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Canada Pension Plan Investment Board says it is using its muscle as the country’s largest institutional investor to push companies in the CPPIB portfolio to get serious about planning for the transition to low-carbon energy.

CPPIB, which manages $523-billion in assets on behalf of Canadians, said on Wednesday that its engagement efforts with managers and directors prompted commitments and improvements in climate-related reporting and practices at 35 companies this year.

In February, CPPIB made a pledge to achieve net-zero carbon emissions by 2050 in a strategy that emphasizes investments in emitters to aid in decarbonization, rather than divestment, and boosting investments in renewable energy.

Its “active-engagement” strategy is generating results in securing commitments from companies on climate-related issues. This includes bolstering reporting using the framework set out by the Task Force on Climate-Related Financial Disclosures, the global standard, said Richard Manley, CPPIB’s head of sustainable investing.

“In the 2021 voting season, those that made a commitment to us, every one of them delivered upon that commitment,” Mr. Manley said in an interview.

In its 2022 sustainability report issued on Wednesday, the pension fund said it voted on 41,000 agenda items at 3,800 annual meetings this year, and rejected management’s entreaties in 12 per cent of cases. On the climate front, CPPIB voted against 65 director nominations at 35 companies for which it decided the board failed to take physical and energy-transition-related impacts seriously.

Despite improvements in corporate consideration of climate risks, companies still need to do more, Mr. Manley said.

“At the moment, we are seeing the articulation of corporate ambition. We are seeing the ambition translate into commitments and increased disclosure around how companies plan to deliver on their ambition and commitment,” he said.

He equates the need for improved disclosure to well-established reporting procedures for reserves in the oil and gas industry, which project the probability and duration of commercial production over a range of scenarios. CPPIB is piloting an “Abatement Capacity Assessment Framework,” aimed at providing supplemental disclosure of guidance on companies’ ability to decarbonize.

CPPIB is aiming for carbon neutrality in its own operations by the end of next year. Part of that includes seeking out verifiable and permanent carbon credits as offsets, it said.

It has said that it aims to help companies in agriculture, chemicals, cement, conventional power, oil and gas, steel and heavy transportation cut greenhouse gases. It also set a target to nearly double green-energy and cleantech holdings to at least $130-billion by 2030.

As part of its net-zero plan, it has refused to join some institutional investors in pulling its capital from oil and gas companies, saying it can be most effective in supporting their efforts to make the transition to lower-carbon production. It has conceded that its own financed emissions could increase in the early stages of seeking out decarbonization opportunities.

This has sparked criticism from environmental activists, who say the strategy will only delay a necessary shift to greener energy sources as the world seeks to limit average temperature gains.

Shift Action for Pension Wealth and Planet Health has said that an engagement strategy can help achieve climate goals and protect pensioners’ wealth “in specific circumstances.” But it warns that many fossil-fuel producers don’t have profitable pathways to zero emissions, and that exposes Canadian retirees to “unacceptable” climate-related risk.

“The CPPIB must recognize the role that its own fossil-fuel holdings play in making the climate crisis worse, not just the impact that the climate crisis has on its portfolio,” said Patrick DeRochie, Shift’s senior manager. “The CPPIB’s climate strategy is not credible without a clear, science-based plan for our national pension fund’s massive investments in the primary cause of the climate crisis: fossil fuels.”

Mr. Manley said oil and gas companies in Canada and the United States have only recently been given regulatory and economic incentives to make investments in technology such as carbon capture, utilization and storage to cut emissions.

So institutions that divest from the sector risk being shut out of the opportunity to remain invested in companies that may even grow as they invest the capital in innovations to cut their emissions, he said. “We’re already seeing Big Oil become Big Energy. We could also see Big Oil become Big Energy, but also no-carbon oil over time,” he said.

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