without the dividends it receives from fossil fuel companies?

Another argument for engagement is encompassed by the quote: “We need the money we get from the fossil fuel companies’ annual dividends.” If presented with this article, the appropriate question to ask in response would be:


  • Will the Board produce and implement an analysis of how it could meet its short-term financial obligations without investment in risky fossil fuels?



  1. Managing Risks

A fifth argument for engagement is frequently offered by pension fund managers, when the topic of managing risks is introduced. Fund managers are often heard to say: “It is financially risky to divest. We agree that these [fossil fuel] companies will devalue in the future, but not now; we will have time to sell our shares later.” If presented with this argument, the appropriate questions to ask would then be:


  • Is engagement being pursued by the CPPIB as a risk-reduction strategy? If so, what specific measures are you asking for, what timeframes are you giving companies to have implemented them, and what are you prepared to do if they do not act?
  • Are you in breach of your fiduciary duties if you hold fossil fuel stock, knowing the financial risks?
  • What advice have you sought on climate risks, and when? Do your mandates and contracts with advisors reflect the necessity to consider climate risks, and how often are you updating this advice?
  • If you state that there are financial risks from divesting fossil fuel stocks, will you publish your analysis of what these risks are?
  • Has the Board assessed whether the fossil fuel companies’ forecasts for future fossil fuel demand are accurate? What is the Board’s view on these companies’ consistent under-forecasting over the last decade, of renewable energy growth?
  • What is the Board’s response to the March 2018 Carbon Tracker report that trillions of dollars of fossil fuel capital expenditure are at risk if the world moves onto a <2 degree trajectory, compared to a >3 degree trajectory that Shell and BP use as their central planning scenario?



The CPPIB has no designated Chief Risk Officer, a key executive who plays a critical role balancing operations and risk. According to Jason Mercer, a Moody’s analyst, “That absence sets it apart from other major government pension plans and other major Canadian financial institutions such as banks and insurers.” “ A Chief Risk Officer plays devil’s advocate to other members of management who take risks to achieve business objectives”, Mercer said. “The role provides comfort to the board of directors and other stakeholders that risks facing the organization are being seen independently.”

Michel Leduc, head of global public affairs at CPPIB, said CPPIB officials have created a framework that doesn’t rely on a single executive to monitor risk. Leduc said the pension organization has an enterprise risk management system that runs from the board of directors , through senior management, to professionals in each of the pension’s investment departments. “This decentralized model ensures that individuals closest to the risks and best equipped to exercise judgement have local ownership over management of those risks”, Leduc said.

A June 1, 2018 report by Trillium Asset Management, a Boston-based sustainable and responsible investment firm, Trillium reported that a financial analysis of the Massachusetts Pension Reserves Investment Trust (PRIT) revealed the loss of  $79 million on its $1.6 billion fossil fuels equities for the five years ending June 30, 2017. According to Trillium: “The analysis was released just as legislators failed to pass…a petition which would divest PRIT from coal holdings.” PRIT’s coal stocks alone lost $25 million during this five year period.

Matthew Patsky, CEO of Trillium Asset Management, commented: “The Fund’s loss of over $79 million dollars in a 5 year period is significant and directly impacts the strength of the pension fund and our state’s ability to meet its obligation to its retirees. The opportunity cost loss of $1 billion incurred by PRIT staying heavily invested in fossil fuel investments, especially coal–which has been in secular decline for years–is staggering. Our public employees’ pension fund would be healthier today if its managers had taken steps to divest from these volatile investments years ago.”

Barbara Madeloni, President of the Massachusetts Teachers’ Association (MTA) stated: “Investing in companies that contribute to global warming and the destruction of our planet is completely against the values of educators. Every day, educators consider how their work contributes to a better future for their students. That is why members of the MTA voted in favor of directing their pension plan to divest from coal and fossil fuel companies.”

“As human service workers, we work every day to protect the Commonwealth’s most vulnerable and to ensure a safer, brighter future for its children. We do not want our own hard-earned retirement money undoing that work by investing in companies that degrade our earth and harm our future”, said Peter MacKinnon, president of the public sector union SEIU, Local 509.

“At a time when the Trump administration is handing the fossil fuel industry an unprecedented amount of power and attempting to to reverse to so-called “war on coal”, Massachusetts has a clear opportunity to respond–by divesting the pension fund from coal”, said Darcy DuMont, a retired teacher and MassDivest Coalition organizer.

