Is CPP Investments Fueling Canada's Wildfires?
As Canada experiences a record-shattering summer of deadly extreme weather, it’s worth remembering that our national pension fund has poured much of our retirement savings into the primary cause of the climate crisis: fossil fuels.
In doing so, the Canada Pension Plan Investment Board is also undermining its own purpose: to provide Canadians with retirement security by achieving a maximum rate of return without undue risk of loss. Fossil fuel industries, after all, must be rapidly phased out to ensure a safe climate future.
This summer’s unprecedented heat waves, wildfires and floods have taken an immense toll on communities, workers, wildlife and ecosystems, underscoring the immediacy of the climate emergency for many Canadians.
Scientists are clear that climate change, primarily driven by the production and combustion of fossil fuels, is making this extreme weather more likely and more intense. The economic impacts of climate disruption are already significant, and will only get worse.
That’s why it’s so problematic for CPPIB to continue investing Canada’s retirement fund in the high-risk fossil fuels driving the climate crisis.
CPPIB is the investment manager for the $575-billion Canada Pension Plan, with 21 million Canadians as members. CPPIB has taken some laudable steps to assess and manage climate-related financial risks, committing to net-zero emissions across all scopes by 2050, developing a “decarbonization investment approach,” setting climate-related expectations for portfolio companies, and making significant investments in climate solutions such as renewable energy and electrification.
Yet some of CPPIB’s investment decisions and portfolio companies are doubling down on fossil fuels, which accelerates the climate crisis and creates undue risk for our retirement portfolio. CPPIB has repeatedly refused to disclose an inventory of its holdings in oil, gas, coal and related infrastructure. But in July, 2022, CPPIB said it held a staggering $21.72 billion in fossil fuel producers alone.
CPPIB owns 43.5 per cent of Ireland’s largest offshore gas field, 98 per cent of one of the largest U.S. private oil and gas producers, and 49.9 per cent of Peru’s largest exporter of gas, whose pipelines transport gas extracted in the Amazon rain forest.
Here in Canada, through its 99-per-cent stake in Wolf Midstream, CPPIB owns the Access Pipeline System, which gathers and delivers diluent to flow bitumen through pipelines. These companies are included in CPPIB’s deceptively-named “Sustainable Energies” portfolio.
Despite the dire climate warnings of scientists and the millions of Canadians choking on wildfire smoke, CPPIB continues to bet our national retirement fund on investments that require expanding and prolonging oil and gas production to generate returns.
In February, Calpine Corp., the largest gas-fired U.S. electricity generator, 13.4 per cent owned by CPPIB, announced it will build a new gas plant in Texas. In March, CPPIB spent a reported US$400-million to buy a 49-per-cent stake in Aera Energy LLC, California’s second-largest oil and gas producer. In June, Denver-based Civitas Resources Inc., in which CPPIB is the largest shareholder, announced it would spend US$4.7-billion to increase its oil and gas production by 60 per cent.
Last year, CPPIB committed US$100-million to Kimmeridge Fund VI, a private equity fund that will be used to produce more fracked gas and build a new Gulf Coast liquefied natural gas terminal.
CPPIB claims that it must stay invested in fossil fuels so that it can “share [its] expectations and use [its] governance rights” to influence companies that are failing to manage climate risks.
Yet CPPIB voted against climate-related shareholder resolutions at Imperial Oil Ltd., Enbridge Inc. and Royal Bank of Canada this spring, while voting for the re-election of almost all directors at Pathways Alliance oil sands companies. Pathways lobbies aggressively to undermine government climate policy and faces a formal greenwashing investigation, while its members admit publicly that they’re deprioritizing the energy transition.
CPPIB claims that it’s “difficult to overstate the urgency of reducing GHG emissions.” But CPPIB’s continued investment in fossil fuels is irreconcilable with its net-zero emissions commitment and its purpose of providing Canadians with retirement security across an investment horizon that spans decades.
There is scientific consensus that oil and gas production must be rapidly phased out to avert catastrophic climate outcomes. There must be someone at CPPIB, which spent more than $1-billion on personnel last year, with the skills to translate this decarbonization imperative into a credible climate plan for the CPP.
Like millions of Canadians, I have no choice but to contribute to the CPP with every paycheque. I’d like to collect those compounded savings when I retire in a few decades.
But that money might not be there if CPPIB keeps risking it on fossil fuels. It’s astounding that CPPIB won’t acknowledge that there is no retirement security without a safe climate to retire into.
What is truly astounding is how the editorial standards at the Globe and Mail and other large Canadian newspapers have deteriorated to such an unprecedented level that drivel like this opinion piece is being published.
Patrick DeRochie is the senior manager of Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil fuel investments and climate policies of Canadian pension funds, and mobilizes pension beneficiaries to engage fund managers on the climate crisis.
In other words, SHIFT is looking for Canadians who contribute to CPP and other large pension funds to get really angry with their pension fund managers and blame them for global warming and wildfires in Canada because they haven't divested out of oil and gas producers and are thus contributing to the problem.
