The ABCs of CPP – E

Investments in fossil fuels have traditionally been profitable and secure investments but many major pensions funds are now moving away from them due to their significant contributions to climate change–yet the Canada Pension Plan Investment Board (CPPIB) has recently invested invested at least $5 billion in the fossil fuel industry, and is more concentrated in this industry than are other leading pension funds.

We all need energy. In investment circles predicting future success is often no more sophisticated than projecting the past into the future. But why is the CPPIB more concentrated in energy than are other leading pension funds?

The CPPIB has given no indication that it intends to address climate risk in its investments. It has recently invested at least $5 billion in the fossil fuel industry.

Over the past two years CPPIB has purchased a pipeline owned by Devon Energy in Northern Alberta, and Penn West’s assets in Saskatchewan. It has since invested heavily in a Texas drilling company, a North Sea offshore drilling company, and, more recently, the CPPIB made a major investment in Kinder Morgan only two weeks before the federal government approved its controversial Trans Mountain Pipeline. These could prove to be very risky investments. Some analysts believe the widely unpopular Trans Mountain Pipeline will never be constructed, due in part to the current depressed price of oil on the world market, as well as First Nations and environmental concerns.

The CPPIB’s equities in the energy sector may suffer losses, if the global price of oil declines or there are bankruptcies in this sector. Coal equities in particular could be vulnerable to major losses, as more countries continue to move away from coal as an energy source.