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Smart money? Pension funds taking more chances on renewable energy

Tuesday, December 15th 2020, 6:30 am - Like other pension plans, the Canada Pension Plan is starting to boost its renewables holdings, but critics say many of its first investments are essentially greenwashing.

Whether the world's energy future lies in fossil fuels or renewables is still to be determined – but increasingly, the smart money seems to think it's the latter that will win out.

Last month, ExxonMobil was dropped from the Dow Jones Industrial Index after more than a century – only to find itself surpassed in market value by a renewable energy company, NextEra.

Though the reasons for Exxon’s exile from the Dow go beyond the gradual decline in fossil fuel values, the symbolism is hard to ignore, and suggests investment is gravitating more and more toward a future beyond oil and gas.

One place that traditionally tries to go where the market will be rather than where it is: Pension funds and sovereign wealth funds. Just how far along are they with the realignment?

Oil derrick pixabay Some pension or sovereign wealth funds, seeing a future where the oil and gas industry, has dried up, have been tentatively turning to renewables. Image: Pixabay.


Ahead of the curve is oil-rich Norway, which announced in early 2019 that its trillion-dollar sovereign wealth fund would ditch its investments in 134 oil and gas exploration firms, worth US$8 billion (C$10 billion). Weeks later, the Norwegian government gave the greenlight for the fund’s managers to invest in renewables firms that are not listed on stock exchanges, and doubled the amount the fund can invest in green projects to US$14 billion (CS$18 billion), though Investment and Pensions Europe reported this past summer that progress on that front had been delayed.

Closer to home is the Canada Pension Fund (CPP), which has been making its own moves toward boosting its renewables holdings, as part of what it presents as a conscious effort to expand environmental, social, and governance (ESG) investments. However, unlike Norway, the CPP seems to be taking a path toward renewables that runs alongside the oil and gas industry’s own efforts in that realm.

In its last report on sustainable investing, published in September, the CPP boasted that its renewable energy investments now make up $6.6 billion, or 1.5 per cent of the fund. That doesn’t sound like much, but it’s double what it was in 2019, and way up from 0.2 per cent three years ago.

The report does note, however, that some of those investments are in the oil and gas sector, such as Enbridge, backing their efforts to expand their renewable or zero-carbon holdings. Another company backed by the CPP, Alberta-based Wolf Midstream, operates 240-kilometre pipeline capable of transporting 14.6 million tonnes of CO2 annually, which is then sequestered or put to other uses.

“We know a successful evolution to a lower-carbon world is absolutely contingent on a shift in the global energy mix,” Mark Machin, the CPP’s president and CEO, said in the report. “At the same time, oil and gas will play a significant role for many more years and the potential for human ingenuity in the industry’s evolution should not be underestimated.”



For Adam Scott, the director of Shift, an NGO that seeks to pressure pension funds to cut high-emission holdings from their portfolios and lean into investments that fight climate change, the CPP’s continued reliance on the oil and gas sector is wrong-headed, and suggests its managers don’t understand climate change risk.

“[The CPP’s] ongoing investments in coal, gas, and oil put the retirement savings of Canadians at risk while undermining global efforts to address the climate crisis. This cannot continue,” Scott shared with The Weather Network.

Scott told The Weather Network that bringing emissions down to the level required by the Paris Agreement would require a dramatic decline over the coming years, reducing the value of fossil fuel companies and ramping up opportunities for investment in renewables.

Even as they dabble in renewables, fossil fuel companies remain fossil fuel companies, operating high-emission energy infrastructure with a long shelf life – locking in high levels of carbon pollution for decades to come while hamstringing the climate change fight.

“The pandemic has given us a glimpse of a future of declining fossil fuel demand, where the value of oil and gas companies collapses while renewable energy continues steady profitable growth,” he says. “Funds replacing oil and gas with renewable energy in their portfolio will both reduce their investment risks and increase growth potential over the long-run.”

One of the reasons Scott says the CPP’s apparent increase in renewables investments amounts to less than it appears, is its lack of a deliberate emissions reduction strategy in line with the Paris Agreement. This is in contrast to Quebec’s pension plan, whose managers have signed onto the U.N.-backed Net-zero Asset Owner Alliance, which aims for net-zero portfolios by 2050.

As well, Scott says the CPP often justifies its continued oil and gas sector investments on the sector’s renewables claims that often amount to little more than greenwashing.

“[Oil and gas companies] have yet to announce a credible plan to eliminate their emissions, but many have made ‘net-zero’ pledges with no path to achieving it. Oil companies often get high ESG scores in spite of their significant climate pollution,” he says.

Thumbnail credit: Pixabay

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