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Canadian Pension Funds Face Stranded Asset Risk with New Fossil Investments

Mark Carney
Bank of England Governor Mark Carney/Wikipedia

Two of Canada’s biggest pension funds decided last year to invest a combined $4.2 billion in oil and gas assets, at a time when more and more institutions are opting to divest in response to a multi-trillion-dollar carbon bubble.

In late December, the Globe and Mail reported that the Canada Pension Plan Investment Board would proceed with an investment of US$900 million in a Colorado oil and gas field owned by Encana Corporation. Over the summer, the Ontario Teachers’ Pension Plan placed C$3.3 billion with Calgary-based Cenovus Energy.

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“We don’t support divestment,” Teachers Senior Vice-President Barbara Zvan told the Globe. “We’re much more in the camp of supporting engagement—working with companies, understanding what they are doing, how they are managing these risks, backing them when they are putting things in place.” Climate risk cuts across a number of economic sectors, she added, but “I don’t think we generally take the activist route. We would rather work privately with engagement.”

CPPIB spokesman Michel Leduc agreed that his organization “can accomplish more as an ‘engaged investor.’”

McCarthy writes that Teachers “has also balked at proposals from a United Nations-supported group called Principles for Responsible Investing that is urging institutional investors to disclose their own carbon footprint and their plans to reduce investments in fossil fuels.”

But a separate year-end report in the Calgary Herald points to the stranded asset risk Canadian investors will face as it becomes clear that only 20 to 33% of known fossil fuel reserves can be burned if humanity hopes to avoid the most catastrophic effects of climate change. “If that estimate is even approximately correct it would render the vast majority of reserves ‘stranded’—oil, gas, and coal that will be literally unburnable without expensive carbon capture technology, which itself alters fossil fuel economics,” Bank of England Governor Mark Carney warned in a September 29 speech to Lloyd’s of London.