The CEO of the pension fund that controls retirement investments for 21 million Canadians has reconfirmed his position that “engagement,” not divestment from fossil fuel companies, is the right way forward during the global energy transition.
John Graham counted “commitment to sustainability” and “resilience” among the many virtues of CPP Investments at the Crown corporation’s bi-annual national public meeting, noting with pride CPPI’s ability to thrive through upheavals like the pandemic and Russia’s war in Ukraine due to its “prudent long-term approach” to investing.
That approach includes investments in carbon emitters, Graham confirmed at the public meeting, repeating a stance he took earlier this summer in an interview with the Toronto Star.
A member of the public challenged Graham on CPPI’s sustainability credentials during the meeting’s Q&A session, asking: “Why is CPPI investing in fossil fuels when carbon emissions are causing climate disruption?”
Graham responded that the global nature of the energy transition means that engagement, not divestment, is “the path forward.”
Graham was also asked about CPPI’s efforts to tackle climate change. He said the corporation’s investment portfolio would be net-zero by 2050, with internal operations achieving carbon neutrality by March next year. To help drive that transformation, he added, CPPI created a Sustainable Energies Group in April 2021, with the goal of boosting investments in green and transition assets to roughly twice the current level by 2030. This doubling would mean C$130 billion sustainably invested by the end of the decade, according to a promotional video shared at the meeting, which noted that the organization’s strategy is to “invest and exert influence rather than pursue blanket divestment.”
Graham had explained this stance during his Star interview. “We will invest where the carbon is with the goal of working with those companies and bringing what we have, which is long-term, patient capital, to the table to work with those companies to decarbonize,” he said at the time, adding that part of the goal was to increase the value of those investments.
Engagement Won’t Curb Emissions
CPPI’s use of escalatory measures to pressure high-carbon companies to decarbonize is commendable, said Shift: Action for Pension Wealth and Planet Health in an email to The Energy Mix. But the Canadian pension watchdog said it’s seen “little evidence” that engagement is leading to reduced emissions, especially amongst fossil fuel companies.
“In some cases, fossil fuel companies that CPPI privately owns are drilling new fracking wells, expanding oil and gas production, prolonging offshore gas drilling, and building new pipelines,” all of which is “incompatible with a 1.5°C future and CPPI’s own net-zero commitments,” Shift said.
CPPI’s claim that it does not believe in “blanket divestment” also contradicts its own stated policies, Shift added. CPPI says it may choose not to pursue or maintain investments in companies if “we conclude management’s strategy or lack of engagement with sustainability-related issues undermines long-term sustainability of the business; where brand and reputation considerations from sustainability-related factors may generate risk impacts beyond any expected risk-adjusted returns; or legal considerations.”
“Arguably, all three of these factors already apply to the oil and gas industry, which faces an avalanche of climate litigation and faces terminal decline because its business model is torching the global climate,” Shift countered. The email added that many institutional investors have already arrived at this conclusion, and a growing number of pension managers have divested, including the Caisse de dépôt et placement du Québec (CDPQ) an investment pool with net assets of $392 billion.
‘Deep Entanglement’ with Fossil Companies
CPPI’s aversion to divestment “appears to be ideological and may be explained by the deep entanglement between its board, senior leadership, and fossil fuel companies and its significant ownership of oil, gas, and pipeline assets around the world,” Shift said.
Material evidence of such “deep entanglement” may be found both in the CPPI board of directors and in the Sustainable Energies Group. Barry Perry, a director since August 2021, also currently serves on the board of Capital Power, an Edmonton-based power generation company that owns 1633-megawatt Midland Cogen, the largest gas-fired plant combined electrical energy and steam energy plant in North America.
Four of the 14 managing directors for CPPI’s Sustainable Energies Group hold simultaneous appointments on fossil boards, Shift added. Three of the four are on the board of Calgary-based Wolf Midstream, which owes its very existence to CPPI.
“Wolf was formed in 2016 with an investment from CPP Investments to focus on the acquisition and development of midstream infrastructure and opportunities in Western Canada,” its website states.
Graham suggested during the meeting that the oil and gas sector should be considered an emissions-intensive, difficult-to-abate industry on par with cement and steel. Shift responded that many other industries—including cement, steel, mining, agriculture, buildings, transport, and utilities—have credible, science-based, profitable pathways through the energy transition, but “the oil and gas industry does not.”
The only credible path to decarbonizing the oil and gas industry is to phase out production, the group said, adding that while fossil fuel companies are desperate to preserve their business model and prolong the use of oil and gas, “Canada’s collective pension capital cannot be their lifeboat.”
Shift said there is “quite a lot of obfuscation and greenwashing happening” with CPPI’s target to invest $130 billion in green and transition assets by 2030, despite a formal recognition that the organization tops 75 global pension funds for transparency and public disclosure.
The Sustainable Energy Group that Graham touted was created by merging the former Energy & Resources and Power & Renewables teams, which swallowed, undifferentiated, all associated holdings, Shift explained. The amalgamation has made it impossible to compare CPPI’s massive fossil fuel investments to previous years, and obfuscated what CPPI classifies as green investments and transition assets, says Shift.
“Less than a year later, CPPI claimed to have $67 billion in green and transition assets, without disclosing which assets fall into these two classifications.”
CPPI has also refused to establish interim emissions reduction targets as it moves towards its net-zero investment by 2050 target, explaining that “we do not expect a linear decline in emissions, especially as we invest to help certain companies and industries transition.”
But Shift said the lack of interim targets will make it “essentially impossible for anyone to hold CPPIB accountable for making progress on its net-zero commitment.”
CPPI’s Sustainable Portfolio
Graham said CPPI’s sustainable investment strategy is “fit for purpose” and places the fund as a “constructive investor in the global transition.” He celebrated its holdings in innovative technologies, singling out its investment in Toronto-based energy storage firm Hydrostor, as well as $810 million in direct investments and renewable development partnerships with United Kingdom cleantech giant Octopus Energy Group.
Shift said CPPI deserves credit for its massive investments in climate solutions, including renewable energy, energy storage, energy efficiency and conservation, electrified transport, green buildings, and sustainable agriculture. “But this doesn’t cancel out CPPI’s ongoing ownership and financing of fossil fuels and false climate solutions like carbon offsets and carbon capture technology.”