The Caisse de dépôt et placement du Québec, a $390-billion force in Canadian investing, has raised the stakes in an already-big bet on the transition to a green economy.
Some Albertans are downright mad about one aspect of how the pension plan is doing that – divesting all its shares in oil producers. The anger is understandable, but it’s misplaced.
Rather than blast the Caisse for an investment decision it is making in a free-market economy, Alberta and its oil patch should examine why money is being redeployed elsewhere, and figure out how to stop it from happening.
After all, this is not the first institution to make such a decision, though the move is the most far-reaching among major Canadian pension funds. As climate considerations become more intertwined in the investment process, it won’t be the last.
Canadian oil producers, the big ones especially, are spending serious money to reduce emissions from operations, expand carbon capture and support new clean tech. This year, a group made up of the five largest oil sands producers set its own net-zero-by-2050 target. It pledged to do it while contributing what it says could be $3-trillion to the country’s gross domestic product.
Intention now becomes a question of credibility, and meeting a series of interim carbon-reduction targets will be key to achieving it. The group is meeting with government, the clean-tech industry and Indigenous communities as it puts together details on its plans, but time is of the essence.
The industry is aiming to be both low-cost and low carbon. It’s a tall order, but a necessary one as investors with a world of opportunities, and mandates to reduce their own CO2 footprints, pick their spots.
The Caisse had already set a net-zero goal, and focused on adding green-energy assets. This week, it beefed up its plans by adding two big initiatives. It set up a $10-billion fund to target new projects to tackle emissions from carbon-heavy industries such as cement and steelmaking. It will also sell its remaining shares in Canadian and international oil producers, which currently account for about 1 per cent of the portfolio, or roughly $4-billion.
“What we’ve observed in the last few years is that you really need to have a complete set of levers to be cohesive from a climate-change investment standpoint. So we’ve broadened this strategy this time around with new concepts,” Caisse chief executive Charles Emond told The Globe and Mail.
It’s not a wholesale exit from fossil fuels. The pension fund is keeping its oil and gas pipeline holdings, saying they are necessary infrastructure for the transition. It may also apply some of its new green fund to transition-related energy projects. But it will not hold investments that result in increasing the global oil supply. That’s the thorny part.
The Canadian Association of Petroleum Producers and the Alberta government did not use the announcement as an opportunity for introspection.
CAPP President Tim McMillan called the move “irresponsible,” saying neither the Caisse’s beneficiaries nor the environment will ultimately benefit as demand for energy, including fossil fuels, increases.
“For the Caisse to limit investment, which is their intention, in democracies with high environmental standards like Canada, is really just supporting jurisdictions that don’t have our high environmental and safety standards,” he said.
A spokeswoman for Alberta’s energy department said the decision is “short-sighted and disconnected from reality,” and added a well-used talking point for Premier Jason Kenney’s UCP government: that Quebec’s public services are “funded through billions of dollars in equalization payments generated by Alberta’s energy industry.”
In fact, the Caisse had already cut its oil and gas interests by half over the past four years while doubling green investments to $36-billion. Just a decade ago, oil and gas shares were a big driver of its overall gains.
Since then, the market has been cruel to the industry. Oil prices cratered, pipeline projects stalled and now big institutional investors around the world have become sticklers for environmental compliance among companies, with climate risk a top concern. Canadian energy became a tough sell.
There are good arguments to be made that Canada’s pension funds and other big investors should support such a large employer and important contributor to the country’s economy through what promises to be a long and bumpy energy transition, and some pledge to do so.
Still, no one is obligated. Rather than resenting one investor’s decisions, it makes more sense to plow ahead with the tough moves required to reduce climate-related risks, and satisfy others that their investments will result in financial and environmental gains.
Jeffrey Jones writes about sustainable finance and the ESG Sector for The Globe and Mail. E-mail him at firstname.lastname@example.org.
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