What will Canada look like in 2050? Will we see a blue-sky future powered by renewable energies? Or a dysfunctional dominion of rising temperatures, burnt-out forests, extreme weather and drought?
Those questions go to the heart of this week’s court action by four young Canadians against the world’s sixth-largest pension fund manager, the Canada Pension Plan Investment Board. CPP Investments manages the retirement savings of 22 million Canadians, an ever-growing money pot currently worth more than $750 billion. With a licence to invest those funds into high-return opportunities anywhere in the world, the CPPIB doesn’t just invest in the future – its decisions help shape the future.
The primary duty of any pension manager is to serve the interests of contributors, whether they’re near retirement age of just starting in the workforce. On October 27, four young people who will be retiring after 2050 (the year by which the United Nations hoped to achieve net-zero emissions) announced they are suing the CPPIB for mismanagement of climate risks. They claim that the fund’s continuing investment in fossil-fuel companies delays the energy transition and risks their financial futures.
According to the Toronto not-for-profit Shift Action for Pension Wealth and Planet Health, the CPPIB may have breached its legal duties “by subjecting pension contributions to undue risk of loss from poorly managed climate risk.” The proponents aren’t suing for compensation; their goal is to nail down the meaning of “undue risk” and ensure that the board “does a better job of managing the long-term financial risks of climate.”
Underestimating the risks
Toronto-based Ecojustice, which is representing the four applicants along with Goldblatt Partners, has published a critique of CPP Investments’ “transition risks” model that claims that the pension fund is not accounting for all the long-term negative effects of climate change, “including irreparable loss.” The CPPIB’s worst-case scenario estimates that a “hothouse” world in 2050 would reduce investment returns by just 4%.
“That looks like a wild under-estimate to me,” says Shift senior manager Patrick DeRochie. “You can’t diversify your way out of three degrees of warming. It will become impossible for pension funds to create returns if we fail to get the climate crisis under control.”
“The way CPP Investments is assuming climate risks is not in line with their fiduciary duties. Fossil fuels are a very short-term investment vehicle. By the time I retire, those investments will either be outdated, or the whole economy will have tanked.
– Travis Olson, plaintiff
One applicant in the suit puts things in simpler language. “Every payday, CPP Investments is using our mandatory pension contributions to fund fossil fuels and worsen the climate crisis,” alleges Aliya Hirji, a 20-year-old self-described community activist who has engaged with climate issues for six years. “By underestimating climate-related financial risks, CPP Investments risks exposing us to reduced retirement benefits, higher contribution rates – or both. We could end up paying more than previous generations and getting less back when it’s our turn to retire.” (Hirji was recognized by Corporate Knights in 2021 as one of Canada’s 30 Under 30 sustainability leaders.)
The four applicants – Hirji, from Vancouver; Rav Singh and Chloe Tse, from Ontario; and Travis Olson, from Alberta – met for the first time this month just prior to filing the lawsuit. Their filing alleges that CPP Investments lacks adequate measures to manage climate-related financial risks.