2024 UPDATES

• Reported engagements and escalation in line with its Climate Stewardship Plan, although details regarding outcomes are vague.

• Reported it will refine its position in 11 oil and gas companies “as appropriate” after reviewing information received from engagements.

• Strengthened Proxy Voting Policy to include holding directors of high-emitting companies accountable for decarbonization progress.

• Engaged with external managers to familiarize them with the fund’s Climate Transition Investment Framework and to encourage climate progress, including the setting of science-based targets.

• Advocated for sustainability disclosure standards in Canada and in other jurisdictions to align with those of the International Sustainability Standards Board (ISSB), including through joint comments, submissions and public comments.

• Advocated for the release of a Canadian sustainable finance taxonomy, including through an op-ed by UPP’s President and CEO.

• Signed on to the 2024 Global Investor Statement to Governments on the Climate Crisis.

OVERVIEW

UPP set out expectations for its owned companies in its Climate Stewardship Plan and Climate Transition Investment Framework. Combined with UPP’s Proxy Voting Guidelines and Investment Exclusion Policy, these documents signal strong expectations for net-zero transition alignment and some commitments to escalated engagement up to and including divestment.

On additional measures of Climate Engagement, UPP has engaged with external managers on its Climate Action Plan and Climate Transition Investment Framework, played a leadership role in Climate Engagement Canada, and advocated for climate disclosure standards aligned with an international baseline.

UPP’s engagement approach differentiates between high-emitting companies generally and oil companies specifically, but the fund has not yet publicly stated the obvious: that engaging with oil and gas companies cannot result in credible climate-aligned pathways.

Going forward, UPP must articulate time-bound net-zero-aligned expectations of companies, with consequences if they are not met, and continue to follow through on the considered strengthening of its proxy voting guidelines. UPP can build on its relatively strong guidelines and voting record by taking a leadership role in filing climate-related shareholder resolutions and publicly highlighting climate resolutions or climate-related votes against directors.

DETAILS

Expectations and escalation

UPP’s Climate Stewardship Plan for 2023-2025 outlined that the fund’s climate engagement activities aim to achieve a company’s alignment with limiting global heating to 1.5°C. UPP committed to engage 27 companies across three categories: banks, “as allocators of capital that shape climate transition;” high-emitting Canadian companies; and oil companies with an outsized impact on UPP’s carbon footprint. 

While UPP has not named the companies with which it engaged, it reported having engaged with all 27 in 2024, disclosing some results.

The Climate Stewardship Plan stated that UPP would engage banks to disclose 1.5°C-aligned interim and long-term targets for financed and facilitated emissions, disclose exposure to high-emitting sectors, and set targets to scale up finance to climate solutions and 1.5°C-aligned assets. In December 2024, UPP reported that three banks had “committed to additional disclosures and setting targets in 2025.” Details were not provided.

The Climate Stewardship Plan stated that UPP would engage high-emitting Canadian companies and oil companies in its portfolio to disclose 1.5°C-aligned interim and long-term targets (including material scope 3 emissions) and a decarbonization strategy to achieve the targets. It also stated that UPP would engage Canadian oil companies to commit to aligning their policy advocacy with the goals of the Paris Agreement. 

In December 2024, UPP reported that six high-emitting Canadian companies made progress, including on “new emissions disclosures, additional details on their decarbonization strategies, or new science-based emissions reduction targets.” Further details were not provided. 

For oil companies, UPP reported that it was “reviewing the information gained through our initial engagements with 11 oil and gas companies and [would refine its] position regarding these companies as appropriate.” UPP must exclude these companies in line with its findings and policies. Climate Engagement Canada, of which UPP is a leading member, found no oil and gas companies aligned with its 2024 net-zero benchmark company assessments. 

UPP’s Investment Exclusion Policy (effective December 12, 2024) states that the fund will exclude “Entities causing or contributing to severe adverse impacts that, after three years of monitoring, have not exhibited material steps to mitigate and/or remedy the adverse impacts and to prevent future impact.” UPP “believes that it is appropriate to exclude or sell an investment when we identify severe adverse impacts, and stewardship, or other activity, has not, or is unlikely to influence the prevention, mitigation, or remedy of the impact.” Without a credible pathway for net-zero alignment, these oil investments must be phased out of UPP’s portfolio rather than shortlisted for a futile engagement process.

Proxy Voting Guidelines and follow through

The fund’s voting guidelines are relatively strong, and were strengthened somewhat in the previous iteration, effective January 1, 2024. The current Proxy Voting Policy, effective December 12, 2024, is not identical but appears to maintain a similar level of ambition for climate alignment. 

