Tuesday, December 12, 2017

Canada's Large Pension Polluters?

HuffPost Canada reports, Canada Pension Plan Undermines Feds By Investing In Coal:
Canada's national pension fund manager is among a group of Canadian companies that are undermining the federal government's international anti-coal alliance by investing in new coal power plants overseas, an environmental organization says.

Friends of the Earth Canada joined with Germany's Urgewald to release a report today looking at the top 100 private investors putting money down to expand coal-fired electricity — sometimes in places where there isn't any coal-generated power at the moment.

The report lists six Canadian financial companies among the top 100 investors in new coal plants in the world. Together, Sun Life, Power Corporation, Caisse de depot et placement du Quebec, Royal Bank of Canada, Manulife Financial and the Canada Pension Plan Investment Board have pledged $2.9 billion towards building new coal plants overseas.

Urgewald tracks coal plants around the world and reports there are 1,600 new plants in development in 62 nations, more than a dozen of which don't have any coal-fired plants now.

While Environment Minister Catherine McKenna is claiming to be a global leader on phasing out the dirtiest of electricity sources, private investors are "undermining that commitment," says Friends of the Earth senior policy adviser John Bennett.

Canada and the United Kingdom last month teamed up to launch the Powering Past Coal Alliance, trying to bring the rest of the world on side with a campaign pledge to phase out coal as a power source entirely by 2030 for the developed world and 2050 for everyone else.

Twenty national governments and at least seven subnational governments — five of them from Canada — signed onto the alliance last month. The hope is to grow the number to 50 by the time the United Nations 24th climate change conference takes place in November 2018.

McKenna will meet with leaders and officials from the alliance this week in Paris, where French President Emmanuel Macron is hosting a climate change meeting to mark the two year anniversary of the Paris climate change accord. This meeting is largely focused on international climate finance as the world tries to meet the goal to have $100 billion a year to invest in climate change mitigation and adaptation projects in the developing world by 2020.

The accord commits the world to keeping the average global temperature from rising more than two degrees Celsius over pre-industrial levels by the end of the century. To do that, scientists suggest global carbon emissions have to start dropping in less than three years, and the only way that is going to happen is by shutting down coal plants.

Coal is responsible for almost half of global carbon dioxide emissions.

McKenna's office did not respond to a request for comment.

Last week, McKenna was in China where she said she was talking about phasing out coal. While China is trying to cut its own coal use, it uses more coal to make power than the rest of the world combined. Hence, McKenna said it's currently impossible to expect China to commit to eliminating it.

Canada can do more: climate institute

McKenna said she wasn't planning to raise the issue of China investing in new plants outside its borders. Urgewald's data show Chinese-owned companies are behind about 140 new coal plants in development outside China.

Turns out Canadian money is also financing international coal plants, through private investors.

Dale Marshall, national program manager for Environmental Defence, said the Paris meeting this week has a lot of work to do trying to figure out how national governments can increase their commitments but also leverage more from the private sector.

Erin Flanagan, director of federal policy for the Pembina Institute, said Canada can do more to discourage Canadians from investing in coal and encourage investments in clean energy. That could include a national requirement for investment companies to include climate change risks when publishing decisions about investment opportunities.
Friends of the Earth Canada released a press release, Canada is the 8th top backer of new coal plants around the world:
Today, the German organization Urgewald released a report revealing Canada as the 8th largest investor in new coal globally.  They provide a list of the top 100 investors in companies developing new coal plants. Canadian institutions on the list include:
  • SunLife at #31 with $895 million invested;
  • Power Financial Corporation at #53 with $631 million invested;
  • Caisse de dépôt et placement du Québec at #71 with $433 million invested;
  • Royal Bank at #86 with $356 million invested;
  • Manulife Financial at #98 with $282 million invested; and
  • the Canada Pension Plan Investment Board just missed making the list with $267 million invested.
Friends of the Earth, using the Urgewald findings and the Canada Pension Plan Investment Board publications, has produced “Canadian Coal Investment: Powering Past the Coal Alliance”.

“Minister McKenna is claiming leadership in the global phase-out of coal but the numbers show investors undermining that commitment,” says John Bennett, Senior Policy Advisor, Friends of the Earth Canada. “This isn’t just about right and wrong. It’s about making risky investments – largely with other people’s money,” said Mr. Bennett.

In the midst of growing evidence of the risks of investing in fossil fuels, initiated by government pronouncements on phasing out coal plants, carbon pricing and climatic events,  Canadian pension funds and financial institution are helping to bankroll the expansion of coal fired power plants in China, India, South Africa and other countries around the world. Link to spread sheets.

