Advocacy group claims influential pension evaluator is downplaying climate risk

The federal office tasked with ensuring the long-term health of Canadians’ pensions is underestimating one of the biggest threats to people’s retirement plans — climate change, says an advocacy group. 

The Office of the Chief Actuary (OCA) is failing to capture the financial risks of climate change in its long-term assessments of the Canada Pension Plan (CPP) and other public funds, warned advocacy group Shift: Action for Pension Wealth and Planet Health in an email to Chief Actuary Assia Billig early this morning. 

Reports produced by actuaries “can play a pretty big role in terms of how the funds are managed long term,” so it is critical that the OCA not underestimate the huge, systemic risks posed by climate change, Adam Scott, director of Shift, said in a phone interview with Canada’s National Observer.

A note in the Canada Pension Plan’s annual report claims that an independent assessment from the chief actuary shows the plan will be funded for the next 75 years. “So, we feel great about that,” said Scott. “We’re doing such a great job.”

However, he said, “the only reason the chief actuary is able to say that with some confidence is because they didn't include systemic risks of climate change.”

In 2022, Canada’s Parliamentary Budget Officer found climate change is reducing Canada’s GDP by billions. Changing weather patterns and wildfires impact agricultural productivity, extreme heat is detrimental to human health and has labour implications and damage from extreme weather events continues to cost billions.

“If the climate is not stabilized and these systemic risks manifest, it is very plausible that people working today, anybody under the age of 40 … may not be able to rely on having a pension — whether it's CPP or any other pension — or have your own personal investments even perform well,” Scott said. “The risks to the global economy and the Canadian economy and these institutions are so substantial that the very success or failure of these institutions does hinge on climate stabilization.”

Canada's OCA projects the viability of public funds, including the Canada Pension Plan, Public Sector Pension Plan and Old Age Security. Its projections influence the investment decisions of these funds that together manage more than a trillion dollars. Billions are invested in fossil fuels. The Canada Pension Plan Investment Board ditched its net-zero by 2050 targets this summer, which many experts and advocates, including Scott, say “is a real abdication of their legal responsibility.”

“It's made worse when the institution that is tasked with giving them this information is not doing their job properly,” Scott said of the OCA. 

“We need this risk actually quantified to some extent.”

Climate change is already taking a toll on global economics, but this reality is missing from the OCA’s January 2025 analysis on climate change impacts, the letter said. Its baseline scenario assumed a world with no climate impacts until 2100, despite the fact some have already been locked in.

An emailed statement from the Office of the Superintendent of Financial Institutions said the baseline scenario “is a reference point against which the incremental effects of climate-related risks can be compared,” and its definition can vary from one publication to the next. 

“A baseline scenario assuming no climate impacts through 2100 does not suggest that climate change is not expected to have an impact, but rather ensures clarity in understanding how alternative scenarios diverge from a common starting point,” the statement, attributed to spokesperson Cory Harding, reads.

Even the "worst case" scenario the OCA describes pales in comparison to the economic losses scientists and other financial actuaries are projecting, the letter noted. 

The OCA’s climate change impact analysis, published January 2025, assumes only an eight per cent GDP decline by 2050 and 30 per cent by 2100 in a "failed transition" scenario, meaning no more climate policies are implemented.

A joint paper by the UK’s Institute and Faculty of Actuaries (IFOA) and Ortec Finance projected potential GDP losses of 65 per cent to 73 per cent by 2100 if global temperatures rise 4°C above pre-industrial levels.

Another major oversight by the OCA is its failure to identify or account for key tipping points, like melting permafrost or ice sheet collapse, that can accelerate warming, Scott said. The Earth’s average temperature is anticipated to permanently breach 1.5°C above pre-industrial levels by the early 2030s, the letter stated. Tipping points are increasingly likely to occur once the 1.5°C threshold is crossed.

"Tipping points must be included if scenarios are to be realistic,” according to a 2023 paper by the University of Exeter and IFOA. “They are no longer high-impact, low-likelihood events but are now high-impact, high-likelihood, and we need to mitigate and plan for them. Ignoring them in scenarios and modelling significantly understates risk."

Shift’s letter suggests the OCA look to this paper and others by the University of Exeter and IFOA for guidance on climate risk analysis.

In response to questions of the worst-case scenario and tipping points, the Office of the Superintendent of Financial Institutions’ statement said the study draws on reputable, publicly available research available at the time of publication and “recognizes that there is a wide range of credible projections in the academic and actuarial literature.”

The OCA is an independent unit within the institute and neither develops its own climate scenarios nor “opine on the appropriateness” of the publicly available scenarios, it reads.

“The scenarios selected were intended to be illustrative rather than to provide definitive forecasts of climate damages,” the statement said.

Scott emphasized the OCA isn’t blind to climate; it seems concerned about the impacts of climate change and is starting to incorporate some aspects of climate risk, but a lot more work is needed. The letter contains a series of recommendations, including taking a close look at any increasing risks to returns and assets from fossil fuel investments, particularly new fossil fuel supply and expansion.

Shift’s most recent pension fund report card found CPP had over $22 billion invested in fossil fuel production assets as of October 2024 and PSP Investments had an estimated $6.2 billion to $8.1 billion in fossil fuel assets as of March 2024.

CPP did not respond to a request for comment and PSP declined to comment.

Burning fossil fuels like coal, oil and gas are a primary driver of global temperature rise and, at this stage, every fraction of a degree of warming we can prevent is critical, Scott said. 

“What future unfolds is entirely within our control, and the actions we make today decide it,” Scott said.