Statement on PSP Investments' New Climate Strategy

Statement from Shift Action for Pension Wealth and Planet Health on PSP Investments’ New Climate Strategy

For Immediate Release: April 21, 2022

Toronto, ON - Today’s release of the Public Sector Pension Investment Board’s (PSP Investments, or PSP) first Climate Strategy is a notable step forward in moving the pension fund’s investment strategy towards alignment with protecting the retirement savings of federal employees and averting catastrophic climate change. The strategy’s commitments and implementation plans are lacking in clarity, but it’s clear that PSP is listening to the growing concerns of beneficiaries and beginning to recognize the scale and urgency of the climate crisis.

PSP’s broad commitment to “support the transition to global net-zero emissions by 2050” is not the same as a commitment to align PSP’s portfolio with the Paris Agreement goals committed to by its Government of Canada sponsors. This is a missed opportunity. 

Net-zero commitments on their own are inadequate to achieve climate safety and protect the retirement savings of beneficiaries, but they provide a transparent framework to guide investment strategy and accountability for pension stakeholders. When clearly stated, such commitments should signal an important change in expectations for investment markets. We are hopeful that PSP will further clarify this commitment and soon become the seventh major Canadian pension fund to make a net-zero emissions by 2050 pledge. 

We are pleased to see PSP set targets to increase its investments in climate solutions from $40.3 billion currently to $70 billion by 2026 (p.8) and steer 10% of its long-term debt financing toward sustainable bonds by 2026, up from 4.2% today (p.10). We are also pleased to learn that PSP is developing an escalation policy for its engagement programme by the end of 2023 (p.9) and aims to reduce its holdings of risky carbon-intensive assets by 50% by 2026 (p.8). 

PSP acknowledges that it may choose to exclude companies that pose financial risks or demonstrate an unwillingness to reduce their operational carbon footprint. However, the word “operational” is problematic in this sentence, as PSP is making an explicit decision to ignore Scope 3 emissions in its new “Green Asset Taxonomy.” PSP’s approach to exclusions also directly contradicts its own Green Bond Framework, which states that “any investment that increases the use of fossil fuels — including exploration, processing and/or transportation — would not be considered a green investment under our Green Bond Pillars” and that “PSP will also ensure selected investments do not increase the use of fossil fuels but are on a pathway to reduce dependency of fossil fuels over time.”

Despite the progress demonstrated by PSP with today’s Climate Strategy, there are major remaining gaps that suggest the pension fund is struggling to align its investment strategy with the action that’s necessary to limit global heating to 1.5°C, an International Panel on Climate Change (IPCC) imperative that PSP itself invokes (p.2):  

• A short-term target to reduce the emissions intensity of the PSP portfolio by 20-25% by 2026, relative to a 2021 baseline (p.6). This is a significantly weaker target than PSP’s Canadian peers, with the Ontario Teachers’ Pension Plan targeting a 45% drop in emissions intensity by 2025 and 67% by 2030 (below a 2019 baseline) and the Caisse de dépôt et placement du Québec targeting a 60% reduction by 2030 (using a 2017 baseline).

• Unclear definitions, such as “Early” and “mature” “transition assets”, “enablers of climate mitigation and adaptation” and “carbon-intensive investments without a transition plan” (p.5). Certain high-carbon sectors, such as transportation, mining, steel and cement have a clear, technologically-feasible, and profitable pathway to decarbonization. Fossil fuel companies do not. PSP invokes the Science Based Targets Initiative (SBTi) to define “transition assets”, but the SBTi was forced last month to reject commitments from fossil fuel producers until credible net-zero criteria can be developed, due to reputational risks. 

• An undefined role for carbon removal and offsets, despite PSP’s assertion that these “will not be approached as an alternative to real reductions in portfolio emissions, but rather in addition to them.” (p.3)

• A lack of clarity for how the Climate Strategy might influence PSP’s ownership of high-carbon fossil fuel infrastructure. Currently PSP is a co-owner of TriSummit Utilities, which owns and operates fossil gas distribution and transmission pipelines in Alberta (APEX Utilities), British Columbia (BC) (Pacific Northern Gas), and Nova Scotia (Heritage Gas), as well as wind and hydro power assets in BC. While TriSummit has a net-zero by 2030 commitment for its operational emissions, Heritage Gas is trying to expand its gas customer base in Nova Scotia while Pacific Northern Gas is planning to increase the capacity of its Western Transmission Gas Line, build new compressor stations, and transport gas to the proposed Port Edward LNG facility near Prince Rupert, BC for export. Any expansion of fossil fuel infrastructure directly contradicts the IPCC’s 1.5°C target PSP itself invokes in its Climate Strategy.

• While PSP is stress testing its portfolio against different global heating scenarios, (p.7), there is no indication that it has undertaken scenario analysis using an outlook that assumes success in limiting global temperature increase to 1.5°C.

• Finally, Shift is increasingly concerned that PSP’s alignment with achieving climate goals could be undermined by inadequate climate expertise and ongoing entanglement with the fossil fuel industry on its Board of Directors. More than a quarter of PSP’s 11-person board has a direct connection to the fossil fuel industry. The Chair of PSP’s board previously served on the board of directors of oil and gas producer Husky Energy. Another PSP board member previously served on the board of MEG Energy. And another board member previously served on the board of pipeline company Spectra Energy and currently serves on the board of Imperial Oil, ExxonMobil’s Canadian subsidiary. When it comes to the climate crisis, fossil fuel companies and pension fund beneficiaries have diverging interests. The fossil fuel entanglements on PSP’s board create the potential for conflicts of interests in climate-related decision making.

PSP’s Climate Strategy comes as a response to a beneficiary letter sent to PSP’s board and senior executives in September 2021, with a follow-up letter sent earlier this month, requesting information about the fund’s approach to managing climate risk. 

PSP manages $204.5 billion in pension assets on behalf of 900,000 current and retired employees of the federal Public Service, the Canadian Armed Forces, the Royal Canadian Mounted Police and the Reserve Force. For further information about PSP’s approach to managing climate risk and an inventory of its investments in climate solutions and fossil fuels, please see this briefing note, which was most recently updated in February 2022 and does not reflect the changes announced in today’s Climate Strategy.

Contact information:

Adam Scott, Director, Shift Action for Pension Wealth & Planet Health 
adamscott@shiftaction.ca
416-347-3858

Patrick DeRochie, Senior Manager, Shift Action for Pension Wealth & Planet Health
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.