NEW REPORT: Canadian pension fund investment managers’ entanglement with fossil fuel industry raises conflict of interest concerns
For Immediate Release: May 5, 2022
Shift Action for Pension Wealth and Planet Health
NEW REPORT: Canadian pension fund investment managers’ entanglement with fossil fuel industry raises conflict of interest concerns
New analysis finds 80 Canadian pension managers with 124 different roles at 76 fossil fuel companies, raising critical beneficiary questions about fiduciary duty and pension administrators’ conflicts of interest on climate-related investment decisions.
Toronto, Ontario - A new report reveals the deep entanglement between the fossil fuel industry and directors, trustees and investment managers at Canada’s largest public pension funds.
The overlap raises serious questions from beneficiaries about their pension administrators’ ability to objectively manage climate-related financial risks and make critical climate-related investment decisions when the pension administrators are so deeply entangled with an industry whose products are the primary cause of the climate crisis, whose bottom line depends on the continued production of climate-damaging products, and that has a long and ongoing legacy of obstructing efforts to cut carbon pollution.
“A pension administrators’ fiduciary duty includes taking decisive action to mitigate climate risk and oversee consequential investment decisions about fossil fuel companies and infrastructure,” says Simon Archer, Partner at Goldblatt Partners LLP and Co-Director at the Centre for Comparative Research in Law and Political Economy at Osgoode Hall Law School. “If a pension administrator simultaneously serves as the corporate director of an oil and gas company, beneficiaries could ask serious questions about whether that conflicts with the duty to invest in their best long-term financial interests.”
The new report, Climate-conflicted pension managers: The oil & gas insiders overseeing Canadians’ retirement savings, shows that among Canada’s 10 largest pension funds, which together manage more than $2 trillion in assets, 80 different pension directors, trustees, executives and senior staff currently hold or previously held 124 different roles with 76 different fossil fuel companies. This includes nine current pension fund directors or trustees that currently hold 13 roles on the board of directors of 12 different fossil fuel companies, and 56 senior staff or investment managers at pension funds who hold 76 different corporate director roles at 39 different fossil fuel companies. Seven of the ten pension funds have at least one board member who simultaneously sits on the board of a fossil fuel company. In some cases, over a quarter of some pension fund boards have direct connections to the oil and gas industry.
“A director on the board of my pension plan is bound by fiduciary duty to invest my retirement savings in my best long-term interests, but she also has a legal responsibility to act in the best financial interests of ARC Resources as a corporate director,” says Sarah Buisman, a secondary school music teacher and member of the Ontario Teachers’ Pension Plan. “How can ensuring the security of my retirement fund on a livable planet be aligned with the financial interests of Canada’s third largest fossil gas producer? I honestly don’t know. It’s like having a cigarette company executive sit on the board of public health and then expecting me to believe this has no impact on anti-smoking campaigns.”
Fossil fuel linked investments are increasingly exposed to financial risks from the accelerating and inevitable energy transition required to address the climate crisis. As outlined by leading economists and international investor groups, a rapid and significant policy response to climate change could quickly and dramatically devalue fossil fuel assets, presenting a severe potential downside risk to investors. The International Panel on Climate Change (IPCC) recently affirmed this assessment, noting with high confidence that “limiting global warming to 2°C or below will leave a substantial amount of fossil fuels unburned and could strand considerable fossil fuel infrastructure.” The IPCC estimates that “the combined global discounted value of the unburned fossil fuels and stranded fossil fuel infrastructure has been projected to be around US$1-4 trillion dollars from 2015 to 2050 to limit global warming to approximately 2°C, and it will be higher if global warming is limited to approximately 1.5°C.”
The entanglement between Canada’s pension administrators and the fossil fuel industry may contribute to explaining why Canadian pension funds lag behind many of their international peers in putting in place credible climate policies that include the exclusion of fossil fuels from investment portfolios. Canadian pension funds aren’t just shareholders in fossil fuel companies– they are significant owners of fossil fuel companies and infrastructure around the world. In many cases, pension directors, trustees and staff are part of the governance structure of these fossil fuel companies and may even benefit financially from their directorships with these companies. It is hard to imagine how such deep entanglement with and financial interest in the fossil fuel sector could not influence discussions within pension funds about net-zero plans, climate policies, and investment exclusions.
"One of the directors of my federal public service pension fund sits on the board of Imperial Oil, a company that’s actively working to expand oil and gas production and undermine the government policies needed to ensure the safe climate future that's necessary for me to have a dignified retirement,” says Tony Ferguson, an Energy Efficiency Program Officer at Natural Resources Canada and member of Canada’s Public Service Pension Plan. “I believe there’s a conflict between the duty to make responsible long-term investment decisions with my retirement savings and the duty to advance the financial interests of ExxonMobil’s Canadian subsidiary.”
Successfully achieving the pace and scale of change required to cut carbon pollution in line with the Paris agreement goal of limiting global heating to 1.5°C requires exceptional changes in governance for Canada’s financial institutions. Canada’s largest public pension funds are moving to manage the growing financial risks of climate change, but their progress may be held back by their multi-layered connections to an incumbent fossil fuel industry.
“Over a quarter of the Canada Pension Plan’s board of directors has direct financial interests in the continued use of fossil fuels– even though the science is unequivocal that oil, gas and coal must be rapidly phased out if I am to have any hope of a dignified retirement a half-century from now,” says Mymoon Bhuiyan, a 22-year old university student and contributor to the CPP. “How am I supposed to believe that these CPP directors are making investment decisions in my best long-term interest when they’re legally required to make favourable financial decisions on behalf of fossil fuel companies at the same time?”
The report includes recommendations for how pension funds, governments, and pension beneficiaries and stakeholders should manage potential conflicts of interest with the fossil fuel industry.
“The degree of overlap between pension managers and fossil fuel companies creates legitimate concerns about the corporate power of the fossil fuel industry entrenching itself in pension funds that have a mandate to provide reliable retirement security for millions of Canadians amidst a worsening climate crisis,” says Patrick DeRochie, Senior Manager at Shift. “It is reasonable for a beneficiary to ask if the people responsible for managing and overseeing their pension fund have the necessary climate risk expertise to invest in their best long-term interests if they are bringing a worldview to pension management that assumes the continued financial success of fossil fuel companies that lack credible Paris-aligned transition plans, lobby against climate policies, or rely on high-risk investments that extend the life of oil and gas.”
To read the full report and analysis, visit www.shiftaction.ca/climateconflicted.
For interview requests:
Adam Scott, Director, Shift Action for Pension Wealth & Planet Health
adamscott@shiftaction.ca
416-347-3858
Patrick DeRochie, Senior Manager
patrick@shiftaction.ca
416-576-2701
Shift Action for Pension Wealth and Planet Health is a charitable initiative that works to protect pensions and the climate by bringing together beneficiaries and their pension funds to engage on the climate crisis. Shift is a project of MakeWay Canada.