2024 Canadian Pension Climate Report Card
CPPIB’s fundamentally flawed decarbonization thesis for fossil fuels
The following forms part of Shift’s CPPIB analysis for the 2024 Canadian Pension Climate Report Card, using publicly available data to December 31, 2024. Find the full CPPIB analysis, including references, here.
A consistent theme emerging from Shift’s ongoing tracking and analysis of CPPIB’s approach to climate change is the pension manager’s insistence that it can and must continue to invest in oil, gas, coal and related fossil fuel infrastructure in order to generate returns while decarbonizing these assets and reducing emissions in the real economy. It can be smart and profitable for Canadian pension funds to invest in high-carbon, hard-to-abate companies and industries, and use their capital, expertise and influence to accelerate decarbonization. But these assets must have credible, profitable, Paris-aligned, transition pathways.
The only credible pathways for decarbonizing fossil fuel assets in line with climate safety require a planned phase-out of oil, gas and coal production and the early retirement of related infrastructure, alongside rapid declines in fossil fuel demand. Such net-zero-aligned pathways would expose asset owners to significant investment risk. CPPIB has provided no indication that it intends to pursue such decarbonization pathways for its fossil fuel holdings, or explained how its holdings could generate risk-adjusted returns in the long-run. It has instead undermined the credibility of its net-zero commitment by directly financing fossil fuel expansion and acquiring new fossil fuel assets, publicly claiming that its investment decisions are climate-aligned without any evidence in support of such claims.
CPPIB on fossil fuel “transition” and “decarbonization”
This fundamentally flawed, financially risky decarbonization thesis for fossil fuels is best encapsulated in the following statements made by CPPIB staff and executives in 2024:
“Our approach to investing in energy is that we believe the world will transition to net zero over time. However, we also believe it’s important to invest across the entire energy spectrum. As an investor, we continue to invest in oil and gas while also maintaining a large and growing portfolio in renewables. Our investments in conventional energy focus on capital expenditure and operational expenditure to support these producers in transitioning to greener production methods. Many global investors have left the sector, which leaves companies needing capital for transition in a difficult position. We see a significant opportunity in stepping into the market to help these companies transition to greener sources of energy production, particularly because many are currently undervalued. By aligning with management on energy transition goals, we aim to support their shift to greener practices while benefiting from potential value increases.”
– CPPIB president & CEO John Graham
“Our investment strategy involves partnering with conventional energy players on their transition to lower-carbon business models. And it backs businesses that benefit from the decentralization, decarbonization, and digitalization of the power system. Calls for divestment from fossil fuel companies have grown in recent years. Proponents say this approach would force a more rapid transition to a low-carbon economy. We believe supporting the comprehensive decarbonization of the real economy requires a different approach—one that supports capital market participants in financing their emissions reductions and investing in more efficient solutions. And we believe that blanket divestment from oil and gas is a bet against human ingenuity and could impact access to affordable, reliable energy in some markets. Moreover, shedding high emitters rather than working with them leaves the reduction or abatement of their carbon footprint to others, some of whom may not share the same mindset as it relates to the whole economy transition.”
– Head of CPPIB Sustainable Energies’ group Bill Rogers
“The core thesis of our investment in Tallgrass Energy is to create a platform company that enables us to decarbonise greenhouse gas-producing assets. These types of platforms are essential to ensure a transition to a net zero economy.”
– CPPIB spokesperson
“CPPIB managing director for public affairs Frank Switzer told Canada’s National Observer the pension fund is using its influence to encourage companies ‘to consider climate-related risks and opportunities in new and innovative ways.’ But divesting from heavily polluting assets is not the way forward, he added. ‘Instead of removing emissions from our portfolio and leaving them for someone else to deal with, we aim to generate investment returns by removing them from the global economy altogether,’ he said.”
– CPPIB managing director for public affairs Frank Switzer
“Decarbonization” without credible explanation
CPPIB has not provided any credible explanation for how this “decarbonization” could work for fossil fuels or how CPPIB’s fossil fuel investments or partnerships with fossil fuel companies will amount to “financing their emissions reductions.” CPPIB also neglects to explain how these companies will “transition to lower-carbon business models” or “transition to greener production methods.”
