Many of Canada’s major pension funds are taking some steps to protect Canadians’ retirement savings from the worsening climate crisis by aligning their investments with the world's climate goals and setting their own targets, but there is still a long way to go.

A new report grades 11 of Canada’s major pension fund managers on the quality, depth and credibility of their climate policies based on the latest science and international best practices.

While six pension funds passed with a mix of grades ranging from C- to B+, five are failing to make the changes necessary to protect Canadians from climate risk, and across the board, there’s a high level of inconsistency when it comes to ambition, detail, transparency and urgency of the funds’ approaches, according to the report.

“None of them are actually aligned with the path required to protect the retirement security of beneficiaries and ensure a safe climate future,” one of the report’s co-authors, Patrick DeRochie, senior manager at Shift Action for Pension Wealth and Planet Health, told Canada’s National Observer in an interview.

The report looks at many factors, including whether these pension funds have climate targets aligned with the Paris Agreement goal to limit global warming to 1.5 C, integrate climate information into investment strategies and decision-making, exclude fossil fuels from investments and set high-quality interim targets for reducing emissions. It says pension funds have a lot more work to do to ensure they are investing in the best long-term interests of plan members in a world that limits global heating to 1.5 C, which requires rapid phaseout of fossil fuels, according to the world’s leading climate scientists.

Five pension fund managers received a D. The worst rank (D-) went to the Alberta Investment Management Corporation (AIMCo), which hasn’t even set a basic science-aligned climate target, according to the report. Also near the bottom of the rankings are the Healthcare of Ontario Pension Plan (HOOPP) and the Ontario Municipal Employees Retirement System (OMERS), which have climate objectives but lack a real plan to achieve them.

Beneficiaries of these pensions have cause to worry their retirement security is vulnerable to climate-related risks, such as when fossil fuel assets it is invested in become worthless, the report reads. Not to mention, retirement savings invested in fossil fuels can make the climate crisis worse by enabling increased production of fossil fuels and their planet-warming greenhouse gas emissions.

The only Canadian pension fund that has committed to divest from fossil fuels is Caisse de dépôt et placement du Québec (CDPQ). Managing more than 45 public pension and insurance plans, including the Quebec Pension Plan, CDPQ received a B+ overall.

CDPQ committed to selling all of its $4 billion in oil-producing holdings by the end of 2022. DeRochie says Shift Action can’t confirm if CDPQ followed through on this promise until mid-February, when the numbers from the U.S. Securities and Exchange Commission come out.

The first-ever climate report card for Canadian pension fund managers is here, complete with greenwashing awards. @ActionShift looked into the climate commitments and investments of Canada's 11 major pension funds. #PensionFunds #FossilFuels

“But based on what we've seen, with them selling some private fossil fuel assets in 2022 … we do think they're going to honour that target,” he said. When asked about it last year, the CDPQ stuck by the pledge “pretty sternly,” said DeRochie, “so we have no reason to believe that the CDPQ won't fulfil that promise to divest from oil producers.”

While the CDPQ has been clear it doesn’t want its investments to contribute to increased oil production, that sentiment does not apply to gas, the report noted.

“They have massive fossil gas assets and, obviously, the science is clear that we also need to rapidly phase out gas,” said DeRochie. “So it doesn't make sense that they would apply a different standard to one fossil fuel than another.”

In addition to letter grades, three of the pension funds received a greenwashing award.

Canada Pension Plan Investment Board (CPP) grabbed gold, the Ontario Teachers’ Pension Plan (OTPP) came in second, and last but not least is the Public Service Pension Investment Board (PSP).

Although these pension fund managers received a C-, B and C, respectively, they are larger than some of the other funds and have the resources and capacity to address greenwashing, DeRochie said to explain the rationale behind the awards.

“They’re allowing companies in their portfolio to do things that are clearly trying to make out their activities or operations to be more green or environmentally friendly than they are, and [the pension managers] have the power to fix this,” he said.

The only pension fund currently reporting the greenhouse gas emissions created from its oil, gas and mining assets is the University Pension Plan Ontario, an $11.8-billion fund for more than 37,000 members working at four Ontario universities. Also known as Scope 3, these emissions account for over 80 per cent of the greenhouse gas pollution associated with fossil fuel products.

By failing to disclose the Scope 3 emissions of fossil fuels in their portfolios, pension funds are ignoring a massive source of emissions that's going to have to decline very quickly in order to address climate change and protect people's retirement security, said DeRochie. The report also highlighted big issues around transparency.

“It's basically impossible for beneficiaries to assess how their savings are exposed to climate risks based on the information that's publicly disclosed by these pension managers,” said DeRochie. “It takes an entire team of researchers to dive into the details to try and collect the information that we have, and we still don't have a complete picture of the portfolio.”

This first-ever Canadian pension climate report card is intended to be used as a benchmark for measuring progress each year. The report card is “broadly aligned” with recommendations from the United Nations’ High-Level Expert Group that lay out what a credible plan to achieve net-zero greenhouse gas emissions should look like for companies, cities, organizations and other non-state actors such as banks.

Federal Finance Minister Chrystia Freeland’s mandate letter instructs her to work with provinces and territories to move toward mandatory climate-related financial disclosures and require federally regulated institutions, including financial institutions, pension funds and government agencies, to issue climate-related financial disclosures and net-zero plans. There are no public updates on whether this work is being done.

Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer

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AIMco may not be offering a plan, yet, but they are hardly unaware of the issue. Their website highlights their new "Climate-Related Financial Disclosures Report", which clearly is not about virtuousness, but risk-avoidance.

Frankly, that's how I prefer it: these guys do not do virtue well, but "ass covering" is their superpower.

Risk Avoidance uber alles! - universal mantra for insurers

I can't wait til pension plan managers are tested on their willingness to do in renters and local economies by investing in real estate investment trusts. That said, testing is testing. What we actually need is regulation to overcome their eagerness to put profits ahead of people and their communities.