Dirty Canadian Pensions

Pension fund investments and responsible investing practices are perhaps not at the forefront of concern for many Canadians. Regardless of your own plans for retirement or thoughts on unions, it is interesting to recognize the incredible value of pension funds when considering issues like sustainability and climate change.

Private and public Canadian pension funds allocate many billions of dollars to a wide variety of investments in the interest of contributors and beneficiaries, attempting to yield a stable and strong return. The relationship between Canadian pension funds and environmental sustainability lies in the nature of investments that are made and the risk that these investments are exposed to as a result of climate change. 

Unfortunately, the current climate of many Canadian pension funds reveals an alliance with major climate-change contributors, with large holdings in fossil fuel stock. NOT ONLY is this a moral issue, but for various reasons, also a major economic issue. After a decade of Conservative values, Canadian policies are shifting now to address climate change, which leaves dirty fossil fuel stock at major risk. Asides from policy change starting to lean in favour of cleaner energy, energy innovation, carbon liability, and commodity price are all major risks for fossil fuel investments, and therefore Canadian pension funds.




Energy innovation risk:

In the wake of the recent Paris Climate summit, a renewed global commitment to a transition away to fossil fuels is slowly taking hold. With increasing focus on renewable energy comes advancements in renewable energy technology. Renewable energy technologies allow us to harness solar, wave, heat-exchange, tidal, wind, hydro, and bioenergy processes in order to create electricity, heat and fuel. Interest in and (ideally) eventual legislature demanding transition to these sustainable energy innovations, along with inevitable price drops as technology becomes more advanced, creates immediate risk for fossil-fuel based investments. As these ‘greener’ technologies become more readily available, costs naturally fall nearer to those of our current fossil fuel technologies, further increasing motivation to transition.


Commodity price risk: 

We can see a clear example of commodity price posing risk to fossil fuel stock in economic contexts like that of Alberta, where investment into oil sands has plummeted due to 2015’s crashing oil value. Recently economically booming towns like Fort McMurray have dried up, as Alberta lost nearly 70 thousand jobs in the first eight months of 2015 due in large part to commodity (oil) price drop. In its latest report, the CCPA (Canadian Centre for Policy Alternatives) reflected a strong sentiment for divestment of fossil fuels following an estimated $6.2 billion loss among Canada’s top 20 pension funds (CCPA, 2015). 

Ontario’s Teachers’ Pension Plan (OTPP) seems to have been the hardest hit, reeling from a nearly $1.8 billion loss. Ouch...


Carbon liability risk:

Another risk to fossil fuel stock is the issue of carbon liability. A recent Corporate Knights assessment of 45 stock exchanges on sustainability disclosure revealed that only 59% of large listed Canadian companies disclose carbon emissions, which is clearly not aligned with growing demand from investors for public carbon performance metrics. While this is the case at this moment, it seems logical to assume that the natural next step in a drive towards eliminating carbon emissions is to hold large companies responsible for emissions by federal or provincial law. Obviously, this would necessitate carbon measuring and reporting initiatives taking place for all large companies (or if they are already being conducted, to be made public record). It is reasonable to predict that in the near future, all fossil fuel producers and strong carbon emission offenders will be held accountable for damages.

We can see a clear shift in thinking towards holding offending companies responsible even now, with the recently launched investigation into Exxon’s climate change denials (see previous blog post on Exxon’s contradictory practices). 


What does this all mean for the current landscape of Canadian pension funds? 

It seems to be that the days of short-term, speculative, environmentally damaging ‘investments’ ought to be nearing an end, in favour of fund managers looking to the horizon and investing in sustainable, and economically viable options. 

Whereas in the past, socially and environmentally-focussed initiatives seemed to exist in mutual exclusivity with economic strength and a strong return, it seems that the tables have turned. It’s evident now that not only is it moral to invest in responsible ways, but it is becoming necessary to factor social and environmental interests into investments in order to remain secure.