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Canada Pension Plan Must Align with National Targets, Climate Risk

The federal government should bring the Canada Pension Plan into alignment with its climate goals, Friends of the Earth policy advisor John Bennett writes on the National Observer, a move that would mean divesting from three dozen coal companies as well as Alberta’s tar sands/oil sands.

Sparking the comment was the revelation last month that the Canada Pension Plan Investment Board (CPPIB) was preparing a C$2-billion bid for the coal assets of Australian-British mining giant Rio Tinto.

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“Despite Canada’s ‘commitment’ to phase out coal at home and abroad,” Bennett writes, “it’s putting our money into the coal industry.” The Board also embraces “investments in oil wells, fracking operations, gas fields, and coal mines, regardless of government climate change policy.”

Although the CPPIB operates at arm’s length from government, Bennett notes, it “controls a $320-billion fund created by the government. It also receives about $5 billion annually from the Canada Pension Plan (CPP) [that] comes from mandated payroll deductions paid by Canadian workers and employers. This is collected by the government and handed over to the CPP by the government.”

It would not be the first time the government has placed policy-driven restrictions on the CPPIB. “The Canada Pension Plan restricts itself from investing in landmines or where human rights may be impacted,” Bennett recalls. “Why not climate change policy?”

At minimum, “governments could require ‘climate risk’ to be a factor in determining [CPPIB] investments,” he points out. And “the federal government appoints the board of the CPPIB; it could pick people who understand climate risk.”

Former Bank of Canada, now Bank of England Governor Mark Carney has warned repeatedly of the risk that potential stranded fossil assets pose to institutional and bank investments. Climate change more broadly has been estimated to put as much as US$24 trillion worth of financial investments at risk. And earlier this year, Denmark’s fourth-largest pension fund manager sold off its investments in five Canadian fossils in a move to reduce its exposure to such risky assets.