The investment board responsible for managing a staggering $400 billion in Canadian pensions contains directors of oil and gas companies and may be putting the financial future of public investments at risk in a carbon-constrained future

The Canada Pension Plan Investment Board (CPPIB) has more than $4 billion invested in the top 200 publicly traded oil, gas and coal companies, according to a newly released report.

The report by the Corporate Mapping Project and the B.C. office of the Canadian Centre for Policy Alternatives looks at whether the investment board considers global warming when investing Canadians’ pension money.

The answer is a resounding “no,” said University of Victoria School of Environmental Studies associate professor James Rowe, one of the report authors and a co-investigator with the Corporate Mapping Project.

“As one of the largest investors in the country, they have a significant role to play in facilitating the needed energy transition and our report shows, unfortunately, they are not fulfilling that role at the moment,” Rowe told The Narwhal.

In order to stay within the 1.5 degree increase in global average temperature — committed to by Canada and 194 other countries in the 2016 Paris Agreement — fossil fuel extraction must be severely limited. But companies with Canada Pension Plan investments have reserves that, if extracted, would send emissions soaring.

“To stay within 1.5 degrees, these companies can extract only 71 billion tonnes of carbon dioxide, yet the companies the CPPIB is invested in have 281 billion tonnes in reserve, meaning they have almost four times the carbon reserves that can be sold and ultimately burned to stay within 1.5 degrees,” Rowe said.

Reserves are factored into company valuation, which means the board has invested billions of dollars in companies whose financial worth depends on overshooting their carbon budget, the report says.

Many of the investments are in coal companies — even though the Canadian government has acknowledged that phasing out coal is one of the most important steps in tackling climate change and meeting the Paris Agreement targets.

The Canadian Pension Plan Investment Board manages about $400 billion in investments, making it one of Canada’s largest investment pools.

Oil and gas companies face coming devaluation

Those looking forward to collecting their pension shouldworry about the risk of stranded assets as the world transitions to renewable energy and financial institutions worldwide divest themselves of fossil fuel investments, says the report, which notes the pension’s total investment in fossil fuel companies is considerably larger than the documented $4 billion. The exact amount cannot be estimated due to limited disclosure rules.

“Our worry is that Canadians, who rely on these funds for part of our retirement, are going to be affected by stranded asset risks,” Rowe said.

“Oil and gas companies are facing a significant devaluation in the coming years and so it makes sense to move out now rather than later, which is what we see other institutions doing, but the CPP has not,” he said.

The European Union recently passed a law requiring pension funds to factor climate risk in investment decisions and Norway and California have passed similar laws. The European Investment Bank, the largest multilateral lender in the world, has announced it will no longer be investing in fossil fuel projects after 2021.

Steph Glanzmann, one of the report’s authors and a recent University of British Columbia forestry graduate, said investments in the industry will no longer be profitable

as a new generation shifts away from fossil fuels.

“This is a moral and ecological failure and also a financial risk,” she said.

Investment board should disclose risk

The report recommends that the investment board carry out a portfolio-wide risk analysis and disclose the findings and that the fund should move towards fossil fuel divestment and reinvesting capital into renewable energy. It also calls on the Canadian government to require all public pension plans to fully disclose their fossil fuel holdings.

Many CPP investments are in the biggest companies working in the Alberta oil sands, which produces high-cost, carbon-intensive bitumen. The Alberta energy industry is working to convince investors that its oil and gas is produced sustainably as it scrambles to deal with an estimated $30 billion divested in the last three years, including Sweden’s central bank, which has said it will no longer invest in projects with large climate footprints.

The report found that most divestments are from countries that do not produce oil and gas and suggests that one reason Canada is slow to react could be because its oil and gas industry is so powerful.

“As we noted in the report, a number of board members of CPP are also board members of oil and gas companies and so the interests of fossil fuel companies are influencing the decision making at the CPP and that is dangerous for Canadian pensioners,” Rowe said.

Having these directors at the investment board table means the self-interest of companies contradicts the changes investors and governments need to make to address climate change, said Zoe Yunker, an author of the report and a research assistant with the Corporate Mapping Project.

“In Canada, the fossil fuel sector has been very successful at getting a seat at government decision-making tables, both provincially and federally and CPPIB board directors and staff are entangled with the oil and gas industry,” Yunker said.

The board’s mandate is to maximise long-term investment returns without undue risk, but the report looks at whether a failure to look at long-term climate change will mean heavy economic costs for future generations and whether it could make the organization vulnerable to a class action lawsuit brought on behalf of young Canadians.

A spokesperson with the investment board told The Narwhal via email, “CPPIB has an ongoing goal to be a leader in understanding the risks and opportunities presented by climate change. The energy transition is underway and as a long-term investor, we are mindful of these energy shifts and our portfolio reflects this.”

Notably, the organization recently made a $2.63 billion purchase of wind-farm operator Pattern Energy and a November board report says investments in renewable energy companies more than doubled to $3 billion up to June this year, up from $30 million in 2016.

CEO Mark Machin, in an interview with BNN Bloomberg earlier this month, said both renewable and traditional energy are appropriate for the fund’s portfolio.

“We will look at traditional oil and gas, whether it’s pipelines or other resources,” he told Bloomberg.

“As long as we can understand all the risks behind the investment, that the regulation may change, that preference may change, that geography may change. If we can understand those and can still be compensated sufficiently, then we’ll continue to make that investment.”

* This article was updated Wednesday, November 20 at 10:56am pst to include emailed comment from the CCPIB.