In its FAQ section, Canada’s pension board has disclosed that investment decisions of commitment towards net zero can be deemed as misaligned, and therefore, it will no longer uphold its promise to end emissions by 2025.
The Canadian government quietly announced that the board overseeing the country’s national pension plan will no longer go through with its climate goal to make investments to facilitate global targets to achieve net-zero emissions by 2050. This announcement was made public by the Canada Pension Plan Investment Board (CPPIB) in its latest annual report and included in a list of frequently asked questions on its website.
As the climate emergency inches closer every day, countries are in a literal race against time to adopt more sustainable development initiatives, while not compromising on their economic goals. This, however, has remained a Herculean task, and countries ever so often prioritise immediate economic gains at the cost of ecological consequences.
In its FAQ section, the Board has disclosed that investment decisions of commitment towards net zero can be deemed as misaligned, and therefore, it will no longer uphold its promise to end emissions by 2025. In 2022, the CPPIB announced that its operations and portfolio of investments would be focused on achieving zero emissions, with the pension fund pledging to double investments in green and transition assets to at least C$130 billion by 2030.
It also had grand plans to achieve carbon neutrality for its internal operations by the end of fiscal 2023. According to the fund, an asset is considered green if 95% of its revenue is derived from green activities. Since then, Canada’s Competition Act has mandated companies to substantiate environmental claims they make.
The Board’s top executives have all come out acknowledging that the climate crisis is one of the world’s leading systemic financial risks, but the decision to backtrack on its promise towards climate action mirrors the decisions of several other Canadian banks like BMO, TD Bank and CIBC, which have all abandoned their vows to net zero emissions by leaving the UN-backed Net-Zero Banking Alliance. This announcement by Canada’s largest pension fund comes a mere month after the country’s largest bank, the Royal Bank of Canada, confirmed it no longer intended to keep its financial commitments towards sustainability.
The CPPIB ranks second among 25 global pension funds for the highest returns over the past decade, and the board said that its growth is linked to its long-term strategy. The investment fund has said that it operates with a clear mandate, aiming to maximise returns without undue risk of loss; this can be seen as a thinly veiled defence for its recent reluctance to support green initiatives, as they are rarely financially rewarding and deliver large-scale, short-term gains.
While world leaders waver in their steadfastness towards climate action due to the economy-ecology conundrum, a Global reinsurance company, Swiss Re, estimated in 2021 that global GDP would drop 4% if global warming remained under 2 °C. A similar study by Deloitte also found that if net-zero targets were abandoned, the world’s economy would lose $178 trillion by 2070.
Sustainable initiatives require massive investments and long-term planning, but also promise to generate millions of jobs and propel large-scale economic growth. Therefore, global pension funds are in the best position to make strategic investment decisions that prioritise clean energy over conventional energy since they operate intending to minimise long-term losses and maximise gains.
The CPPIB’s decision is not only a blow to climate financing but also to its growth strategy, as a November 2024 study found that Canadian pension funds were in danger of stranded assets should they resolve to quickly sell off carbon-intensive projects.
While some of Canada’s leading financial institutions flaked on their net-zero policy, seven of the country’s largest pension funds remain committed to the target. This goes to show that while the world grapples with balancing economic growth and climate ambitions, neglecting climate conservation will only lead to more economic losses.