The Canada Pension Plan Investment Board’s total investment in coal stands at $12.2 billion CDN. This number is based on CPPIB Direct Investment of $339 million in Urgewald’s top 120 Coal New Developers, CPPIB Investments of $6,939 million in the Urgewald’s 100 Top Investors in New Coal and other CPPIB Coal Investments of $4,969.

“Will the Canada Pension Plan be there for Canadians if it continues ignoring climate change and making risky investments with our money? We need regulations requiring financial institutions to recognize the financial risks associated with climate change and ending investment in fossil fuels starting with new coal plants,” said Mr. Bennett.

Coal investments of $12.2 billion is a great deal of money; however, it is only 3.7% of the CPPIB’s $325 billion fund. Even if all the coal investments were wildly profitable, their divestment would have only a minor impact on returns. On the other hand, assessments by Corporate Knights have shown the Canada Pension Plan likely miss out on US$6.5 billion in profits by sticking with climate polluting industries.

For more information, contact: John Bennett, Senior Policy Advisor, Friends of the Earth Canada, 613 291-6888 johnbennett@foecanada.org

Friends of the Earth Canada (www.foecanada.org) is the Canadian member of Friends of the Earth International, the world’s largest grassroots environmental network campaigning in 75 countries on today’s most urgent environmental and social issues.
My first thought after reading this is Friends of the Earth Canada are no friends of the Canada Pension Plan and CPPIB.

Let me begin by stating flat out, this organization has no understanding of CPPIB's mandate and governance that have led to its success and that of other large Canadian pensions.

Importantly, CPPIB and other large Canadian pensions operate at arm's length from the federal and provincial governments, and that's undeniably in the best interests of all Canadians and the stakeholders of these pensions.

CPPIB's objective is the same as other large Canadian pensions, namely, to maximize returns without taking undue risks. Period.

The tricky business of divestments might sound right and ethical and in rare cases it is supported by overwhelming evidence, like in the case of OPTrust divesting from tobacco. There is a direct link between tobacco and people dying.

But in the case of coal, piplines, fossil fuels, we need to exercise a lot more caution when it comes to divestments. Coal is still a very important source of energy but it's declining. Pipelines have less of a carbon print than trucks and trains used to transport fossil fuels and coal (and pipelines are great long-term investments).

More importantly, this report from Friends of the Earth Canada neglects to mention that Canada's large pensions are already committed to fighting climate change and are evolving taking into consideration changes in global environmental public policy (they have no choice but to take changes in policy into consideration).

In October, the Caisse announced it aims to cut portfolio's carbon footprint 25% by 2025:
The Caisse de dépôt et placement du Québec is setting bold targets to shelter its portfolio against the impact of climate change.

The country's second-largest pension fund is seeking more profitable investment opportunities and means to avoid assets it forecasts will be left behind in a global marketplace being reshaped by an increasingly low-carbon world economy.

The move comes as institutional investors around the world are reassessing climate risks and other so-called environmental, social and corporate governance (ESG) factors in response to stakeholder pressures, marketplace shifts and new regulations.

"The world is changing, frankly, faster than most people expected," Michael Sabia, chief executive officer of the Caisse, said at a Montreal event to discuss the pension fund's new climate policy. "We need to change the way we make investment decisions."

The Caisse is setting measurable targets to guide its investment decisions for the coming years. Most crucially, it plans to reduce the carbon footprint of the overall portfolio by 25 per cent by the year 2025.

Carbon budgets will guide the Caisse in meeting and surpassing that 25-per-cent target, and give it a capacity to assess the performance of individuals and investment teams against the budgets – compensation will be linked to their success.
The Globe and Mail article also mentions that at Canada Pension Plan Investment Board, climate change is one of its four key ESG pillars and is perceived as a significant risk factor that can affect investments:
"We think it's something that we have to take seriously in our time-frames and do more to understand, quantify and figure out whether we're paying the right price," Mark Machin, CEO of CPPIB, said of climate change's impact on investments at a recent conference in Toronto. "At the end of the day our mandate is simple. It's not to change the world. It's to maximize returns without undue risk of loss for our 20 million beneficiaries."
I highlighted that last part so all those environmentalists who think the CPPIB is an extension of the federal government can stop this nonsense and understand that CPPIB is a Crown corporation with its own board and governance which is separated from the federal and provincial governments (they look after the CPP, not the CPPIB).

Another problem I have with this report is it neglects to mention huge investments Canada's large pensions are making in renewable energy across public and private assets. It only targets coal, which quite frankly is a pittance in terms of the overall portfolio and will eventually be phased out completely.

