Watchdog says pension plan dropping net-zero target a ‘failure of its fundamental purpose’

The Canada Pension Plan (CPP) has been lambasted by industry watchdog Shift Action for dropping its 2022 commitment to invest in line with the country’s net-zero action targets.

Shift Action said the move by the CPP investment board (CPPIB) was an “unacceptable abdication of responsibility” to the 22 million Canadians whose retirement savings it handles and also “difficult to find” in the organization’s 2025 Annual Report,  mentioned just once on the 23rd page of the report released Wednesday morning.

“Net-zero commitments are not optional. They have become essential tools to manage risk and maximize long-term financial returns for pension funds,” said Adam Scott, Shift Action’s executive director, in a statement. 

“In backing out of a promise to invest in line with its net-zero by 2050 commitment, CPPIB’s management has failed to undertake its most fundamental purpose — to responsibly manage the long-term collective savings of working and retired Canadians.” 

Climate's 'global GDP impact' 

Shift Action pointed to studies showing climate impacts were already reducing global gross domestic project growth,” threatening the stability of financial markets, and disrupting lives and livelihoods” in Canada. “If the climate crisis isn’t addressed, experts have warned that pension funds like CPPIB are unlikely to generate the stable, future returns necessary to pay out their long-term obligations.”

Ortec Finance, a consultancy specializing in risk management for financial institutions, found in a report in November that pension funds’ “heavy reliance on high-risk assets,” including in the fossil fuels sector, could result in investment return declines of “up to 44 per cent by 2050 if climate policies remain unaddressed.”

Shift Action said the CPPIB’s “passive approach to climate is at odds with its role as an active investor” — and out of step with seven of Canada’s largest pension funds, which are making “ongoing improvements” in moving investment capital to net-zero-aligned strategies.

“CPPIB’s retreat contrasts sharply with other Canadian pension funds that are staying the course on net-zero,” said Scott, noting that his organization’s latest Canadian Pension Climate Report Card highlighted progressive investment portfolios being developed by the Caisse de Dépôt et Placement du Québec, Investment Management Corporation of Ontario, Ontario Municipal Employees Retirement System and  Ontario’s University Pension Plan.

He added the CPP’s report explained its decision to abandon net-zero targets with “a vague mention of ‘recent legal developments’ — most likely a reference to amendments to the Competition Act enacted in June 2024 that are designed to address greenwashing.”

Shift Action said this could be read as acknowledging that the investment board of CPP, which is currently valued at almost $715 billion, knew its original net-zero statements “weren't in line with internationally-recognized standards.” 

“Many different international net-zero standards for financial institutions exist. But instead of working to improve its climate strategy, CPPIB instead retreated from its net-zero commitment,” said Scott.

“This appears to be a tacit recognition that the investment manager had been greenwashing its approach to climate.”

CPPIB had not replied to a request for comment as Canada’s National Observer went to press. 

However, CPPIB chief John Graham told The Globe and Mail that the apparent change in strategic direction was a response to "new considerations around how net-zero commitments are interpreted.” 

“That caused us to change a little bit how we talk about it, but nothing's changed on what we're actually doing,” he said.

'Long-term perspective'

”We think it is really important to incorporate climate and incorporate sustainability into the portfolio when we take a long-term perspective and as a long-horizon investor.”

Canada’s eleven largest pension fund managers together manage over $2.5 trillion in savings, according to latest calculations by Shift Action. 

In its most recent pension climate report card,  it concluded that while the sector was now building internal climate expertise and starting to help portfolio companies decarbonize by “strengthening fossil fuel exclusions,” Shift Action said its number-crunching “also exposes a troubling divergence between leading and lagging institutions.”

Last December, a Shift Action study into CPPIB’s climate change investment strategy found  its “insistence” that continued investment in fossil fuel assets and infrastructure was needed “in order to generate returns while decarbonizing these assets and reducing emissions in the real economy” was "fundamentally flawed” as it hinged on dubious definitions of “decarbonization” and ‘transition to lower-carbon business models.’

“CPPIB has not provided any credible explanation for how this ‘decarbonization’ could work for fossil fuels or how CPPIB’s fossil fuel investments or partnerships with fossil fuel companies will amount to ‘financing their emissions reductions,’” it said at the time. 

“CPPIB also neglects to explain how these companies will ‘transition to lower-carbon business models.’.” CPPIB committed at least $3.3 billion to new oil, gas, coal and pipeline assets in 2024 alone, according to Shift Action. 

The fund finished the fiscal year with $714.4 billion in assets, up from $632.3 billion in 2024. CPPIB manages a global portfolio, with 12 per cent of its investments in Canada. Forty-seven per cent of assets are in the US, 19 per cent in Europe, 17 per cent in Asia Pacific and five per cent in Latin America.

CPPIB chief John Graham told The Globe & Mail that the apparent change in strategic direction was a response to "new considerations around how net-zero commitments are interpreted.” 

“That caused us to change a little bit how we talk about it, but nothing's changed on what we're actually doing,” he said.

”We think it is really important to incorporate climate and incorporate sustainability into the portfolio when we take a long-term perspective and as a long-horizon investor.”

[Top photo: John Graham, President & CEO, Canada Pension Plan Investment Board speaks at the Canadian Chamber of Commerce's Annual General Meeting & Convention in Ottawa on Friday, Oct. 14, 2022. Photo by: Sean Kilpatrick / The Canadian Press]