CPP Investments Being Sued For Mismanaging Climate Risks
Travis Olson, Aliya Hirji, Rav Singh, and Chloe Tse, with support from Goldblatt Partners LLP and Ecojustice, are challenging the Canada Pension Plan Investment Board in court. Photo by Joshua Best / Courtesy of Ecojustice
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 lawsuit specifically alleges the pension fund, which is the largest in Canada and sixth largest in the world, has breached its legal duties to its beneficiaries by “failing to prudently identify, assess or manage climate-related financial risks.”
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.”
Olivia Raimonde and Layan Odeh of Bloomberg also report Canada Pension Plan sued by young people over climate risks:
The Canada Pension Plan Investment Board was sued by a group of young people who claim the pension fund is putting their benefits in jeopardy by mismanaging climate-related financial risks.
Aliya Hirji, Travis Olson, Ravneet Singh and Chloe Tse, who don’t plan to retire until after 2050, allege in the lawsuit that the country’s largest pension fund breached its legal duties to them by failing to “prudently identify, assess or manage climate-related risks.” The suit, filed in Ontario’s Superior Court of Justice, also calls out the pension plan for its continued investments in fossil fuels.
CPPIB said in a statement that it intends to take whatever steps are necessary to uphold the interests of all Canadians who contribute to the pension plan. Climate change is “one of many material factors we consider in managing risk and pursuing opportunities across the whole economy over the long term,” CPPIB added.
Groups of young people in several nations have sued governments and major energy companies for allegedly contributing to future climate change or failing to address it. Perhaps the most prominent of these — a case against the United States government alleging it had violated their rights to life, liberty and property by encouraging fossil fuel consumption — was dismissed by a federal appeals court in 2020. The U.S. Supreme Court declined to hear the case in March.
The four Canadian workers, all under the age of 33, are seeking a range of declarations, including that CPPIB act “in the best interests of all contributors and beneficiaries,” and an order that CPPIB disclose more information about the climate-related risks in its investment portfolio.
“I’m part of this case because I want to protect the financial interests of hardworking young people like me who want to be able to retire when we are older,” said Olson, who’s one of plaintiffs, in a statement. “My financial future is on the line.”
CPPIB has said said it doesn’t intend to sell fossil fuel assets, but rather invest in the energy transition. The pension fund has reported a 41 per cent decline in its portfolio’s carbon footprint since fiscal 2020 and says on its website that it remains committed to sustainability. However, CPPIB announced in May that it dropped its commitment to achieve net zero emissions by 2050, three years after making the pledge.
Toronto-based CPPIB currently manages the retirement funds of more than 22 million Canadians with almost $732 billion of assets under management, making it the world’s sixth-largest pension fund.
Ecojustice said the case against CPPIB is 100 per cent funded by organizations and individuals who share the Canadian nonprofit’s vision as the country’s largest environmental law charity.
For its part, CPP Investments released this statement on its mandate and approach to climate risks:
CPP Investments is guided by a statutory objective: to invest the assets of the Canada Pension Plan (CPP) to achieve a maximum rate of return without undue risk of loss, and manage the CPP Fund in the best interests of contributors and beneficiaries. Our responsibility is to manage a globally diversified portfolio for the long term, grounded in rigorous analysis and the rule of law.
Climate change presents financial risks and opportunities. We integrate material climate‑related considerations into investment and risk processes across asset classes and regions where material, engage with companies to protect and grow value, and invest where transition and resilience can create long‑term returns.
Ecojustice has announced legal action. To be clear, 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. We intend to do whatever is needed to uphold their interests.
We will respond through the proper legal channels. And we will continue to publish decision‑useful disclosures and updates on our approach to sustainability and risk management, consistent with recognized reporting standards and Canadian law.
You can find more information on CPP Investments and our approach below:
Alright, it's Monday and what better way to kick this busy earnings week off than bringing attention to a lawsuit against Canada's national pension fund for mismanaging climate risks.
These young people have inspired me.
Later this week, I'm going to sue CPP Investments and all of Canada's Maple 8, for not investing enough in oil and gas over the last decade, losing billions in returns in the process, money that could have helped contributors and beneficiaries.