I know, the BBC recently claimed that climate change is fueling wildfires in Canada and the rest of the world:
Robert Scheller, professor of forestry at North Carolina State University, says: "The climate signal is very strong. We are seeing both a larger area burned, and more severe fires."
Spring in Canada has been much warmer and drier than usual, creating a tinder-dry environment for these vast fires.
In Halifax, in the eastern province of Nova Scotia, temperatures last week reached 33C, around 10 degrees higher than normal for the time of year.
Parts of the country, including Alberta and Saskatchewan, have been in drought since 2020.
"The vegetation in the forests is exceptionally dry," says climate scientist Daniel Swain at UCLA, which has meant that a higher fraction of lightning strikes has resulted in forest fires.
Experts link the high temperatures to record-breaking spring heat seen in other parts of the northern hemisphere, including Spain, Portugal, Morocco, Algeria and Siberia.
Wildfires also contribute to greenhouse gas emissions, those gases that warm our atmosphere.
Emissions from the Canada wildfires in May reached 54.8 million tonnes, which is more than double the past records for that month since estimates began in 2003, according to the Copernicus Atmosphere Monitoring Service.
But not everyone is on board with this explanation.
It turns out climate change which happens over many years is a lot more complex than we can possibly imagine.
For example, Canadian investigative reporter Diane Francis wrote an excellent comment on The Big Heat and how a volcanic eruption in Tonga, Peru is largely to blame for excessive heat we experienced this summer.
There is another problem plaguing Canada's forests, bad forest policy.
As Joseph Fournier, a scientist, recently brought up on LinkedIn, biological productivity of Boreal Forests is greatly enhanced when low intensity fires are allowed to regularly rejuvenate landscapes:
Also, in June, Kenneth Green wrote a comment for the Fraser Institute on how Canada’s burning because of bad forest policy, not climate change:
Unless you’ve been living in an underground cave, you’re aware that there’s been a massive explosion of forest fire activity across Canada that’s sending clouds of smoke south to our American neighbours. Not surprisingly, they’re not happy—the orange skies are more than a bit reminiscent of Hollywood post-apocalyptic movies.
Here at home, our usual opportunistic climate alarmists including Prime Minister Trudeau, Environment Minister Guilbeault and the irrepressible Elizabeth May blame the flames on climate change (and not their leadership in Canadian forest policy). And the only cure is to end fossil fuel use.
But let’s bring some facts to the hysteria. First, the climate is indeed warming. According to the United Nations Intergovernmental Panel on Climate Change (IPCC), the global average atmospheric temperature is rising globally, and according to one analysis, twice as fast in Canada. (Of course, how much of this warming is human-driven is a different story.)
But is this recent atmospheric warming causing the increase in forest fires globally and Canadian fires specifically? The IPCC, in its latest omnibus climate report, only assigns “medium confidence” to the idea that climate change has actually caused increased “fire weather” in some regions on Earth. This, mind you, after desperately seeking to tie real-world events to increasing greenhouse gas concentrations for some 40 years now. In addition, many reports have shown that while fire activity is on the rise in some regions, we’re still not seeing an overall increase when considering the total areas burned at the global level.
As the Royal Society, an independent scientific academy in the United Kingdom, summarizes in a 2020 blog post updating its 2016 research on global wildfire extent, "Fire activity is on the rise in some regions, but when considering the total area burned at the ground level, we are not seeing an increase an overall increase.” The 2016 report was more explicit, finding: “Instead, global area burned appears to have overall declined over past decades, and there is increasing evidence that there is less fire in the global landscape today than centuries ago.” While the Royal Society acknowledges that climate change may be increasing risk, it also observes there are many other human activities that may contribute to more or less fires, and more or less areas consumed.
But what about Canada per se? Is it clear that Canada’s fire issues are climate-driven? Unless one believes that inverse correlations suggest causality, the answer is no. That’s according to a 2020 study in the journal Progress in Disaster Science where authors Tymstra et al. show a fairly sharp declining trend in the number of fires (annually) over time, and a mixed record of areas burned, though the authors note an apparent increase in areas burned over the last two decades.
In fact, as average atmospheric temperatures have risen from 1970 to 2017, Canadian forest fires have declined sharply in number and show little obvious trend in areas burnt.
Crucially, Tymstra’s study also finds that wildfire management policy in Canada comes up short. “A major barrier in Canada… is the inadequate funding to support the vision of an innovative and integrated approach to wildfire management. Mitigation funding has followed wildfire disasters but not at the same level to mitigate flood and earthquake disasters. Despite the increasing occurrence of wildfire disasters in Canada, funding to support wildfire prevention, mitigation and preparedness have not kept pace with the increasing need to mitigate the impacts from wildfires, and be better prepared when they do arrive.”