The December 2024 policy states that UPP will “support proposals calling for initiatives and/or targets aligned with the goals of the Paris Agreement, including trying to hold the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.” UPP will not support director re-elections “if there appears to be inadequate oversight of climate change.” 

UPP appears to have removed in 2024 a section included in the January 1, 2023 version of the policy which stated that the fund would not support “the election of the chair of the committee responsible for overseeing disclosures if the company does not report on its climate-related governance and risks and opportunities and does not have a plan to do so in a reasonable timeframe.” However, beginning with its January 1, 2024 version of the policy, UPP has stated that for companies in high emitting sectors (energy, materials, industrials, transportation and utilities), the fund would not support directors “if the company has not demonstrated progress in developing and implementing a decarbonization strategy consistent with the Paris Agreement.” While it is positive to see UPP drawing this line for high emitting sectors, it is unclear why UPP would remove its commitment to not support the election of directors at any company that is failing to report on climate-related governance and risks and opportunities.

This policy is stronger than that of most funds because it holds directors accountable for progress on Paris-aligned decarbonization and uses definitive “will not support” language rather than pledging to “consider” withholding support.

UPP’s Climate Stewardship Plan committed UPP to consider year-over-year strengthening of its climate-related proxy voting guidelines. Since the plan was published, UPP has strengthened the guidelines to include voting against directors at high-emitting companies based on insufficient climate action (as above). The fund has not yet incorporated considered revisions including climate-related expectations related to auditor appointment, advisory votes on compensation and corporate transactions. 

The Climate Stewardship Plan also articulated that UPP would amplify its votes by communicating in writing with companies when UPP voted against management for climate-related reasons. UPP reported doing this with 30 companies in 2024.

The section on lobbying in UPP’s Proxy Voting Policy calls only for disclosure of political contributions and lobbying activities. While this section still needs to be strengthened to ensure that companies do not lobby against Paris-aligned climate policy, UPP articulated in its Climate Stewardship Plan that it expects oil companies to align their lobbying activities with the goals of the Paris Agreement. 

UPP must additionally set the expectation, through its engagements and in its voting guidelines, that companies tie compensation to the achievement of climate targets and do not direct capital expenditure to fossil fuel expansion. 

Snapshots of UPP’s climate-related proxy voting record, including a February 2024 analysis by Investors for Paris Compliance of select climate-related shareholder votes, indicate that the fund has generally been voting in line with its own guidelines. UPP itself reported that during the 2024 proxy season it voted against directors at 14% of public companies in the portfolio for “inadequate board oversight of climate-related matters or insufficient climate action in high-impact sectors”.

Since 2023, UPP has provided a real-time database of its proxy voting record on its website. The fund discloses its rationale for votes on shareholder proposals and votes against directors, and does not shy away from providing Paris-aligned rationale. As an example, UPP voted against ten of 12 Enbridge directors at the company’s Annual General Meeting in 2024, explaining “UPP does not support the election of this nominee because there appears to be misalignment between the company’s climate-related advocacy and the goals of the Paris agreement, including pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.” Enbridge continues to lobby against climate policies while lacking credible or profitable pathways to align its business model with a safe climate. With this track record, UPP must conclude that Enbridge meets UPP’s threshold for divestment: UPP’s Investment Exclusion Policy, which is informed by considerations which include the Paris Agreement, states, “UPP believes that it is appropriate to exclude or sell an investment when we identify severe adverse impacts, and stewardship, or other activity, has not, or is unlikely to influence the prevention, mitigation, or remedy of the impact.”

UPP is demonstrating follow-through on its Climate Stewardship Plan and escalating its engagements. The fund has an opportunity to leverage its relatively strong guidelines and voting record to take a leadership role in filing climate-related shareholder resolutions and publicly highlighting climate resolutions or climate-related votes against directors, for example through news releases and public letters to companies.

External managers

UPP appears to be giving its external managers more education and expectations on their management of climate-related risks than most other funds. The direction UPP gives to external managers on climate is crucial, with UPP’s annual reports noting that the majority of the fund’s assets are externally managed. 

The fund seems to be bringing external managers along on its climate journey, starting by reporting in its 2022 Annual Report a webinar introducing its Climate Action Plan to external managers and stating it would prioritize partnerships with entities that have made, or plan to make, net zero emissions commitments.

