Ontario Teachers’ Pension Plan is facing some pushback to its new net-zero carbon emissions goal for its massive investing portfolio.
It’s not that the province’s teachers and retirees are against the effort. The plan, one of Canada’s largest, last month joined a growing list of major investors to commit to the goal of reaching zero greenhouse gas emissions by the year 2050.
But a group of more than 300 of its beneficiaries have joined a campaign to push the fund further into green territory much faster – partly by phasing out all fossil fuel investments within four years.
They have aligned themselves with Shift Action for Pension Wealth and Planet Health, an environmental advocacy group calling for pension funds to get more serious about dealing with the risks posed by climate change.
The signatories to the effort don’t agree with Teachers’ assertion that fossil fuels should be treated as a necessary part of the energy transition, alongside investments in renewables and other clean tech. They want conventional energy sold off under a tight deadline.
For its part, Teachers says it favours influencing corporate decisions related to climate change through engagement as owners, rather than divestment. It pegs oil and gas investments at 3 per cent of its $205-billion portfolio. Of course, Canada’s oil and gas industry remains a major employer, and some of its major companies argue they are making strides on cutting emissions.
This friction is inevitable as major institutional investors seek action on climate risk in their portfolios, while facing pressure from their own clients to act quickly.
A big question is how much influence beneficiaries should have over the decisions of the pension plans, whose main priority is assessing investment risk. Also, with the race heating up to get to net neutrality in carbon, when emissions are simultaneously reduced and offset, the various strategies will be judged against each other on transparency and effectiveness.
As Canadians have learned for more than two decades of failed national efforts to reduce greenhouse gas emissions, setting targets is the easy part. The details are where it all breaks down.
In an open letter, Shift calls on Teachers to “decarbonize” by 2030, partly by halting any new investments in fossil fuels and selling such companies in its current portfolio by 2025. The group lauded progress Teachers has made in recent years boosting its climate expertise and making “small but smart” renewables investments.
Shift director Adam Scott said the group does not believe oil, gas and coal companies currently have a “credible path” to making the transition to carbon-neutral operations and still thrive.
“[Educators] are concerned about the climate crisis, but they’re also concerned about their exposure to financial risk, and I think we’ve seen substantial underperformance from fossil fuels over the last 10 years,” he said. “It’s clear that the rapid transition that’s already under way and in the future makes fossil fuel companies financially risky,” he said.
For its part, Teachers says its net-zero plan involves bolstering its capabilities to invest in more green-economy-related assets, including those that will speed up the shift from fossil fuels, although it has yet to set out timelines.
“We value and consider the feedback we hear from our 329,000 members, but our decision-making is guided firmly by our mission to deliver retirement security for our members while creating a positive impact for our partners and the communities where we operate,” the plan said in a statement.
The fund says it will offer specifics in the coming months, including targets. But it stresses that it is already working toward net-zero goals through its investments, one of which is among the largest private renewable energy companies, Cubico Sustainable Investments. This week, it announced it had partnered up to buy the Canadian operations of Enwave Energy Corp., a district energy provider that allows buildings to share heating and cooling systems, often using greener forms of energy.
What’s clear is that the investment arms of retirement plans will be under increasing pressure by some members to take the lead on financing the energy transition. The tough part is determining the right size and speed while keeping retirements secure for plan members amid a winding road to net-zero.
Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. Reach him at firstname.lastname@example.org.