Statement on the University Pension Plan’s Climate Transition Investment Framework
SHIFT ACTION FOR PENSION WEALTH & PLANET HEALTH
For Immediate Release: December 15, 2023
Toronto, ON | Traditional territories of the Wendat, Anishnaabeg, Haudenosaunee, Chippewa and Mississaugas of the Credit First Nation
Now is the time to take a clear stand for phasing out fossil fuels. With its Climate Transition Investment Framework, UPP chose to stay seated.
Shift is encouraged to see the release of a Climate Transition Investment Framework (CTIF, or “the framework”) from Ontario’s University Pension Plan (UPP), a foundational document supporting the $10.8 billion pension manager’s ambitious Climate Action Plan. Investing amidst a worsening climate crisis requires asset managers to clearly spell out exactly how they will manage transition risks and opportunities, ensure their portfolio can align with science-based climate targets, and increase their investments in profitable climate solutions.
UPP’s CTIF largely accomplishes this, but fails to signal to markets what the science says is necessary to ensure UPP members’ retirement security in a safe climate future: phasing out fossil fuels. The framework ignores the basic fact that it’s not possible for oil and gas companies to have credible net-zero targets or climate transition plans without a commitment to phase out production. In doing so, UPP continues to expose its members to undue financial risks. UPP says the stability of the climate is a core objective, yet it continues to invest its members’ retirement savings in oil and gas companies that are undermining that objective.
Welcome transparency
With this framework, UPP has done what most Canadian financial institutions have failed to do– reveal the full details of their decision-making process for making new investments and managing current assets in a way that aligns with emissions pathways that limit global temperature increase to 1.5℃. Such transparency is critical for pension plan members, sponsors and stakeholders, who deserve to know that their savings are protected from climate-related financial risks. Transparency is also important for markets, as companies need to understand how capital will be allocated in order to meet the climate-related expectations of investors.
Modest climate solutions commitment
UPP’s CTIF was accompanied by a new commitment to allocate at least $1.2 billion into climate solutions by 2030. While we are glad to see UPP make this clear and measurable commitment, this target does not appear to match the scale required to decarbonize the economy or the ambition of some of UPP’s pension peers. Based on typical annual rates of return, we estimate that this allocation would fall well below 10% of UPP’s expected assets under management in 2030. In contrast, the Investment Management Corporation of Ontario has pledged to allocate 20% of its assets to climate solutions by 2030. UPP could significantly increase its climate solutions allocation to catch up and fully capture the generational opportunity for climate-aligned, risk-adjusted returns.
UPP’s failure to single out risky fossil fuels
Considering the quality and thoughtfulness of UPP’s Climate Action Plan and Climate Stewardship Plan, we are disappointed to see UPP’s CTIF create a complicated, twisted logic that hides the risks and harms of continuing to invest in fossil fuels. UPP’s approach to oil and gas investments is particularly perplexing coming the same week that the international community finally named the industry fueling the climate crisis and agreed to transition away from fossil fuels at COP28.
The criteria that UPP plans to use to assess the climate transition readiness of funds and assets is smart and prudent when it comes to most “High Impact Sectors”, such as cement, steel, transportation, utilities and metals and mining. But it’s concerning that UPP lumps all “resource extraction” companies into a single category of “High Impact Sectors”. Oil and gas companies simply do not have the same viable decarbonization pathways that are available to other “High Impact Sectors”. Investments in oil and gas carry significant, unique, systemic financial risks for investors, and distinct, disproportionate harms for the climate and UPP members. UPP should screen out fossil fuel investments before it considers any assessment of a company’s or fund’s “transition alignment”.
UPP’s needlessly complicated and complex framework for making new co-investments and direct investments for “High Impact Sectors” is confusing, and fails to acknowledge the reality that it’s not possible for oil and gas companies to have credible net-zero targets or climate transition plans without a plan to phase out production. Without phase-out, there are no credible or profitable pathways for oil and gas companies to align their business models with UPP’s net-zero commitment. The considerable and growing stranded asset and environmental liability risks facing oil and gas companies cannot be mitigated by asking them to make “commitments to develop a climate transition plan” or by remaining exposed to companies with “intensity emissions at or below the 25th percentile relative to the industry average”. Any new investments made in marginal emissions reductions by oil and gas companies, using distract-and-delay technologies such as carbon capture, will quickly become stranded along with the companies’ assets as the energy transition accelerates in the coming years.
UPP could undermine its climate leadership in Canada’s financial sector
Climate science demonstrates clearly the need to rapidly phase-out fossil fuel consumption and production in line with the climate goals that UPP has adopted. This fact is reinforced by authoritative institutions like the International Energy Agency (IEA) and Intergovernmental Panel on Climate Change, with IEA Executive Director Fatih Birol clarifying this again today:
“After COP28, governments, companies, investors, need to tell the people around the world what actions they are taking to move the world away from fossil fuels.”
With its Climate Transition Investment Framework, UPP continues to ignore this imperative. Ongoing failure to name the primary cause of the climate crisis and clearly signal to markets the need for a phase-out of fossil fuels will undermine the important climate leadership UPP is otherwise demonstrating in Canada’s financial sector.
For more information:
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.
-30-