Without explaining how CPPIB is supporting “decarbonization”, backed by credible climate plans for its portfolio companies, CPPIB’s claims amount to greenwashing. The investment manager’s claims ignore the scientific consensus that fossil fuels must be rapidly phased out to avoid the worst impacts of climate change and achieve net-zero emissions by 2050.
Financing fossil fuel expansion and prolongation is not “decarbonization”
On the contrary, CPPIB continues to finance the expansion and prolongation of coal, oil and gas combustion, increasing both emissions and climate risk in the real economy. CPPIB committed at least $3.3 billion to new oil, gas, coal and pipeline assets in 2024 alone.
Examples of CPPIB fossil fuel investments in 2024 with no credible decarbonization plan
Coal - BNI Energy
In May 2024, CPPIB announced its proposed acquisition of a 40% stake in Allete, an energy infrastructure company that includes a lignite coal mine in North Dakota operated by Allete subsidiary BNI Energy. While the proposed Allete acquisition could be a smart investment in renewable energy and electricity distribution and transmission assets, neither BNI Energy, Allete nor CPPIB have disclosed a plan for the phase-out of the coal mine.
Oil and gas - Quantum Capital Solutions II
In the first quarter of 2024, CPPIB committed US$500 million to Quantum Capital Solutions II, a private equity fund for oil and gas. In October 2024, the CEO of Quantum Capital Group, the private equity manager overseeing the fund, told Bloomberg News that climate change is making it harder to attract capital for oil and gas, but that "we are a very large driller" and "the vast majority of our capital does go to oil and gas." CPPIB appears to be one of a declining number of investors willing to commit money to fossil fuel expansion.
Oil and gas - Encino Energy
On Earth Day 2024, CPPIB committed US$300 million to Encino Energy, a company in CPPIB’s "Sustainable Energies” portfolio, specifically to expand fracking in Ohio’s Utica shale basin.
Oil and gas - Aera Energy / California Resources Corporation
In February 2024, CPPIB announced it would acquire an 11.2% stake in California Resources Corporation (CRC), California’s largest oil producer, through its merger with Aera Energy. CPPIB had taken a 49% stake in Aera Energy, California’s second largest oil producer, in 2023. As detailed in a Harvard Business School study of CPPIB’s net-zero commitment, CPPIB claimed that:
“The business case for investing in Aera was centered on winding down its oil and gas business and replacing it with renewables and carbon capture and storage (CCS) facilities. While this story fit the fund’s “grey-to-green” asset framework well, several questions remained. First, was this investment aligned with the fund’s net zero commitment? Were Aera’s transition plans away from fossil fuels going to materialize into an attractive risk-adjusted investment opportunity? Was the Sustainable Energies Group, the team assessing the investment opportunity, convinced that it could transition Aera to a green asset?”
The Harvard case study describes a “grey to green” plan to provide oil to meet California’s energy needs in the near term, deploy renewable energy across Aera’s land holdings over time to power oil production, and repurpose select legacy oil and gas infrastructure to create CCS capability in the medium- to long-term. CPPIB staff acknowledged the high costs, unproven nature and potential safety risks of CCS technologies, California’s stringent climate regulations, and the need to fulfill oil and gas well retirement obligations.
Despite these risks, CPPIB moved forward with the investment in Aera, and then its merger with CRC. Since the merger, the combined company has faced controversy over its financial commitment to clean and cap oil wells, lobbied to thwart state climate bills and environmental legislation, and faced criticism for using its questionable CCS plans as a strategy to avoid cleaning up its wells. Meanwhile, CRC has emphasized its intention to double oil production to meet California’s “decades-long” demand for oil, expand the company’s current one-rig drilling program to an eight-rig drilling program, and “overcome regulatory challenges” to grow oil and gas production in the state.
Even when CPPIB attempts to rely upon its decarbonization thesis for fossil fuels, its privately-owned fossil fuel company moves to expand and prolong the use of oil and gas – exactly in line with its corporate mandate. No serious observer would claim that CRC or its subsidiary Aera Energy has a credible, Paris-aligned climate plan.
Examples of CPPIB portfolio companies investing in fossil fuel expansion in 2024
CPPIB portfolio company Calpine
Calpine, a large electricity producer from geothermal resources and gas-fired power plants in the U.S., acquired a new gas plant in Texas in September 2024, part of a plan to add over 1,000 megawatts of gas-fired power generation over the next few years. In January 2025, CPPIB announced that it's selling its 15.75% stake in Calpine to Constellation Energy.
