A tale of two pension funds: one abandons net-zero, the other doubles down on climate action

National Observer

3 days ago

Temperatures soared across Ontario this week, hitting record highs as a heat dome settled over the province. And at Tecumseh Public School in Burlington, one Grade 4 student had a question on his mind.
'Will I be alive in 2100?'
Jennifer Reid, the student's teacher, said she was struck by the question. The child would be 85 at the turn of the next century. 'Yeah, I think you'll be alive then,' she told him.
'But then the question is, what is the world going to look like in 2100?' she said in an interview with Canada's National Observer.
Extreme heat, made more common and more severe due to fossil fuel-driven climate change, meant children were 'suffering outside' during recess this week, she said. Across the province, many children are simply unable to go to school or get picked up early because the heat is just too unbearable, she said.
Reid says that as an educator, she found the student's question interesting to think about because while 2100 may feel far away, there is nonetheless an 'urgency [to] the question.'
That child, and millions like him, will be collecting their pensions in the decades to come. And while many think of retirees when they think of pensions, public pension plans have a legal fiduciary duty to act in the best interests of all their members — not simply the ones actively collecting right now.
A tale of two pension funds: 'While one is advancing credible, science-based action to protect pensions and the planet, the other is retreating under the guise of regulatory caution.' said Carol Liao, chair of the Canada Climate Law Initiative.
It's against the backdrop of pension plans and climate change that Reid was speaking to Canada's National Observer. As a worker paying into the Canada Pension Plan, she called it 'very worrying, concerning and disappointing' that the fund, which manages the retirement savings of 22 million Canadians, has chosen to abandon its commitment to net-zero emissions by 2050.
The most recent annual report from Canada Pension Plan Investment Board (CPPIB) said its decision to ditch net-zero targets was due to 'recent legal developments in Canada' — a likely reference to the federal anti-greenwashing rules put forward in the Competition Act, known as C-59, last year. Those rules require companies making green claims, like reaching net-zero, to substantiate them using internationally recognized methodology.
'There is increasing pressure to adopt standardized emissions metrics and interim targets, many of which don't reflect the complexity of a global investment portfolio like ours,' the CPPIB said at the time. 'Forcing alignment with rigid milestones could lead to investment decisions that are misaligned with our investment strategy.
'To avoid that risk — and to remain focused on delivering results, not managing legal uncertainty — we have made a considered decision to no longer maintain a net-zero by 2050 commitment.'
Mere weeks after the CPPIB walked back its net-zero target, the country's next-largest public pension fund, the Caisse de dépôt et placement du Québec (CDPQ), published its climate action plan and related transition financing framework which doubled down on climate action — effectively blowing a hole through the rationale the CPPIB put forward.
The Quebec pension fund announced its goal to invest $400 billion in climate action by 2030 and explicitly linked its investing framework to internationally recognized metrics.
To incentivize action, it also linked executive compensation to meeting its climate targets.
'This is what credible climate-aligned governance looks like in practice, and the contrast between CDPQ and CPPIB couldn't be starker,' said Carol Liao, an associate professor at the University of British Columbia's Allard Law School, co-director of the UBC Centre for Climate Justice, and chair of the Canada Climate Law Initiative. 'While one is advancing credible, science-based action to protect pensions and the planet, the other is retreating under the guise of regulatory caution.'
Oily boardroom
While the CDPQ and CPPIB are comparable in many ways — both are major global investors with hundreds of billions in assets, both manage retirement savings for millions of people and both are subject to the same financial regulations in Canada — there is at least one area where they are quite different: board membership.
Three of the 10 members of CPPIB's board of directors also sit on the boards of fossil fuel companies. The CDPQ, by contrast, does not have any board directors who also sit on the board of a fossil fuel company.
CPPIB's board includes Barry Perry (former CEO of Fortis) who now sits on the board of Capital Power; Judith Athaide who also sits on the board of Kiwetinohk Energy, and Ashleigh Everett who is also the president and a director of Royal Canadian Securities, a holding company for Domo Gasoline Corporation.
The CPPIB declined to comment when asked how it is ensuring its leadership is acting in the best long-term interest of its members, what it makes of its peer CDPQ taking an opposite strategy, and if it has information demonstrating what steps it is taking to protect the retirement savings of Canadians through the energy transition.
Marcus Taylor, a professor of global development studies at Queen's University, a contributing author to the Intergovernmental Panel on Climate Change, and a contributor to the Canada Pension Plan said in a statement that he was 'disappointed' to learn about the board's ties to the fossil fuel industry. 'I can't help but wonder if these fossil fuel interests influenced CPPIB's decision to abandon net-zero by 2050 and continue investing billions in oil and gas expansion.'
The findings were identified in a study published Thursday by pension watchdog Shift. Patrick DeRochie, senior manager with Shift, told Canada's National Observer the presence of fossil fuel-linked board members raises conflict of interest concerns.
'When a board is looking at and approving a decision like backing away from a net-zero commitment or developing a climate strategy, what does it mean when you have someone who has a legal obligation to Fortis in that room, or RBC in that room?' he said. With US$132.4 billion invested in fossil fuels since 2021, RBC is the top fossil fuel financing bank in Canada, and the world's eighth largest in a global ranking published in the annual Banking on Climate Chaos report.
'You have one legal obligation that relies on financing fossil fuel companies, expanding gas pipelines, prolonging and expanding the use of fossil fuels — and you have the other that has a legal obligation to a 25-year-old who won't retire until 2060 or 2070 and needs to rely on climate stability to be able to collect their pension,' he said.
Beyond the fiduciary obligations, DeRochie said it's also worth considering what views are informing the pension plans' investing strategies.
'Are they coming in there and spewing propaganda from the fossil fuel industry when they're making a decision about a pension plan's net-zero policy, or are they actually grounding their investment and [asset-management] decisions in climate science?' he said. 'Those are two very different things, and I have no reason to believe that somebody who is on the board of RBC or a fossil fuel company is treating climate change with the urgency and severity that it's shown to be.'
Liao said because pension funds manage the retirement savings of millions of Canadians, their ability to deliver long-term returns is fundamentally linked to climate stability — so credible, sustainable governance of pensions requires aligning long-term investing strategies with climate science.
'Climate risk is financial risk, and ignoring that reality is a failure of governance,' she said, adding that 'climate alignment isn't a PR exercise; it's a long-term, risk-management imperative.'
One of the most pressing financial risks are stranded assets: fossil fuel assets like pipelines, LNG terminals, and oil and gas fields that could be worth significantly less than expected — meaning investors won't recoup the money they've sunk into them.
In a study published Wednesday, the International Institute for Sustainable Development and Environmental Defence found two-thirds of future fossil fuel investments made by companies, typically financed by banks, pension funds and asset managers, are at risk of becoming stranded if the world achieves its climate targets.
'Restricting oil and gas development would protect the Canadian economy from overinvesting in soon-to-be surplus assets, regardless of whether global climate ambition increases,' the report found.
The findings add to a mountain of evidence that the stranded asset issue is pressing for Canadians, including a 2022 finding