Teachers’ Pension Fund Unveils Tough New Emissions Targets, Stays Mum on Fossil Investments

The Ontario Teachers’ Pension Plan (OTPP) has announced what it calls “industry-leading targets” to cut the emissions intensity of its investment portfolio 45% by 2025 and 67% by 2030—but isn’t saying how it will phase out its financial interest in fossil fuels.

The announcement puts the C$227.7-billion fund in a position to “dramatically reduce greenhouse gas emissions as part of its journey to achieve net-zero on its investment activities by 2050,” Ontario Teachers’ says in a release.

With the plan, OTPP “aims to actively reduce its portfolio carbon emissions, while concurrently contributing to building the net-zero economy,” the release states, by:

• Investing more heavily in clean energy producers;

• Shifting its “asset class strategies” toward green investments;

• Investing in “transition assets” that will deliver future carbon cuts;

• Engaging with the companies in which it invests to encourage net-zero targets aligned with the 2015 Paris climate agreement;

• Issuing green bonds to raise funds for new investments in climate solutions and sustainability;

• Advocating for “clear climate policies”;

• Issuing annual progress reports.

“Given the scale and complexity of our investment portfolio, we believe this is an ambitious plan that will meaningfully lower emissions and contribute to the plan’s long-term sustainability,” said OTPP President and CEO Jo Taylor.

“Climate change permeates the entire investing landscape,” added Chief Investment Officer Ziad Hindo. “By significantly growing our portfolio of green investments and working collaboratively with our portfolio companies to transform their businesses, we can make a positive impact by encouraging an inclusive transition that benefits our people, communities, and portfolio companies.”

“It is a fundamental shift. We will be growing significantly our investment in companies that are more green, more climate smart,” Hindo told the Globe and Mail. “We’re pivoting all our asset class strategies on the public and private sides to make sure that we dedicate more and more capital to the companies of tomorrow.”

He added that adopting climate targets will help, not harm the fund’s ability to generate a return on teachers’ retirement investments.

“We don’t view climate risk mitigation only from the risk side. We actually believe it’s return-enhancing,” he said. “If you can establish sustainable businesses that can withstand climate risk and position them as leading players in their own industry segments, those companies will be worth more than their peers.”

Climate and pension advocacy organization Shift Action called the Ontario Teachers’ announcement a “very welcome step forward”, and “the strongest climate commitment we’ve seen yet from a Canadian pension fund,” but warned that the fund can’t claim a mantle of climate leadership just yet.

“While this announcement describes how the OTPP will invest in solutions to the climate crisis, it makes no mention of how it will eliminate its exposure to the primary cause of it—namely high-risk fossil fuels,” Shift said in a release. “Although the OTPP doesn’t make this clear, a two-thirds reduction in portfolio emissions intensity by 2030 will require significant restrictions on high-carbon investments in oil, gas, and coal. A further tightening of these commitments, and a focus on absolute emissions reductions, is required.”

A Shift Action backgrounder shows OTPP investing just under $3 billion in “high-risk oil and gas”, nearly $2 billion in gas transmission and distribution, more than $1 billion in power generation (with no indication of whether it’s renewable or not), and a combined $1.7 billion in energy and utilities. “The pension fund’s most recent regulatory filings with the United States Securities and Exchange Commission show that its public equity portfolio includes shares in WEC Energy, Vistra Corp, Valero Energy, Southern Company, Phillips 66, Murphy Oil, Kinder Morgan, Imperial Oil, Halliburton, Fortis Inc, ExxonMobil, EOG Resources, Duke Energy, and Cabot Oil & Gas, among others,” Shift Action writes.

Front-line teachers cited in the Shift Action release greeted the announcement with one hand clapping.

“I finally feel like my pension fund is starting to listen to me and the growing movement of teachers who expect our pension to act now to protect our retirement savings and the climate,” said Leamington, Ontario science teacher Lisa Jeffery. “We are happy to see this major commitment to invest pension capital in profitable solutions to the climate crisis.”

“I’m encouraged to see these medium-term targets from the people who manage my retirement savings,” agreed Toronto high school teacher Natasha Bartels, “but the OTPP still isn’t addressing the elephant in the room—its multi-billion dollar investments in oil, gas, coal, and pipelines.”

She added that “I’ve asked the OTPP again and again to explain how their ongoing and growing investments in fossil fuel companies and infrastructure are aligned with their net-zero emissions commitment, and they’ve failed to provide a credible answer.”