Aug 12, 2021

CPP oil investments on the rise

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Credit Joe Brusky / Flickr

From unprecedented droughts to deadly heat waves, climate change is making the present—and all of our futures—less secure. The dream of a tranquil retirement is already being interrupted by nightmares such as the wildfires raging across BC and Alberta this summer. 

Sadly, the Canada Pension Plan (CPP), which was designed to enhance our retirement security, is pouring fuel on the fire. In our just-released report, An Insecure Future: Canada’s Biggest Pensions Are Still Banking on Fossil Fuels, we examine the CPP’s investments since Canada signed the UN Paris Agreement in 2016 and committed to limiting warming to 1.5 degrees Celsius. 

Valued at approximately half a trillion dollars, the CPP is one of Canada’s biggest investors and has an outsized capacity to obstruct or facilitate the needed energy transition. We were surprised to find that instead of decreasing its public equity investments in fossil fuel companies, the fund has actually increased them. 

The CPP has publicly stated its commitment to measuring the climate impacts of its investments. Despite these statements, the fund’s shares in oil and gas grew by 7.7 per cent between 2016 and 2020. These investments include approximately $330 million in TC Energy, the company behind the Coastal GasLink pipeline which cuts through Wet’suwet’en territory in north central BC and is unanimously opposed by the nation’s Hereditary Chiefs. 

To its credit, the CPP has increased its investments in renewable energy companies since 2016. But in the same way that eating an anti-cancer diet while smoking more cigarettes is not a wise way to reduce health risks, increasing fossil fuel investments is a dangerous mitigation strategy. The real litmus test for investors is the climate impact of their most polluting investments. With approximately $12 billion dollars invested in fossil fuel companies, the CPP is currently failing the energy transition test. 

We were surprised to find that instead of decreasing its investments in fossil fuel companies, the Canada Pension Plan has actually increased them.

Increasing oil and gas investments during a climate emergency is ecologically risky and also financially imprudent. Signs of the sector’s decline are apparent: fossil energy was the worst-performing sector in the 2019 and 2020 S&P 500 stock market index. Oil and gas companies are currently experiencing a boost in share value as COVID-19 restrictions recede and consumer demand increases. But long-term prospects remain dim since oil, gas and coal companies must leave trillions of dollars of fossil fuel assets in the ground to avoid more than 1.5 degrees of global warming, and policy makers and investors are taking note. 

In 2020, the world’s largest investment management company, BlackRock, sent a letter to its clients warning of an imminent exodus from oil and gas. “In the near future—and sooner than most anticipate—there will be a significant reallocation of capital.” 

The CPP risks incurring substantial losses on its multibillion-dollar investments in fossil fuel companies. But as the hundreds of Canadians who died in unprecedented heat waves this summer grimly portend, financial health will be immaterial if we don’t have a livable future to retire into. While the CPP has been increasing its exposure to oil and gas companies, large institutional investors outside of Canada have started screening out fossil fuel investments, including the UK’s largest pension fund. 

The global carbon budget—the total volume of greenhouse gases (GHGs) that can be emitted before the 1.5-degree threshold is reached—will be exhausted within 10 years. Fortunately, a growing majority of Canadians favour strong action on climate. And yet, despite those wishes the CPP has increased its investments in fossil fuel companies during a crucial window for action. The CPP needs to start taking our futures seriously, which is the whole point of a pension fund in the first place.