Canada's large pensions aren't polluters, they're doing more than their fair share of ESG investments and even though they're not perfect, I think some environmental groups need to back off and stop distorting the facts, or at the very least present a much more balanced portrait of what is really going on.

I suggest Canada's large pensions put up some charts in their annual report showing the annual change in renewable energy investments and start being more transparent about what percentage of their portfolio is still in fossil fuels and how it compares to a decade ago.

If you have anything to add, feel free to contact me at LKolivakis@gmail.com and I'll be glad to publish your comments.

Below, clips from a very biased Guardian article which states the argument for divesting from fossil fuels is becoming overwhelming. Just "keep it in the ground" and "divestment is simple" according to this article.

Unfortunately, divestments are far from simple and such decisions have a material impact on pensions looking to maximize returns without taking undue risks. The reality is the world still needs fossil fuels and the myth of fossil fuel phase out needs to be exposed and laid to rest once and for all.

Update: John Bennett of Friends of the Earth Canada, sent me this after reading my comment above (added emphasis is mine):
We share a desire to see successful pension funds, but differ on the reality of the claims made by the CPPIB and other pensions and financial institutions.

First of all we do not call for divestment. We calling for regulation incorporating climate risk to investment be a real part of fiduciary responsibility. There is big difference.

There is plenty of evidence climate risk is real. Long term investments in fossil fuels, insurance and even real estate as well as other areas are subject to climatic events and changing regulations significantly altering the risks to those investments. Phasing out coal is one such risk.

Second, the CPPIB is investing public money collected as a tax by the federal government and under the act that created it, government has the authority to appoint the board and provide direction should it choose to do so. We have every right to expect the money we turn over won’t be used against our own best interest.

The Canadian government is leading a global campaign to phase out coal powered electricity which creates a double bind for the CPPIB if continues to invest in new coal either directly or indirectly. The value of those investments will drop as the government campaign grows – a climate risk.

As much as you and the CPPIB believe it is at arm's length from government, can it continue to invest public money in a manner that directly undermines government policy? The CPPIB already has changed investment policy to bring it in line with government policy when it comes to landmines, human rights and women on boards. Why not climate change or coal?

I’ve read the CPPIB sustainability report and it sounds good if climate change were minor issue requiring a good public relations response. It’s not. Climate Change is an existential threat to humanity. It is the moral responsibility of everyone, especially those with the capacity of the $325 billion fund to everything we can to avoid significant climate change.

The Paris Agreement set 2 degrees C as the limit but even if we hold it there the world will experience costly and disruptive climate changes including climatic events, sea level rise and more. We hold there if we continue to build coal fired power plants...

Quietly urging fossil fuel companies to report their emissions as the CPPIB claims it does just doesn’t cut it any longer. Perhaps 20 years ago when we had more time it would have been a adequate start. We no longer have decades to slowly wean ourselves from fossil fuels.

CPPIB does not take climate change seriously. The billions invested don’t lie. If it did it would not be continuing to make new investments in fossil fuels let alone coal.

And it refuses to even discuss climate change. It’s carefully worded policy on its website is just repeated over and over again. http://www.benefitscanada.com/pensions/db/canadian-investors-targeted-for-investments-in-new-coal-projects-107787

You refer to its ESG approach. Have you asked for a copy one of their ESG reports? I have. I asked for a copy of the report on investing a billion to buy ENCANA’s Colorado holdings and set up Crestone Peak Resources (96% CPPIB owned) private company. The CPPIB refused to release it because it would show how climate change and public health was ignored.

You may be satisfied with the CPPIB but should a government agency be allowed do what it pleases with $325 billion in public money without any real public scrutiny.
I thank John for sharing his thoughts but it's clear to me he doesn't understand CPPIB's mandate, governance and that it's not a government organization, it's the largest Crown corporation with its own independent board to make sure there is no government interference whatsoever in its investment decisions.

CPPIB's first "fiduciary responsibility" is to attain the actuarial return target set by the Chief Actuary of Canada without taking undue risks.

Moreover, there is intense scrutiny on CPPIB and it's a highly transparent organization. To say CPPIB doesn't take climate change seriously is ridiculous. If that were the case, then why does it invest in renewable energy?

Lastly, CPPIB most definitely invests in the best interests of Canadians looking to retire with dignity and security. There is no doubt about this in my mind and the long-term performance backs it up.

Can CPPIB improve its ESG policies and be more transparent in this regard? Sure, but to claim it ignores climate change and public health is outlandish and just downright false.

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