Climate Pension Quarterly - Issue #9
The summer when the climate crisis became impossible to ignore
We may well remember the summer of 2023 as the season when Canada finally woke up to the climate crisis.
Temperature records were shattered around the world, hurricanes and floods claimed lives and uprooted households, and every province and territory in Canada experienced wildfires. If your community wasn’t on an evacuation watch, you likely knew someone whose community was. Wherever in Canada you live, you experienced smoky skies and poor air quality.
Canadians are connecting the dots: burning fossil fuels causes climate change, and climate change drives the extremes we’re experiencing. Fossil fuel companies have long tried to convince the public that climate change wasn’t happening, or that it wasn’t caused by fossil fuels, or that they were doing their part to address it.
None of it was true, and that’s why the summer of 2023 may also be remembered as the season when fossil fuel companies finally lost their social licence to keep expanding.
The influential Church of England Pensions Board, which had long advocated engagement over divestment as Climate Action 100+’s investor engagement lead for Shell, threw up its hands as the world’s second largest publicly-traded oil and gas company walked back its climate targets. Concluding that the oil and gas sector was never going to try to align with the Paris Agreement goals, the pension fund announced it would divest from all fossil fuels by the end of 2023.
The State of California has had enough too:
“The companies that have polluted our air, choked our skies with smoke, wreaked havoc on our water cycle, and contaminated our lands must be made to mitigate the harms they have brought upon the State.””
ExxonMobil, Shell, BP, ConocoPhillips and Chevron are named in the lawsuit brought forward by California. (And if you’re wondering if your pension fund holds shares in those companies, the answer is probably yes).
The International Energy Agency’s (IEA) updated net-zero roadmap, released Tuesday, sees fossil fuel demand dropping 25% by 2030 and reiterates that achieving the 1.5°C goal means no new upstream coal, oil or gas projects. Earlier this month, Fatih Birol, head of the IEA, cautioned that any new large-scale fossil fuel projects carried business and financial risks for investors, and warned that companies planning fossil fuel expansion “are misjudging the market trends… And they also misjudge the mood of the people in the street as far as climate change is concerned.”
We’re watching these financial risks and market trends with growing apprehension, and urging the Canadian pension sector to responsibly disentangle itself from fossil fuels.
There are signs of progress. For example, OMERS, with the release of its inaugural climate plan this month, became the fourth Canadian pension fund to place at least a minimum exclusion on new thermal coal investment. But the pace is frustratingly slow and the growing potential for conflict between pension funds’ fiduciary duty and the interests of fossil fuel producers is real.
International investors are taking the lead on this disentanglement. In just this past quarter, British asset manager LGIM expanded the universe of assets blacklisted for climate concerns. PGGM, the €229-billion pension fund for Dutch healthcare workers, will divest from 94 more fossil fuel firms, saying that “very few stand a chance” of implementing a credible net-zero strategy. Some of Europe’s largest pension funds are divesting shares of ConocoPhillips after the company spent $2.7 billion to take over oil sands assets in Alberta. And the City of London Pension Fund, with almost £8 billion in assets, is eliminating fossil fuel investments and committing to a net-zero portfolio by 2030.
Fortunately, pension beneficiaries in Canada continue to raise their voices.
Members of Canada’s Public Service Pension Plan delivered a letter to the Federal Cabinet calling for an embattled Imperial Oil director to be removed from the board of their pension manager, PSP Investments;
Ontario Pension Board members asked their investment manager, the Investment Management Corporation of Ontario, to clarify confusing wording about which fossil fuel investments the pension manager would exclude or phase out;
Ontario health sector employees are signing on to an open letter calling for the Healthcare of Ontario Pension Plan to phase out its $1.6 billion in shares in fossil fuel companies;
Canadians from Surrey, B.C., New Glasgow, Nova Scotia, and Ottawa, Ontario wrote to The Globe and Mail objecting to the Canada Pension Plan Investment Board’s ongoing fossil fuel investment;
An ordained minister made the case for faith-based climate action to include pension activism;
And labour-oriented Rabble.ca outlined why a pension fund without a credible climate plan isn’t in workers’ interests.
Members of the youngest generations had pensions on their mind at the September 16, 2023 climate march in Toronto
Canadian pension beneficiaries aren’t alone.
In the last three months, over 500 Australian health workers demanded that their pension denounce a major oil and gas producer’s expansion plans, while one plan member filed a greenwashing complaint. Members of the United Kingdom's Universities Superannuation Scheme are pursuing legal action against their pension trustees for the fund's continued investment in fossil fuels and alleged failure to devise a credible climate plan. The case was dismissed by a Court of Appeal but beneficiaries are exploring an appeal to the country’s Supreme Court. In the United States, the Los Angeles Times editorial board argued for the country’s largest pension funds to divest from fossil fuels. And in South Korea, advocacy groups filed a case over the government’s refusal to disclose discussions of the National Pension Service's investments in coal.
Regular people understand that the climate crisis is risking everything. So why have our pension managers been slower to catch on?
The answer may lie in a series of reports that point out significant limitations in the climate scenarios that pension funds have been using to measure and manage the impacts of climate change. Existing scenarios have understated the financial risks embedded within a warming climate and failed to account for the interplay of cascading climate impacts. While most Canadian funds acknowledge the limitations of such scenarios in their Taskforce for Climate-Related Financial Disclosures reports, it is still shocking that some have reported that they expect their portfolios to remain resilient in a world that allows global heating to reach catastrophic levels.
In this Quarterly, we’ll recap the latest pension announcements, including a new climate plan from OMERS, take a look at the riskiness of carbon markets (we’re looking at you, Canada Pension Plan Investment Board), and recap the foreseeable climate-related financial risks now being experienced by Canadian pension funds who stocked up on European gas distribution and transmission networks (pull up a chair, British Columbia Investment Management Corporation and Ontario Teachers’ Pension Plan). Read on!
The full stories are in a downloadable pdf, which you can access here.