The Trillium report goes on to say: “There is widespread support for divestment. Five public sector unions–SEIU Local 509, SEIU Local 888, the Massachusetts Nurses Association, the Boston Teachers’ Union, and the Massachusetts Teachers’ Association–have endorsed divestment, along with close to 50 legislators and dozens of religious, community, and student groups. Fourteen towns and cities across the state have passed resolutions in support of divestment. The California Public Employees’ Retirement System has divested from coal, in compliance with a 2015 law that required it and the California State Teachers’ Retirement System to divest from coal by July 1, 2017.”

The Task Force on Climate-Related Financial Disclosure (TCFD) was established in 2015 by the former Governor of the Bank of Canada and now Governor of the Bank of England, Mark Carney. It was created in response to the G20’s request to better understand the financial implications of climate change. Chaired by Michael Bloomberg, the TCFD is pushing companies to publicly disclose their climate-related risks and opportunities. There are over 200 signatories to the Task Force.

The TCFD bridges the gap between the corporate and finance communities as it invites companies to disclose how climate-related issues can impact their business. The latter then helps investors, lenders and insurers to better assess climate-related risks and opportunities in their decisions.

The TCFD signatories commit to disclose their activities across four main areas, including:

  • Governance–how companies are governing climate change-related risks and opportunities


  • Strategy–looking into what actual and potential impacts climate change can make on business, strategy, and financial planning
  • Risk Management–identifying the process an organisation is using to identify, assess, and manage climate-related risks
  • Metrics & Targets–to assess and manage climate-related risks and opportunities


The ultimate purpose of the TCDF is to enable sustainable investments. Chairman Bloomberg goes on to expand:

“Increasing transparency makes markets more efficient and economies more stable and resilient.”


The U.K.-based firm Acclimatise is a climate change advisory and analytics company specialising in climate change adaptation and resilience building. In conjunction with the UN Environment Program’s Finance Initiative (UNEPFI), a global partnership between United Nations Environment and the financial sector, sixteen of the world’s leading banks, among them Canada’s Royal Bank of Canada (RBC) and TD Bank Group, were chosen to pilot  methodologies that aim to help the banking industry understand and manage the physical risks and opportunities of climate change in their loan portfolios. Their report, entitled: “New Methodologies to Help Banking Industry Assess Physical Risk and Opportunities of Climate Change” has been recently [July 2018] published.

The methodologies demonstrate that physical risks will worsen if the global economy continues on its current greenhouse gas emissions pathway. Future negative impacts could be reduced somewhat, but not avoided completely, if strenuous and rapid efforts are made globally to cut emissions.

Dave McKay, President and CEO of the Royal Bank of Canada (RBC) said: “RBC believes climate change is one of the most pressing issues of our time and we have an important role to play in supporting the transition to a low carbon economy. We are committed to advancing best practices in climate-related disclosures, assessing climate-related risks and opportunities, and supporting our clients in doing the same.”

Nicole Vadori, Head of Environment for TD Bank Group said: “At TD Bank Group we believe that as the transition to a low-carbon economy unfolds, having a firm understanding of climate-related risks and opportunities will be important to help sustain healthy and balanced growth. An interesting area of development is the role of technology in assessing the impacts of a changing climate. In piloting the Financial Stability Board’s climate-related recommendations we collaborated with Bloomberg MAPs to assess the ability of data visualization tools to contribute to the assessment process and will continue to explore its applications.”

By applying the methodologies, banks can begin assessing physical climate risks on key credit risk metrics for climate-sensitive industry sectors. The guidance also sets out how banks can start to evaluate opportunities to support their clients in becoming more climate-resilient.

These methodologies were originally piloted for agriculture, energy and real estate portfolios. They can now be used by banks to assess a wide range of sectors in their loan portfolios.

The new methodologies are available for public download, from:


It is imperative that government pension funds consider the very real risks to their clients’ financial assets resulting from climate change. If they do not plan for climate-related financial risk, the results could be disastrous–not only for pensioners but for our economy.

According to a recent article by Laura Sisk-Hackworth appearing in the San Diego Free Press, “[Bill] SB 964 Will Require Largest U.S. Pensions to Report on Climate Risk”, a landmark bill in the California legislature (SB 964), defines climate-related financial risk in law for the first time and requires the boards of the two largest public pension funds in the nation to report on this risk every three years. Commencing in 2020 and for every three years thereafter until 2035, the funds’ boards will be required to report on the exposure of their fund to climate-related financial risks, including risk resulting from investments in publicly-traded companies that are carbon-intense, such as utilities, coal, oil, and gas. In addition to reporting on risk, these reports must include discussions of their fund’s alignment with the Paris climate agreement and California’s policy goals.

The importance of this bill is that it gives the public a way to respond to the boards’ consideration of climate risk and its investments in key industries. It also prevents state employees and the economy from potentially devastating financial losses that could result from climate change. If the state did not plan for climate-related financial risk the results could be disastrous–not only for pensioners but for the economy.

