Pension fund's climate decision makes all Canadians more vulnerable

National Observer

26-05-2025

Canadians may trust their banks, but when it comes to their pensions, it's closer to the faith of religious devotees. Irrespective of whether they take an active role in managing their pensions, few Canadians entertain the possibility their pension might not be there when they retire. There's a good reason for this — Canadian pensions are generally well-regulated, and the government takes an active role in their management. For this reason, many Canadians assume pension funds are ethically invested, and fund managers are doing their due diligence.
We might soon be in for a very rude awakening.
Recent research by Ortec Finance suggests that Canadian pension funds are second only to those in the United States in terms of their vulnerability to the climate crisis. Their modelling suggests that climate change could erode Canadians' pension returns by as much as 44 per cent in the next 25 years.
Canadian pension funds have a fiduciary responsibility to remain solvent and stable, which is why they need to plan to address the financial challenges posed by climate change. They also need to refrain from exacerbating the underlying causes of it. And among all public and private pensions in Canada, no one is more responsible for leading by example than the Canada Pension Plan Investment Board (CPPIB), the Crown corporation that manages the Canada Pension Plan (CPP). Unlike other pensions, both public and private, practically everyone is entitled to CPP, and most of us will depend on it in our retirement.
One might presume that, for this reason, the CPPIB would be among the world's most conservative and risk-averse pension fund managers. After all, it manages $714.4 billion on behalf of 22 million Canadians, and is among the largest pension funds in the world.
And yet, it would seem that the CPPIB has quietly abandoned its net-zero commitments made initially in 2022. According to the CPPIB's 'Approach to Sustainability' FAQ section:
Recent legal developments in Canada have introduced new considerations around how net-zero commitments are interpreted. In particular, there is increasing pressure to adopt standardized emissions metrics and interim targets (…) forcing alignment with rigid milestones could lead to investment decisions that are misaligned with our investment strategy. To avoid that risk (…), we have made a considered decision to no longer maintain a net-zero by 2050 commitment.
Many Canadians assume pension funds are ethically invested, and fund managers are doing their due diligence. We might soon be in for a very rude awakening.
The CPPIB's justification makes no sense. Far from being a 'rigid milestone,' net-zero by 2050 — first articulated as a global goal at the Paris Climate Conference in 2015 — was widely criticized for being 'too little, too late.' Moreover, the CPPIB's opposition to adopting 'standardized emissions metrics' and 'interim targets' seems odd for a pension fund whose job it is to meticulously scrutinize its investments and the general investment climate to ensure its long-term viability.
If the investment board is not concerned about clear metrics and timely reporting, who is?
And as far as 'misalignment' is concerned, it's worth considering that CPPIB is moving against the grain among Canada's major pension funds. According to Shift Action for Pension Wealth & Planet Health — a Canadian charitable organization that works to protect the climate as much as our pensions — seven of Canada's largest pensions have maintained their net-zero commitments, despite facing the same 'recent legal developments' (Shift Action and some other critics believe this is in reference to anti-greenwashing amendments made to the Competition Act last year). In a statement, Shift Action indicated its belief this could be interpreted as a tacit admission CPPIB was aware its net-zero commitments may not have been in line with international standards.
If this is the case, the Canadian public deserves to know not only why the CPPIB has abandoned its net-zero commitments, but further, why it didn't take the amendments to the Competition Act as an opportunity to improve and specify those commitments.
Furthermore, it's ironic that the CPPIB would argue it's abandoning its net-zero goals out of an apparent concern for risk, when the whole point of a 35-year transition toward carbon neutrality was to minimize the risks associated with climate change in the most incremental and business-friendly way possible.
Does the investment board think the investment climate is going to become less risky as we move deeper into the climate crisis? Does it think abandoning already unambitious net-zero goals will have the effect of increasing market stability?
Does it not realize this retreat from even modest carbon-neutral ambitions will likely have an unintended trickle-down effect on other Canadian pension funds? If the CPPIB is giving up, why should anyone else bother?
According to Shift Action, Canada's largest pensions manage a combined $2.5 trillion. Their investment decisions play a big role in determining whether there's capital for renewables, energy transition, and decarbonization, or continued investment in the very fossil fuels that are undermining economic stability. It's not just all the current and potential recipients of CPP who deserve an unambiguous explanation for their actions; it has a responsibility to be a good corporate citizen and shine a light forward for all other pension funds — not to mention the business community more broadly. That a public corporation with such an obvious duty to taxpayers as much as other pension funds would so willingly shirk its responsibilities is as unacceptable as it is unconscionable.
It isn't, however, surprising.
Shift Action publishes an annual Canadian Pension Climate Report Card, and the CPPIB was among the very worst performers in 2024, earning the second to lowest overall grade. Shift Action noted that the CPPIB continues to make investments in the fossil fuel sector, despite scientific consensus on the root cause of climate change, as much as a growing economic consensus that Canada's days as an energy exporter are numbered.
The CPPIB — like all pension fund managers — has a responsibility to do its due diligence, but this is unlikely to occur in a country in which politicians and much of the establishment media and business class are happy to parrot industry-approved narratives forecasting sunny days ahead for fossil fuels. This is neither realistic nor responsible.