CPPIB claimed that "Calpine serves as a good example of (its) approach to invest in companies that play a critical role in delivering affordable, reliable power while helping them progress towards the decarbonization of their portfolios." Under CPPIB ownership, Calpine diversified into solar energy, battery storage and geothermal assets. But it also significantly expanded gas-fired power production.
Contrary to CPPIB’s decarbonization thesis, the Calpine sale will make Constellation the largest producer of gas-fired power in the U.S., calling into question what the Calpine deal has to do with “decarbonization.” The president of Energy Capital Partners (ECP), which co-owned Calpine in partnership with CPPIB since 2018, emphasized that its acquisition of Calpine was about prolonging the use of gas, contradicting CPPIB’s claims about decarbonization: “We knew that gas-fired assets were going to be around for the next four or five decades,” ECP president Tyler Reeder said. “It was by far the largest investment we did, but we were confident natural gas wasn’t going anywhere. Now, it almost seems obvious in retrospect.”
Reeder also highlighted the “importance of adding that natural gas component” to Constellation’s portfolio amid the potential huge demand for energy to power the boom in artificial intelligence: “you’re going to see a wave of data center deals more tied to gas-fired plants.” CPPIB’s investment partner does not seem to share the same position about reducing emissions in the real economy, belying CPPIB’s emphasis on “decarbonization”.
CPPIB portfolio company Wolf Midstream
In July 2024, CPPIB committed $1 billion to its portfolio company Wolf Midstream to increase natural gas liquids production capacity on Wolf’s NGL North System. Later in 2024, CPPIB CEO John Graham claimed that Wolf was a “transition” asset whose “engineering expertise and know-how has also been translated into carbon capture” (at 32:03). He did not elaborate on how Wolf is aligned with net-zero emissions by 2050, or how committing $1 billion to the expansion of a natural gas liquids pipeline is consistent with a net-zero transition.
CPPIB portfolio company Transportadora de Gas del Perú S.A.
In September 2024, CPPIB portfolio company Transportadora de Gas del Perú S.A., the largest exporter and transporter of natural gas and natural gas liquids in Peru, announced it would extend the piping of fracked gas from the Peruvian Amazon for at least another ten years until 2044. This would lock in the combustion, transportation and combustion of gas for decades to come, adding emissions to the economy and increasing climate risks.
The oil and gas industry welcomes CPPIB’s ongoing investment
CPPIB can indeed play a role in accelerating the required phase-out of fossil fuels, but it’s not saying so, and its investment decisions and portfolio companies are doing the opposite. CPPIB’s significant fossil fuel investments will either become stranded assets in a net-zero world, or they’ll prolong and expand the use of oil and gas in ways that accelerate the climate crisis, threaten the sustainability of the CPP and undermine the retirement security of Canadians. Either option is a bad outcome for CPPIB and the 22 million Canadians on whose behalf it invests retirement savings.
By failing to acknowledge that fossil fuel combustion must be rapidly phased out, CPPIB is essentially making up its own definition of net-zero and ignoring science. This demonstrates a fundamentally flawed understanding of what constitutes a credible climate plan. The investment manager is either failing to comprehend the imperatives of climate science, or dressing up these fossil fuel investments in “decarbonization” language while continuing with business-as-usual.
CPPIB’s own Decarbonization Investment Approach recognizes “abandonment/closure” as an option for emissions abatement, yet CPPIB has not acknowledged that this is the only credible decarbonization pathway for fossil fuel assets. Nor has CPPIB explained to Canadians how the fund can generate returns by buying up such assets and then abandoning or phasing them out in line with safe emissions pathways.
Whilst CPPIB fails to demonstrate the soundness of its decarbonization thesis for fossil fuels, there is certainly one industry that is happy with CPPIB’s approach: oil and gas:
“Lisa Baiton, CPPIB’s former head of global affairs, now CEO of the Canadian Association of Petroleum Producers, recently spoke to Yahoo Finance Canada about her views on institutional investment in the oil and gas industry. ‘It’s really terrific that there are institutions like my former employer who have publicly acknowledged that it is possible to have meaningful net-zero commitments, while concurrently acknowledging that global demand for all sources of energy is going to continue for decades to come, [and] that have continued to unapologetically support the entire energy spectrum,’ she said in an interview.”
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