Canada’s pension funds are moving to address climate risk, but rising political uncertainty “raises stakes” for those falling behind, concludes an evaluation of the country’s largest pension managers.

The third annual Canadian pension climate report card by Shift Action for Pension Wealth and Planet Health ranks 11 of Canada’s largest pension funds and two international managers on their climate policies. The funds collectively manage and invest C$2.4 trillion of Canadians’ retirement savings, money that must be protected from the chaos and disruption of climate change, Shift Action says.

“Canadian pension funds must recognize the power and influence they wield, both nationally and internationally, when they coordinate their climate policy efforts and speak with one voice to governments, regulators, and companies,” the organization states. But if investment portfolios support fossil fuel development, they could subject those retirement savings to assets at high risk of being stranded amid a global energy transition while contributing to worsening climate change.

“When pension funds invest in companies that can only succeed if the world fails to achieve its climate targets, they are betting on climate failure,” states the report.

The report card reveals a widening gulf between leading and lagging institutions, with funds that remain underprepared leaving Canadians’ retirement savings exposed to “a dangerous shift in political headwinds” compounding the worsening impacts of climate change.

In the United States, Donald Trump is blocking or undoing climate policy, while the next Canadian government could dismantle carbon pricing, eliminate the proposed cap on oil and gas emissions, and expand oil and gas production, Shift Action warns. In Alberta, harsh provincial restrictions that stifle the renewables industry don’t apply to the oil and gas sector.

But pension funds should not use this political uncertainty as a pretext to “dither on their own climate promises,” Shift Action stresses. Rather, it’s crucial for them to strengthen their own climate plans against government backsliding.

Most funds are mostly taking positive steps to improve climate literacy and decarbonize portfolios, but some are doing more than others. The two international funds in Shift Action’s assessment scored A-, while four Canadian funds—Caisse de dépôt et placement du Québec (CDPQ), Investment Management Corporation of Ontario (IMCO), University Pension Plan, and Ontario Teachers’ Pension Plan (OTPP)—ranked within the B range.

The three top-performing Canadian funds also earned monikers from Shift Action:

• CDPQ, the “Early Mover”, committed to selling its $4 billion in oil holdings by the end of 2022. By the end of 2023, the fund had completed its divestment from oil production and refining and coal mining.

• IMCO, the “Quietly Competent”, is “carving itself a niche as an investment partner with climate expertise.” In 2021, IMCO committed to investing 20% of its portfolio in climate solutions by 2030. In 2024, the fund clarified that this commitment includes $5 billion dedicated to clean energy transition investments.

• OTPP, the “Upstart”, was the first Canadian fund to earn an A+ on any indicator.

Six of the remaining funds fell within the C range with mixed scores, though the majority had F grades for fossil fuel exclusion, meaning they still had investments in fossil fuels.

Most funds maintained their grades from last year, though IMCO and OPSEU Pension Trust improved slightly. Only one fund performed worse: the Alberta Investment Management Corporation (AIMCo). It already held the lowest score on the list, but fell further to receive the scorecard’s first overall F grade. That was after “political interference seemingly driven by fossil fuel interests” led to the sacking of key board members and executives and the hiring of a board chair, former prime minister Stephen Harper, that raised concerns from the provincial ethics commissioner.

The Canada Pension Plan (CPPIB) received failing grades for fossil fuel exclusions and interim climate targets and fell to C- on two measures—climate urgency, and alignment with the goals of the 2015 Paris climate agreement. CPPIB “is the only fund to see lower scores on any indicator two years in a row,” Shift Action writes in a release. “Canada’s $675-billion national pension manager continued to undermine its climate credibility through its refusal to set interim emissions reduction targets, persistent greenwashing from its executives, its ongoing financing of high-risk fossil fuel expansion, and its fundamentally flawed decarbonization thesis for fossil fuel companies.”

Overall, “far more work is needed to ensure pension managers are fulfilling their fiduciary duty to invest in plan members’ best long-term interests and protect their retirement security in a world that limits global heating to 1.5°C,” the release stated. Low-ranking pensions, like the Healthcare of Ontario Pension Plan and the Ontario Municipal Employees Retirement System, lack meaningful climate plans to achieve their goals, while AIMCo “hasn’t even set a basic science-aligned climate objective.”

Those laggards are playing a risky game with Canadians’ pensions, Shift Action warns.

“My retirement security, and that of my children, is dependent on a safe climate, healthy ecosystems, and a stable financial system,” Tylene Appel, a retired teacher from Provost, Alberta, said in the release. “My provincial and national pension managers don’t seem to realize this.”

She added: “Even as devastating climate disasters strike Alberta year after year, both CPPIB and AIMCo continue to risk my retirement savings on oil and gas expansion.”