Pension funds at riskFriday November 27, 2015 Written by Retain Canada
Canadian pension funds are exposed to a wide range of risks from their holdings of fossil fuels, according to a study by the Canadian Centre for Policy Alternatives (CCPA).
The study makes the economic case for divestment from fossil fuels, due to risk factors such as aggressive new climate policies. A review of Canadian public pension fund annual reports found that action on climate change was not mentioned as a material risk to pension sustainability.
“It is our impression that Canadian pension funds are living in a form of climate denial,” said Marc Lee, CCPA-BC senior economist. “Integrating and understanding climate policy risk is a logical next step for the conversation on sustainability within public sector pensions, including the potential for new regulations, carbon pricing, emission caps, and unburnable carbon reserves.”
Limitations on disclosure inhibit the ability to precisely state the risk for many Canadian pension funds but the study estimates the top 20 public pension funds have around four to nine per cent of their funds invested in fossil fuel stock.
The study looks at the recent collapse of oil prices as a sign of things to come. The top 20 funds had estimated holdings of approximately $27 billion in fossil fuel company stock prior to the commodity price fall. This translates into losses of approximately $5.8 billion – a conservative estimate based on equities only.
A range of innovative alternative investment options are available for pension funds as they divest from fossil fuels while achieving comparable returns.
“Pension funds play a major role in the financial system and there is room to up their climate game,” Lee said. "Divestment from fossil fuels is consistent with fiduciary duty, but funds can and should also play a transformative role in building and scaling up the green infrastructure needed for a low-carbon future."