UPP’s Climate Stewardship Plan included commitments to share updated proxy voting guidelines with external managers in 2024, and “systematically highlight our climate-related vote guidelines to external managers” in 2025. In order to gauge the success of its Climate Stewardship Plan, UPP will examine outcomes including that “UPP’s external managers exercise proxy voting, company engagement, or advocacy in support of climate transition, following our dialogue with them”. UPP’s “Fund Assessment Criteria” will be used to assess the climate-alignment of externally managed funds. 

In 2024, UPP reported that it had engaged with its external managers throughout the year to familiarize them with the fund’s Climate Transition Investment Framework. UPP also “encouraged” external managers to “submit emission reduction targets for Science Based Targets Initiative validation, enhance proxy voting policies informed by climate commitments, implement processes to measure and manage physical climate risks, and communicate climate expectations to portfolio companies more decisively.”

UPP has sent strong signals to its external managers and must continue to follow through in ensuring these managers support the fund in achieving its net-zero commitment. UPP could also improve transparency and accountability to members by reporting the progress externally managed funds are making toward Paris alignment.

Collaborative engagement

UPP is a founding member of Climate Engagement Canada (CEC). The fund’s President and CEO, Barbara Zvan, is the CEC Steering Committee Chair. UPP appears to have played a leading role in the initiative and in shepherding CEC’s publication of a net-zero benchmark. The benchmark and annual alignment assessments have provided much-needed transparency about Canada’s corporate sector and its lack of climate alignment.

UPP reported collectively on “bilateral and collaborative [with CEC]” engagements with the 27 companies it had prioritized for engagement. Progress on these engagements is captured above in Expectations and escalation.

UPP also reported in 2024 additional detail on one CEC engagement that resulted in a Canadian oil and gas company announcing a target to reduce absolute methane emissions. From details provided, an observer could conclude that this engagement refers to CEC focus list company Cenovus, which has since removed any reporting on climate and GHG emissions from its website. CEC’s 2024 company assessments found Cenovus to be misaligned on Real World Climate Policy Engagement (receiving a D- score), while the company failed to fully meet any criteria on CEC’s net-zero disclosure framework. UPP cannot credibly claim that its net-zero commitments can be squared with continuing to engage this company.

UPP continued its participation in the CDP Science-Based Targets Campaign for 2023-2024. The campaign focuses on engaging high climate impact companies to adopt science-based transition targets. UPP engaged with three companies in the materials and industrials sectors, reporting that one company had since adopted a science-based target.

UPP is an investor supporter of Climate Action 100+, meaning it is a signatory to the initiative and supports the initiatives’ goals, but does not participate directly in engagements with focus companies. 

Policy engagement

UPP is stronger than most Canadian funds on policy advocacy. It has included policy advancement as part of its Climate Stewardship Plan and posts its policy statements and submissions on its website. The fund considers policy advocacy to be part of its duty to UPP members, stating, “We believe that UPP has a duty to advocate for effective rules and regulations on behalf of our members for the good of the fund and for the good of the economic, social, and environmental systems on which long-term fund performance relies.”

The Climate Stewardship Plan for 2023-2025 stated that UPP aimed to “[c]ontribute to establishment of mandatory standardized, economy-wide disclosure of scope 1, 2 and material scope 3 emissions, and transition plans from all medium and large enterprises,” and to “[s]upport policy advancing the alignment of activity in the real economy with a 1.5 degrees scenario.” Fund CEO Barbara Zvan called for both in an October 2024 op-ed in TheFutureEconomy.ca.

Also in 2024, UPP responded to local consultations on climate-related disclosure standards in nine international jurisdictions, advocating for alignment with the International Sustainability Standards Board (ISSB). UPP also signed a joint statement in support of aligning Canadian Sustainability Standards Board standards with ISSB standards; after the CSSB standards were established, UPP signed a joint statement in support of the standards and encouraging Canadian issuers to “not delay the measurement and reporting of material sustainability-related information.” Additionally, in February 2024 UPP, along with other financial institutions, submitted comments on proposed methane regulations in Canada, writing that “we commend [Environment and Climate Change Canada’s] efforts to adopt cost-effective regulations to achieve at least a 75% reduction in oil and gas methane emissions by 2030 from a 2012 baseline and urge you to move swiftly to adopt comprehensive final standards.“

UPP also added its name to an open letter calling for Canada to rapidly implement a sustainable finance taxonomy and joined more than 600 other institutional investors in signing on to the 2024 Global Investor Statement to Governments on the Climate Crisis, a call for climate policy implementation and a whole-of-government climate approach from all levels of government.