More specifically, Tymstra et al. find that Canada has failed to fund the proactive management of forest fires sufficiently and is not poised to do better moving forward. “Wildfire management agencies in Canada are at a tipping point. Presuppression [sic] and suppression costs are increasing but program budgets are not.” But clearly, a lack of fire suppression is also a problem: “Wildfire suppression contributes to a wildfire problem but paradoxically it is wildfire use that will help to solve this problem. The wildfire management toolbox must include wildfire use to manage wildfires at the landscape scale because it is not feasible to effectively use prescribed burns and/or fuel management treatments alone to restore expansive wildfire-dependent ecosystems.” That’s a somewhat academic long-winded way of saying you need to fight fire with fire, but the point is valid nonetheless.
Canada is having a hell of a fire season, there’s no disputing that. And it’s producing hellish landscapes across Canada and North America. What it is not, however, is a call to more of the same old “climate action.” But rather, a call for more sane real-world real-time management of fire risk in Canada’s forests, a practise that Canadian governments have failed at for decades.
One can only hope that this fire season will light a fire under Canada’s fire-foolish policymakers, and finally motivate them to take the rational course—fighting fire risk with fire use, rather than pointing to the climate sky gods and calling for appeasement measures that will not affect Canada’s risk of forest fires.
I have little regard for Canadian policymakers these days and think they pander to the same environmental zealots that SHIFT panders to, people who only see things through one lens and don't bother trying to understand complex facts.
Worse still, even if all of Canada's large pension funds divested out of oil and gas, the wildfires would continue and so would the oil & gas industry.
Importantly, divestment only transfers the risk of an asset to a fund that doesn't give a damn about ESG.
And despite what many believe, the oil & gas industry is still extremely important to the overall economy. It remains very profitable and the world still runs on carbon, and will continue doing so for the next 100 years.
I'd be hopping mad if CPP Investments cracked and did pander to SHIFT, divesting out of oil & gas.
As a pension expert, I know proper diversification across sectors and geographies is what is needed to make sure pension funds have enough assets to meet future liabilities.
Divesting out of oil & gas is feasible but it requires pension funds to then find alternative investments to make up the shortfall.
Sure, renewable energy has done well over the last ten years but will it continue doing well in the next ten years? I don't know, nobody can answer this.
There is another reason why CPP Investments and most other large Canadian pension investment managers don't divest out of oil & gas, they prefer engagement and want a seat at the table to be able to work on the transition economy.
There are enormous opportunities in the transition economy. "It won't be linear," as CPP Investments' CEO John Graham has stated but you cannot be part of the transition economy unless you have a seat at the table.
I'll give you an example, unlike Patrick DeRochie, I firmly believe CPP Investments' 49% stake in Aera Energy is a good thing and wrote about it extensively here.
Lastly, I am deeply concerned with the left-wing and right-wing nonsense being spewed against Canada's largest and most important pension fund.
Repeat after me: Keep your goddamn political views out of our national pension fund. Period.
I cannot overemphasize this and luckily, the governance at the CPP Fund is such that politicians cannot influence their investment decisions, for now.
If that ever changes, it will spell the end of the CPP Fund and its long-term success.
That doesn't mean CPP Investments is perfect and its governance is beyond reproach.
There is always room for improvement when it comes to governance, especially in communication and transparency.
But one thing I cannot stand is disinformation and phony baloney comments like the one Patrick DeRochie got published in the Globe and Mail.
Again, what happened to good old editorial standards? Are newspapers that desperate that they'll stoop to any level to garner readers?
That was a rhetorical question.
Below, last week when I covered CPP Investments' investment in The Amazonian Reforestation Fund, I embedded two must watch interviews with two top US climate scientists.
First, Steven Koonin is one of America's most distinguished scientists, with decades of experience, including a stint as undersecretary of science at the Department of Energy in the Obama administration. In this wide-ranging discussion, based in part on his 2021 book, Unsettled: What Climate Science Tells Us, What It Doesn't, and Why It Matters, Koonin gives a more refined look at the science behind the climate issue than the media typically offers, guiding us through the evidence and its implications. As Koonin explains in this interview, he was “shaken by the realization that climate science was far less mature than I had supposed” and that the “overwhelming evidence” of catastrophic implications of anthropogenic global warming wasn’t so overwhelming after all.
Second, Dr Jordan B Peterson and Dr. Richard Lindzen dive into the facts of climate change, the models used to predict it, the dismal state of academia, and the politicized world of “professional” science.
Richard Lindzen is a dynamical meteorologist. He has contributed to the development of theories for the Hadley Circulation, hydrodynamic instability theory, internal gravity waves, atmospheric tides, and the quasi-biennial oscillation of the stratosphere. His current research is focused on climate sensitivity, the role of cirrus clouds in climate, and the determination of the tropics-to-pole temperature difference. He has attained multiple degrees from Harvard University, and won multiple awards in his field of study such as the Jule Charney award for “highly significant research in the atmospheric sciences”. Between 1983 and 2013, he was the Alfred P. Sloan Professor of Atmospheric Sciences at MIT where he earned emeritus status in July of 2013.
As I stated, when it comes to climate change, let top credible climate scientists guide
us, not the politicians and environmental zealots who continuously have an axe to grind.
And let's stick to what we know and be humble enough to admit there's a lot we still don't know when it comes to climate change. Humility is critically important in the face of such complexity.
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