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Only Labor Can Force Canadian Pension Funds to Divest From Oil

One of Canada’s largest institutional investors, responsible for managing billions of dollars in workers’ pensions, has committed to fossil fuel divestment. It’s a good step — but without pressure from the labor movement, these promises will mean nothing.

The 2018 Carr Fire in California, where climate change–driven wildfires have become a regular occurrence. (Eric Coulter / Bureau of Land Management via Flickr)

On September 28, the institutional investor and pension manager Caisse de Dépôt et Placement du Québec (CDPQ) announced that it would no longer invest in oil production. The Caisse made this decision as part of their strategy to reach net-zero by 2050. Canada’s second-largest pension fund manages the retirement contributions of over six million Quebecois. Their stability and security in old age is bound up with the Caisse’s ability to assure returns on its vast asset portfolio.

Although it comes with caveats, the Caisse’s announcement could potentially be the start of a wider movement on the part of investment companies to divest Canada’s public sector pension funds from fossil fuels. With such massive portfolios, pensions could be at the forefront of a just transition.

The Caisse Divests (Sort of)

As a manager, the Caisse invests the contributions of over forty different pension and insurance plans, most notably the Québec Pension Plan and the Government and Public Employees Retirement Plan. It controls $390 billion in assets, which form the basis of the retirement benefits these plans pay out. An institutional investor of remarkable scale, the Caisse has a major influence in global financial markets. Through its asset holdings and its construction subsidiary CDPQ Infra, it also exerts an enormous influence on infrastructure development.

At present, oil production represents approximately $4 billion of the Caisse’s greater asset portfolio. Citing a reluctance to contribute to the expansion of global oil supply, they have committed to divesting both from oil extraction and from pipeline construction. By the end of next year, the company hopes to rid itself of all its assets in the oil and gas industry.

The Caisse’s divestment from oil production is part of its larger climate strategy. The company aims to invest $54 billion in green initiatives by 2025. Additionally, it has announced a transition fund of $10 billion to aid high-emitting sectors in their decarbonization efforts.

Undoubtedly, these developments are a sign of progress. Nevertheless, it is important to not lose sight of the limits of the announcement. Although the Caisse is withdrawing its investments in oil production, it is only committed to reducing the emissions of its greater portfolio by 60 percent by 2030. This is a far cry from reaching carbon neutrality at the urgent pace necessary to reduce the risk of catastrophic ecological crisis.

Natural gas holdings remain a significant portion of the Caisse’s infrastructure portfolio. This recent announcement should not be interpreted as a commitment from the Caisse to carbon neutrality, let alone to green revolution. But it’s of course a welcome shift from one of Canada’s biggest institutional investors.

That the retirement savings of millions of Quebecois workers will no longer be directly tied to the extraction of oil is a major victory. People’s ability to grow old need not rely on the destruction of the natural environment. But investment firms simply withdrawing capital from the production of oil and gas is not enough — pension funds are involved in the fossil fuel economy at every stage, from royalty rights to transportation.

Canada’s Public Sector Pensions and Fossil Fuels

The Caisse’s announcement comes on the heels of a report from the Canadian Centre for Policy Alternatives. The report showed that both the Caisse and CPP Investments (Canada’s largest pension fund) had sustained — and in CPP Investments’s case actually increased — their levels of investment in fossil fuels since 2016. Recently, climate justice activists in Canada have directed attention towards the integral role massive financial institutions play in enabling climate catastrophe by funding extractive industries. Given the Caisse’s scale and significance, it’s reasonable to hope that their withdrawal from oil could send signals to other major pension funds.

Every big Canadian public pension fund has some sort of relationship to fossil fuel capital. The Ontario Municipal Employees Retirement System (OMERS), for instance, is co-owner of BridgeTex, a pipeline system which sends 440,000 barrels of crude oil a day from Colorado City in West Texas to refineries on the Gulf Coast in Houston. An OMERS representative, celebrating the fund’s $1.438 billion investment in 2018, referred to the US energy sector as an “attractive” industry. Another representative described the pipeline as a “vital asset,” integral to their long-term infrastructure strategy. BridgeTex is merely the crown jewel of the pension fund’s carbon-intensive portfolio. For the fund’s managers, the fossil fuel industry is an indispensable partner of Ontario’s retirees.