Sisk-Hackworth goes on to say that bill SB 964’s definition of climate-related financial risks is perhaps its most important aspect. The bill describes numerous risks, that fall under four categories. These are:


  1. Physical Risks

These arise from the physical impacts of climate change, such as the risks to physical property assets and the economy due to severe weather and sea level rise. An increase in severity and frequency of extreme weather is sure to challenge public health, and economic and financial systems.

  1. Litigation Risks

           Companies whose businesses have contributed to climate change may also be sued for

           Damages and mitigation of future harm, causing the company to lose value; this is

           defined as litigation risk.

           According to the Columbia Law School Climate Change Litigation Database, a total of

           16 cases have been pursued in the U.S. with plaintiffs seeking damages from fossil fuel

           companies for climate-related losses. In addition, 22 climate-related public trust cases

           have been recorded in this database. As more and more cases go to court, the risks to

           companies and their shareholders grow.

  1. Regulatory Risks

           As governments change policy and legislation to transition to a greener economy one

           tactic may be to prohibit carbon-based fuels from being extracted and burned, resulting in

           stranded assets for companies that have invested in fossil fuel reserves.

  1. Transition Risks

           Tied to regulatory risk is transition risk. This risk results from economic shifts favouring

           certain companies during the transition to a low-carbon economy. If carbon-reliant

           companies don’t transition enough of their business to invest in renewable power sources

           they will be left behind in the new economy, to the financial detriment of their


The entire article may be found at:


The website: “Top 1000” has just published an excellent article by Amanda White entitled: “Pension Funds Want ESG Guidelines.” To follow is a summary of this article.

The Organization for Economic Co-operation and Development (OECD) states that Environmental and Social Governance factors (ESG) are “indicators used to analyse the investment prospects of a company, [evaluating their performance based on] environmental, social, ethics and corporate governance criteria”. To incorporate ESG indicators, pension funds should identify environmental, social, and governance risks related to the purpose of the company or project in which they intend to invest. Some examples are:


  • Environmental Risks: physical risks caused by environmental change.
  • Transition Risks: changes in policies, laws, markets, technology, investor’s feelings, and prices.
  • Liability Risks: legal or moral responsibility to cover financial losses caused by events environmental change has induced.
  • Social Risks: related to working conditions, including slavery and child work, local communities, indigenous communities, conflicts, health problems and security.
  • Governance Risks: related to the remuneration of executives, bribes and corruption, political lobbying and donations, diversity and the board of director’s structure, fiscal strategy, etc.


The International Organization of Pension Supervisors (IOPS) is an independent international body representing entities involved in the supervision of private pension systems all over the world. The IOPS has 86 members and observers from 75 jurisdictions and territories.

It has been noted by IOPS that there is an increasing interest in ESG matters from many of the members; a recent survey of members found ESG one of the issues where IOPS should set standards. Accordingly, the IOPS is now developing draft guidelines on the application of ESG factors in the supervision of pension fund investment.

Global Sustainable Investment Alliance data shows that $22 trillion of assets were professionally managed under responsible investment strategies in 2016, up from $13.3 trillion in 2012. This fast growth signals that all institutional investors are starting to incorporate, or at least consider, ESG factors in their investment decisions.

Because pension funds should be focussed on long-term goals, according to a lifecycle approach, it is essential that pension fund providers or managers start considering structural long-term factors in their investment decisions, such as environmental and social conditions.

According to IOPS, the following are main reasons to invest in companies or projects that consider ESG factors:

  • Such companies seem to be associated with better long-term yields
  • They usually promote an improvement in the relationship between long-term risk and return
  • They have positive environmental and social effects on the country
  • ESG factors can be integrated into investment prospects without sacrificing diversification or returns

Evidence seems to indicate a positive or neutral relationship between financial performance and the consideration of ESG factors.

A 2015 meta-study by the Journal of Sustainable Finance & Investment found that in 90% of their studies there was a neutral or positive relationship between financial performance and the inclusion of ESG factors. It seems natural that companies that follow governance best practices, such as having a board with real independent members, adequate equity structure and aligned incentives between manager and shareholders, would have a greater probability of getting a higher yield. Also, if companies take care of internal issues such as gender equality, diversity, water and environmental care, they will probably have better yields in the long term because these are characteristics associated with a well-managed company.

ESG factors have been gaining more relevance in the portfolio composition of institutional investors, including pension funds. BNP Paribas conducted an ESG global survey in 2017, and found that 79% of global institutional investors now incorporate ESG factors. Among those who do, half invested nearly 25% of their portfolios in specific strategies based on ESG criteria. That proportion is expected to increase to 50% or more by 2019.

The entire article can be found at: