Ecojustice Blog – Climate Posted on October 5, 2021 (updated: October 5, 2021)

Fossil fuel investments could put Canadians’ pensions at risk

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Young people protest for a safe climate future
Photo by Karolina Grabowska from Pexels

The climate emergency is impacting so many parts of our life, from dangerous floods destroying our homes and choking wildfires filling the sky with smoke to heatwaves killing Canadians by the hundreds. These are the issues, quite understandably, that come to mind when we think about climate change.  

But did you know that climate change could be putting your pension at risk too?

How are pensions at risk from climate change? 

Pension funds hold a large amount of money. In fact, the top ten pension funds in Canada hold more than $1.7 trillion in assets and wield a considerable level of influence on the industries they invest in.  

According to the International Energy Agency, in order to limit warming to 1.5 degrees Celsius, no new fossil fuel supply can be developed and no new investment in fossil fuel supply is needed. 

Canadian pension funds continue to bank on fossil fuels, investing in development and extraction projects in Canada and in other countries around the world.  

Not only does this increase the risk of disastrous climate change for all Canadians by funding the release of greenhouse gas emissions into the atmosphere, it also puts the financial wellbeing of beneficiaries at risk by investing in industries that do not have a future in a low-carbon world.  

Canadians’ pensions can be exposed to two types of financial risk from climate change – physical risk and transition risk. 

Physical risk is the risk to investments that could be exposed to climate disasters and long-term shifts in climate patterns, such as real estate destroyed by wildfires or rising sea levels.  

Transition risk is the risk to investments that are not aligned with the necessary transition to a low carbon economy, such as investments in fossil fuels extraction. In a low-carbon future, these investments risk becoming “stranded” as the world moves away from fossil fuels to sustainable sources of energy.  

By continuing to invest in industries that are not part of a healthy and sustainable future, pension funds are potentially putting the hard-earned savings of Canadians in danger.  

In a low-carbon future, Canadians’ pensions could be at risk of becoming “stranded” if pension funds continue to invest in fossil fuels.

What are your rights as a pension beneficiary?  

Many Canadians work hard throughout their adult life and contribute to a pension fund so that when they retire, they have a little comfort in their later years. 

In return, pension funds are responsible for safely managing savings and investing wisely for the future.   

Pension fund administrators and managers have a clear fiduciary obligation to their beneficiaries – the people who pay into a pension fund throughout their working life. This means that they have a legal duty to make financial decisions that will benefit beneficiaries in the long-term and ensure that the fund can pay pensions, whether that be 10, 30 or 50 years from now.  

What do we know about pensions’ climate risk? 

In the face of growing concerns about the risks posed by climate change, Canadians are beginning to ask questions about how their savings might be impacted.  

Unfortunately, the information currently available is patchy at best.  

While big Canadian public sector pension funds are increasing their assessment and reporting of climate risk, there is no law or framework that requires them to disclose this risk in a consistent and clear way. As a result, voluntary reporting leads to a lack of information and clarity for so many pension holders. Even less is known about private sector pension funds. 

Effectively, Canadians do not know what kind of risk their pensions are exposed to from investments in fossil fuels. This in turn means that beneficiaries can’t determine whether pension funds are investing in a way that keeps their pensions safe. 

Other countries have started regulating how pension funds and other investors must disclose and deal with climate risk. The United Kingdom and New Zealand have introduced laws making climate risk reporting mandatory. In some US states, legislation has been introduced requiring public pension funds to divest from fossil fuels altogether.  

Recently, Canada’s second-largest pension fund, Caisse de dépôt et placement du Québec, announced that it would divest all its oil production investments by 2022 due to risk increasing risks from climate change. It is the first Canadian pension to do so. More pension funds need to take this kind of action to show they are addressing the real long-term risks of investing in fossil fuels. 

Canadians do not know what kind of risk their pensions are exposed to from investments in fossil fuels. This in turn means that beneficiaries can’t determine whether pension funds are investing in a way that keeps their pensions safe.

What is Ecojustice doing?  

Ecojustice is working with beneficiaries of Canada’s ten largest pension funds to find out more information about how their pensions might be in danger from climate risk.  

Together with Shift: Action for Pension Wealth & Planet Health and Environmental Defence, we have helped beneficiaries write to the boards and executives of these pension funds demanding more information about how they are assessing and responding to climate risk. Ecojustice wrote a legal backgrounder explaining how these pension funds have legal obligations to address climate risk. 

In addition to asking pension funds to disclose their fossil fuel investments, beneficiaries are also asking how the pension funds justify investing in fossil fuels when there is no long-term future for these projects.  

Canadians deserve transparency about the level of climate risk that their pension savings may be exposed to and to know that their pension fund is not betting against a safe low-carbon future. Ecojustice is working to make sure that pensions funds are transparent about their climate risk and are working to move away from fossil fuel developments.  

We expect that beneficiaries of Canada’s largest pension funds will receive a response to their requests in the next few months. Stay tuned for the next steps in this campaign.  

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