And then I'm going to sue them for foolishly being underweight Mag-7 (now Mag-10) shares and completely missing the AI bubble underway.
How do you like them apples, eh?
In all seriousness, what is this 1960's style eco-hippy nonsense? What the hell are they teaching young Canadians at our universities? Certainly not critical thinking.
A big part of the blame lies with the Maple 8, all toppling over themselves since the pandemic broke out to prove they are global leaders in sustainable investing and "good stewards of capital".
Don't get me wrong, sustainable investing is important, the world is changing, no doubt about it but let's not overdo it with all this sustainable investing hoopla and get down to the nuts and bolts of pensions.
Climate risk is just one of many risks but for me, nothing trumps the risk of a pension fund not meeting its financial obligations over the long run. That really is the biggest existential risk any pension plan faces, not having enough assets to meet long term liabilities.
In this regard, CPP Investments is doing a great job according to the Chief Actuary of Canada. It has delivered solid long term returns and has more than enough assets to meet its long term liabilities.
Also, in terms of sustainable investing, CPP Investments has a clear policy which anyone can read and download here.
In terms of reporting, it clearly states:
CPP Investments is committed to public transparency of our sustainable investing activities. We publish material sustainability-related disclosures, guided by ISSB standards, in our Annual Report. We also publish a Proxy Voting Report, a Green Bond Impact Report, and a Modern Slavery Report annually. The Sustainable Investing section of our website provides additional information on our work.
What else? Some of the statements above are outrageous. For example, this:
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.
Talk about fearmongering at its worst! Neither Ortec nor Soros and Druckenmiller for that matter have any clue what will happen if the world warms up by 3.7 degrees C. This is all conjecture and quite frankly, I'd take it with a grain of salt.
There are many views in climate science, the world is warming but what actually causes global warming and what humans can do about it is a hotly debated topic among top scientists.
Lastly, I was not aware CPP Investments is no longer maintaining its 2050 net zero commitment, probably because it might interfere with its mandate but I will personally ask them to explain this decision in detail as I too find it a bit odd.
One thing this lawsuit might do is bring about more transparency at CPP Investments which is already a global leader in transparency and that might be a good thing.
Below, four young people in Canada are taking the sixth largest pension fund manager in the world to court, claiming it is breaching its duty to invest in their best interests by failing to protect their pensions from climate risk.
Represented by lawyers from Ecojustice and Goldblatt Partners LLP, Aliya Hirji, Travis Olson, Rav Singh, and Chloe Tse, allege that the Canada Pension Plan Investment Board (CPP Investments) is breaching its legal duties by subjecting pension contributions to undue risk of loss from poorly managed climate risk.
The case argues that CPP Investments’ reported climate modelling drastically underestimates the financial risks of climate change to the Canada Pension Plan. This marks the first time a Canadian investor has been sued for mismanaging climate risks.
Globally, it is the first climate case against a pension fund investment manager anchored in the duty of impartiality and even-handedness in a multi-generational context — in other words, the duty to act fairly towards young contributors who will retire after 2050 when climate-related financial risks will be even greater.
Give me a break, I've never heard so much hogwash but let CPP Investments make its case in court and let the facts speak for themselves.
Update: After reading this comment, Frank Switzer responded to my email requesting more clarification on why CPP Investments dropped its commitment to attaining net-zero by 2050:
We announced the change to our net-zero policy last May:
“Achieving net zero by 2050 remains a widely adopted goal and critical ambition for many countries, companies and international organizations – this presents both risks and opportunities for long-term investors. Recent legal developments in Canada have introduced new considerations around how net-zero commitments are interpreted. In particular, 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. 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. What hasn’t changed is our conviction that sustainability integration helps create enduring value for Canadians. Sustainability remains embedded in how we manage risk and pursue investment opportunities, guided by our Climate Change Principles and Investment Beliefs.”If you click on the links, you’ll find more detail. Let me know if you need anything else.
Also, FYI, there’s a statement on our website about the Ecojustice lawsuit, which also provides links to our legislative mandate and our approach to sustainability and climate change.
I thank Frank for getting back to me this morning after watching that marathon World Series game last night.
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