By Alex Kimani
Canada’s oil sands industry is too carbon-intensive for the environmental, social, and governance (ESG) targets of some of the world’s largest institutional investors. But not for Canada’s own pension funds. The five largest Canadian pension funds, which manage US$1.2 trillion in total assets, saw their combined investment in the U.S.-listed shares of the major oil sands producer surge by 147 percent in the first quarter of 2021, to a total of US$2.4 billion, according to a Reuters analysis of filings to the SEC.
Most of the jump in the value of investments of the pension funds merely reflected the rise in share prices of stock already held. Yet, the funds also bought more shares in the largest Canadian oil sands producers, according to the Reuters analysis.
Regardless of the way in which the pension funds boosted investment in oil sands in the first quarter, the fact remains that unlike other pension funds and some of the world’s largest sovereign wealth funds, Canada’s pension funds have not pledged or made divestments in one of the most emissions-heavy way of producing oil.
The funds, Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec (CDPQ), Ontario Teachers’ Pension Plan (OTPP), British Columbia Investment Management Corp (BCI), and the Public Sector Pension Investment Board (PSP) collectively increased the value of their investments in Canadian Natural Resources, Suncor Energy, Cenovus Energy, and Imperial Oil, according to the Reuters analysis.
Some of Canada’s pension funds have committed to carbon-neutral portfolios by 2050. Commenting on the analysis for Reuters, a PSP Investments spokeswoman said many of the fund’s investments were in passive portfolios tracking stock indexes. Representatives of other funds told Reuters that their exposure to fossil fuels as a whole is a tiny percentage of total assets held.
Nevertheless, the funds have been criticized by activists for not doing enough to account for climate risk in their portfolios by divesting from the oil sands business.
Commenting on this week’s high-profile case in which a Dutch court ordered Shell to slash emissions, holding it directly responsible for contributing to climate change, pension activist group Shift said: “Pension funds take note: This case highlights the growing climate-related legal risks faced by oil and gas companies amidst a wave of litigation against the fossil fuel producers most responsible for the climate crisis.”
“We have a big problem with pension funds saying we believe in engagement, not divestment, but there’s no sign of this engagement,” Shift’s director Adam Scott told Reuters.
Other institutional investors and pension funds have already dumped their stakes in oil sands companies.
In May last year, Norway’s Government Pension Fund Global, the world’s largest sovereign fund which has amassed its enormous wealth from Norway’s oil, decided to exclude Canadian Natural Resources, Cenovus Energy, Suncor Energy, and Imperial Oil over “unacceptable greenhouse gas emissions.” Even the Public Investment Fund (PIF), the sovereign wealth fund of the world’s largest oil exporter Saudi Arabia, has recently sold all the 51 million shares it held in Suncor.
Among pension funds, the New York State Common Retirement Fund said last month it would divest its US$7-million investment in Canadian oil sands firms after determining that seven companies “failed to show they are transitioning out of oil sands production.”
The evaluation of the fund’s oil sands holdings are part of a broader review of climate risk in energy investments, and the fund will next evaluate shale oil and gas companies, it said.
The Bank of Canada also warned in its latest Financial System Review (FSR) from earlier this month that climate-related vulnerabilities are first among “ongoing issues that we all need to take seriously now to protect our financial system and economy in the future.”
“The potential impact of climate risks is generally underappreciated, and they are not well priced. That means the transition to a low-carbon economy could leave some investors and financial institutions exposed to large losses in the future,” Bank of Canada Governor Tiff Macklem said.