Canada Pension Plan fuels the climate crisis with our own retirement savings

Last month, Mark Machin, CEO of the Canada Pension Plan (CPP), wrote that climate change is the crisis beyond COVID-19 that we can’t afford to ignore, stating that “the full effects will depend on the actions we take now and in the future.”

We strongly agree.

So why, then, is CPP pouring billions of our retirement savings into oil, gas and coal companies that are incompatible with a safe climate?

A new legal analysis by the Canada Climate Law Initiative (CCLI) raises serious questions about CPP’s commitment to transition to a clean economy. The report highlights CPP’s significant fossil fuel investments and raises red flags over troubling private equity investments in oil and gas.

One such red flag is its ownership of Crestone Peak Resources, a Denver-based fracking company. Four former or current CPP employees who oversaw its purchase in 2016 now sit on Crestone’s board of directors or executive team.

Crestone’s operations have been plagued by controversy. The company drilled wells close to schools, homes and playgrounds, generating thousands of complaints to Colorado’s oil and gas regulator about air quality, toxic fumes, gas leaks, earthquakes, explosions, health problems and illnesses.

The Globe and Mail reported that Crestone responded by donating more than US$600,000 to pro-fracking candidates and interest groups in Colorado’s 2018 state elections.

That’s right, a fracking company owned by our national pension appears to have spent money to influence elections in Colorado to block protections for the environment and public health.

CPP also spent at least €830 million through its Nephin Energy subsidiary buying gas interests off the coast of Ireland from Shell in 2018. While Shell offloaded its “involvement in the most controversial infrastructure project in the history of the [Irish] State,” CPP boasted that the Irish offshore gas will “deliver strong risk adjusted returns over the long-term time horizon of the CPP Fund.”

I wasn’t long before the new Irish coalition government committed to a ban on new licences for exploration and production of gas to fight climate change.

This is part of a disturbing pattern of CPP investments in high-risk, high-carbon projects uncovered by the Canada Climate Law Initiative.

In June 2020, Mr. Machin told the House of Commons Finance Committee that 2.8 per cent of CPP’s portfolio, or nearly $12 billion, was invested in fossil fuels. We even appear to hold $141 million in Chinese coal.

At a recent conference, Mr. Machin deflected by suggesting CPP invests only in companies committed to transition, but this simply isn’t accurate. None of these oil, gas or coal companies have credible plans to eliminate climate pollution as required.

And CPP’s fossil fuel investments aren’t just bad for our climate. They’re also bad for our retirement portfolio. Coal is collapsing, while oil and gas has been the worst-performing economic sector over the last decade in the S&P 500. COVID-19 has only accelerated the decline. BP’s latest long-term outlook assumes global oil demand will never recover.

In the 2020 fiscal year-end, the CPP Investment Board’s “Energy and Resources” portfolio dropped 23.4 per cent — the worst return of any asset group. In relative terms, CPP has been stable through the COVID-19 crisis, but how much better would it have performed without fossil fuels?

There is hope, as CPP doubled investments in renewable energy to nearly $6 billion in recent years. While significant, this only represents a tiny fraction of a $434 billion fund that claims “we need to advance action now.”

Profitable, reliable and ethical growth in coming decades requires seizing multi-trillion dollar opportunities in sectors such as renewable energy, clean transportation, zero-carbon buildings and sustainable agriculture.

If CPP is serious about addressing this crisis and building a clean economy, it needs to put its money — our pensions — where its mouth is. That means screening out new investments in oil, gas and coal, removing fossil fuels from our portfolio by 2025, aligning our investment strategy with Canada’s Paris Agreement commitments, setting ambitious goals for increasing investment in profitable climate solutions, and playing an active role in building a zero-carbon economy in Canada.

It’s always a losing strategy to bet the health of our pensions against the health of our climate. It’s time to invest in both.