Young Canadians accuse the Canada Pension Plan of mismanaging climate risks

Travis Olson, a 22-year-old from Camrose, Alta., is worried that his pension is at risk from climate breakdown and has joined three other young people and two law firms to hold the Canada Pension Plan accountable.

In a lawsuit Olson filed Monday at the Ontario Superior Court of Justice alongside Aliya Hirji, Rav Singh and Chloe Tse, the plaintiffs allege the Canada Pension Plan Investment Board is violating its legal obligations to protect their pensions from climate risk. 

The case is the first time a Canadian investor has been sued for the alleged mismanaging of climate risks.

“I don't think I've ever heard someone my age talking about their pension, but it's something that's incredibly important,” Olson told Canada’s National Observer. “Especially because when we retire that needs to be there for us.”

The Canada Pension Plan owns $714.4 billion worth of assets and manages the retirement savings of 22 million Canadians. But projections from the Office of the Chief Actuary suggest that contributions from those paying into the fund are becoming increasingly insufficient to pay benefits, meaning that the pension fund’s investments will be more important for future payouts. 

“As a result, the adequacy of the [pension board]’s investment strategy, particularly in the face of the magnitude and severity of climate-related risks, is critical to the CPP’s survival and its ability to meet its financial obligations on any given day, including any given day after 2050,” according to the lawsuit.

Research from Ortec Finance suggests that pension funds could see investment returns plummet 50 per cent by 2040 — if global warming reaches 3.7C — with declines of nearly 60 per cent in more severe warming scenarios. 

Olson, who would turn 65 in 2068, said he is concerned. “The future comes faster than you expect it to,” he said.

The lawsuit is not seeking financial damages or compensation. Rather, it is pressing the court to confirm the pension fund has a legal obligation to better manage climate risks in the interest of all contributors young and old, as well as to disclose its investment and portfolio-level climate risk assessments and the models it uses to quantify climate-related financial risk. 

Climate commitment rollbacks

Frank Switzer, managing director of the Canada Pension Plan communications department, said the fund takes climate change into account when investing, and intends to fight the challenge in court “if necessary.”

“An action against CPP Investments and its efforts to maintain the sustainability of the CPP, is an action against the retirement security of 22 million Canadians,” he said in a statement. 

Switzer did not respond when asked to clarify whether the fund believes a court clarifying its fiduciary duty represents an action against the retirement security of Canadians. 

Karine Peloffy, a lawyer with Ecojustice, which is representing the young people along with Goldblatt Partners LLP, said the applicants are bringing the case precisely because they are concerned about long-term sustainability.

“They are far from the only contributors and beneficiaries to raise concerns about CPP Investments’ climate-related risk management,” she said. 

Earlier this year, the Canada Pension Plan quietly walked back its net-zero by 2050 commitment. In its most recent annual report, the fund 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 — blowing a hole through the rationale the CPPIB put forward. 

CPP fossil fuel investments

The Canada Pension Plan has invested at least $22.6 billion in fossil fuels. Pension watchdog Shift estimates the figure could be nearly double, however without transparent granular disclosures from the fund it’s impossible to say. 

According to Shift’s analysis, the $22.6 billion worth of fossil fuel investments likely only refer to fossil fuel producers and do not include related companies and infrastructure, such as gas-fired power generation or gas distribution assets. 

Among the fund’s investments are a 98 per cent ownership stake in Encino Energy, one of the largest oil and gas producers in the United States; a 90 per cent stake in Teine Energy, a private company developing oil and gas in western Canada; a 43.5 per cent stake in Nephin Energy, a gas producer and pipeline company in Ireland; and a 49.9 per cent stake in Peru’s largest exporter and transporter of gas Transportadora de Gas del Perú S.A..

According to Shift, Canadian pension funds could invest in high-carbon industries and use their capital and influence to speed up decarbonization goals. But to pursue such a strategy, the assets they invest in must have credible, profitable and Paris Agreement-aligned transition pathways. 

“The only credible pathways for decarbonizing fossil fuel assets in line with climate safety require a planned phase-out of oil, gas and coal production and the early retirement of related infrastructure, alongside rapid declines in fossil fuel demand,” the Shift report reads. “Such net-zero-aligned pathways would expose asset owners to significant investment risk.”

“CPPIB has provided no indication that it intends to pursue such decarbonization pathways for its fossil fuel holdings, or explained how its holdings could generate risk-adjusted returns in the long-run.”