Unsurprisingly, the Alberta Investment Management Corporation (AIMCo), which manages the assets of seven public sector pension plans as well as the province’s sovereign wealth fund, devotes a sizable chunk of its infrastructure portfolio to fossil fuels. The corporation commits upward of $2 billion to pipelines and other transportation infrastructure. Its biggest investment in fossil fuels is in Howard Energy Partners, a business in which AIMCo bought a 28 percent stake in 2016, with oil and gas infrastructure across Texas and Oklahoma.

The Ontario Teachers’ Pension Plan (OTPP) also has extensive holdings in natural gas. OTPP’s distribution and transmission investments amount to over $1.5 billion in assets in their infrastructure folder. Pipeline networks owned by the OTPP stretch across the United Arab Emirates and the UK. It also owns two separate oil and gas royalty companies, through which it sells drilling rights to extractors.

Heritage Royalty, owned entirely by the OTPP, controls 4.5 million acres of mineral rights in south Alberta. Given the relationship between oil drilling, mineral rights, and indigenous dispossession, the OTPP’s pension extractivism has a violently colonial underpinning.

Major pension funds often collaborate with one another on fossil fuel–intensive infrastructure projects. Puget Sound Energy, a private electricity company in Washington state, is co-owned by AIMCo, OMERS, the British Columbia Investment Management Corporation, and Stichting Pensioenfonds Zorg en Welzijn — the second-largest pension fund in the Netherlands. The majority of its electricity is derived from coal and natural gas, and its coal plants are among the largest emitters in the United States.

As long-term investors, pension funds seek places to store capital for reliable future returns. By putting large sums of money into the fossil fuel industry, they effectively work to underwrite ecological catastrophe. The necessities of “long-term returns” render investors blind to the long-term damage they’re causing. Ironically, fossil fuel investments make saving for the future via pensions seem unnecessary — we can’t plan for a retirement if there isn’t a safe world in which to live.

A Green Pension Strategy

Large investors like the Caisse talk a big game on climate leadership, claiming that they are steadfastly committed to a shift away from fossil fuels. But the $10 billion earmarked by the Caisse to the “green fund” is a very small portion of its total portfolio. Beyond this, pension funds’ interest in green infrastructure as an investment possibility is often a cynical attempt to capitalize on the climate crisis. Socialists must instead fight to mitigate and prevent worsening climate change, not leverage its effects for profit.

It has not always been the case that pensions primarily invested in infrastructure in order to make profits. Until a few decades ago, in both the United States and Canada, public pension funds frequently invested in government bonds, helping to underwrite the expansion of national infrastructure. The financialization of the 1980s and 1990s changed this.

Pension funds continue to be crucial to infrastructure expansion, but only through public-private partnerships (P3s). P3 development guarantees that vital pieces of the built environment are a source of long-term profit through a combination of tolls, utility fees, and government rents.

Given the huge amounts of capital at their disposal and the vital role that they play in twenty-first century infrastructure development, pension funds could help to finance and build a carbon-neutral world. To do so, however, they will have to set aside the “rate-of-return” market logics by which they’re presently governed.

There is no indication that this shift is going to happen anytime soon. “Financial sustainability” — despite the Caisse’s announcement — will continue to take precedence over climate justice. But the unions who represent the beneficiaries of these pension funds can fight to make sure that the deferred wages of workers are used for the common good.

In many cases, unions appoint trustees to boards of investment funds. If the labor movement chose to organize around these issues, it would be a game changer. If they recognize that long-term ecological sustainability matters more than long-term profit, pension funds could provide the financial underpinnings for the building of a just transition.

Public sector funds are subject to legislation and can be reformed through political action. Although they’ve been carefully designed to be free of democratic accountability, they are not immune to external pressure. Sustained organizing by unions and their members can lead to greater amounts of worker control over the use to which these large sums of money are put.

It is up to the beneficiaries of pension funds — whether they are employer funds like OMERS and the OTPP or state funds like the Caisse — to push investment managers toward investments favorable to a just transition. Workers’ retirements don’t need to be linked to the destruction of the environment — they can be part of the foundation of a green new world.