Despite net-zero pledge, Canada Pension Plan parks billions in new fossil fuels

The Canada Pension Plan Investment Board (CPPIB) is actively undermining its net-zero pledge by committing over $3 billion so far this year to new coal, oil, gas and pipeline projects. 

Among the investments CPP made this year are a $1 billion expansion of Wolf Midstream’s pipelines (the company is 99 per cent owned by the CPPIB); $410 million to Houston-based Encino Energy (98 per cent owned by the CPPIB) to increased fracked gas extraction in Ohio; and $675 million for oil and gas private equity fund Quantum Capital Solutions II.

The Canada Pension Plan, which manages the retirement savings of every Canadian, is also prolonging the life of existing fossil fuel assets. Among companies the pension fund is significantly invested in are:

• Transportadora de Gas del Perú which in September looked to extend its license to transport fracked gas from the Peruvian Amazon until at least 2044; 
• Calpine, adding 550MW of gas fuelled electricity generation in Texas; 
• Kimmeridge Fund VI (a private equity fund) the pension invested US$100 million in that is involved with the controversial Commonwealth LNG project on the Louisiana coast that is expected to be greenlit following the election of Donald Trump. 

Patrick DeRochie, senior manager with Shift: Action for Pension Wealth and Planet Health, told Canada’s National Observer the Canada Pension Plan is betting the world won’t transition away from fossil fuels in line with the Paris Agreement’s goal of holding global warming to 1.5C. To do so requires cutting global emissions in half by 2030. 

“You have scientists screaming at the top of their lungs that we need to rapidly phase out fossil fuels and decarbonize the economy, and [the CPPIB is] making these multi-billion dollar investments that are assuming the opposite,” he said. It's really mind boggling for me, because we know that they have a big team of smart, dedicated professionals that have at their disposal very sophisticated tools to analyze and manage climate risk.”

Furthermore, emissions reductions demanded by climate science are backed by the economics of a transitioning world. The International Energy Agency predicts oil and gas demand to peak before the end of this decade, meaning new investments run significant risk of becoming stranded in a lower-carbon world. 

At the same time, the World Economic Forum estimates one degree of warming translates to a 12 per cent hit to global GDP. With global heating currently expected to hit about 3 C based on current policies, the Network for Greening the Financial System (a group of 114 central banks and regulators) estimates a 30 per cent drop in global GDP. 

In other words, the CPPIB’s new fossil fuel investments run the risk of becoming worth less than expected, while at the same time contributing to a hotter planet that threatens the rest of its portfolio. 

DeRochie said in recent years the CPPIB has made significant progress scaling up its renewable energy portfolio (now valued at approximately $33 billion). And while those efforts should be applauded, the progress on clean investments doesn’t negate the harm from investing further in fossil fuels. 

CPPIB managing director for public affairs Frank Switzer told Canada’s National Observer the pension fund is using its influence to encourage companies “to consider climate-related risks and opportunities in new and innovative ways.” 

But divesting from heavily polluting assets is not the way forward, he added. 

“Instead of removing emissions from our portfolio and leaving them for someone else to deal with, we aim to generate investment returns by removing them from the global economy altogether,” he said.

That’s not good enough for DeRochie. He said it makes sense for pension funds to use their significant sums of capital and long term investing abilities to support decarbonizing investments in sectors where reducing emissions is more difficult. But fossil fuel companies can’t fully decarbonize because burning fossil fuels is the primary driver of climate change. The only option in a climate-aligned world is to phase out burning fossil fuels which inevitably leads to cutting production. DeRochie said if the CPPIB wants to present its fossil fuel investment decisions as credibly aligned with its net-zero commitments, it must disclose what its plans are for these emissions intensive assets. 

“If they're doing this analysis that they think they can operate these assets in a responsible way, that's aligned with climate safety, then they need to show it,” he said. 

Former environment and climate change minister Catherine McKenna, who currently serves as chair of the UN Secretary-General’s High-Level Expert Group on Net-Zero Commitments of Non-State Entities, said she couldn’t comment on the particular investments of CPPIB, but credible net-zero commitments require cutting emissions on a scientifically-aligned pathway. 

In an interview with Canada’s National Observer, she emphasized that net-zero commitments require near-term emissions reductions, not just setting a goal for 2050. 

Pension plans are well positioned to take a leadership role given their longer term investing horizons, she said. Pension funds are “long term investors who should understand that the risks of climate change are massive, and the economic opportunities of the clean transition are also massive.”

“If you're an investor, you need to be thinking about where the world is going because this is money that belongs to Canadian workers," she said.

As part of her work with the UN, McKenna’s high-level expert group published a report in 2022 spelling out what credible net-zero commitments look like. The report details 10 steps involving setting scientifically aligned interim targets, ending fossil fuel expansion, aligning lobbying efforts with climate science, not buying their way to net-zero using carbon offsets, increasing transparency, and incorporating just transitions into net-zero plans, among others.

With countries currently meeting in Azerbaijan for this year’s annual UN climate negotiations, a progress report on net-zero commitments was published last week. The report found progress is being made across G20 countries, but much work remains to be done. 

McKenna said it’s heartening to see momentum is building, but we’re in a climate crisis and companies need to recognize that fossil fuels need to be phased out rather than just scaling up renewables. 

“We need major players like CPP to continue doing a lot more, and making decisions to not continue fossil fuels,” she said. “It's not all of the above. That's not going to get us out of the climate crisis, that's for sure.”