Canadian Pension Giant Expects Carbon Neutral Internal Ops by 2023

The $392 billion CPPIB also said it will nearly double its investments in green and transition assets by 2030.


The C$523 billion ($392.2 billion) Canada Pension Plan Investment Board expects to achieve carbon neutrality for its internal operations by the end of 2023, according to its 2022 Report on Sustainable Investing. In February, the pension fund committed its portfolio and operations to becoming net zero of greenhouse gas emissions by 2050.

“In the last year, debate has emerged over the utility and integrity of the term ‘environmental, social, governance,’” CPPIB President and Chief Executive Officer John Graham said in the report. “To us, the ESG label is not what matters. What’s truly relevant is to assess, understand, and address the wider factors affecting business growth – whether those are societal, environmental or stewardship related.”

The pension fund giant said it is conducting an abatement capacity assessment on its operations to inform its approach in creating a framework and standardized template to measure the capacity of organizations to remove or “abate” their GHG emissions. It said it has already started the process of procuring carbon credits – which it describes as “high-quality” and “verifiable” – to offset its operational emissions and help it reach carbon neutrality.

The pension fund also said it is investing in companies that demonstrate carbon-reduction innovations and practices that it believes will lead to better risk-adjusted returns. It said the investment opportunities include, but are not limited to, energy systems, built space, industry, mobility, carbon markets, and investments based on changing consumer preferences.

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“For public companies in our portfolio, we articulate clearly how integration of sustainability-related factors should inform strategy and enhance returns or reduce risks in the business,” Richard Manley, managing director, head of sustainable investing for CPPIB, said. “As a global investor, we proactively identify dynamic and emerging material business risks and opportunities and seek solutions to reduce or capture their potential within portfolio companies and align incentives.”

In its report, the pension fund said it will double its investments in green and transition assets to at least C$130 billion by 2030 from C$66 billion as of March 31. It also said that it recently developed a methodology to measure its existing green and transition assets.

“While we referenced a number of international standards for guidance, our methodology does not strictly adhere to any of them as they are mostly still evolving,” said the report. “In the absence of a widely accepted definition for green or transition assets, we arrived at our definition by considering different frameworks and taxonomies, including the E.U. Taxonomy.”

The CPPIB said it considers an asset to be green when at least 95% of its revenue is derived from green activities as defined by the International Capital Market Association. It also said it adopts the highest end of the 75%-95% range that the E.U. Taxonomy uses to consider whether assets are “strongly climate-aligned.”

Additionally, the pension fund considers an asset to be in transition if the company is in a high-emitting sector but has committed to reaching net zero “with a credible target and transition plan, and is making meaningful contributions to global emissions reductions.” Assets are eligible if they obtain certification from a credible third party, such as the Science Based Targets initiative for target setting. And companies with substantial “green revenues” that are shy of the 95% green asset threshold may be considered for inclusion as transition assets if they provide a credible plan to grow their green revenue share.

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Louisiana Divests Nearly $800 Million from BlackRock to Protect Fossil Fuel Industry

Treasurer John Schroder calls ESG investing a threat to democracy and individual liberty.


Louisiana Treasurer John Schroder is divesting $794 million worth of state funds from BlackRock because the world’s largest asset manager’s “blatantly anti-fossil fuel policies would destroy Louisiana’s economy.”

The divestment is in response to BlackRock’s sustainable investing philosophy, and for the firm calling on other companies to embrace net zero investment strategies that would harm the fossil fuel industry, which Schroder notes is a “vital part” of Louisiana’s economy.

“This divestment is necessary to protect Louisiana from actions and policies that would actively seek to hamstring our fossil fuel sector,” Schroder said in a letter to BlackRock CEO Larry Fink. “I refuse to invest a penny of our state’s funds with a company that would take food off tables, money out of pockets and jobs away from hardworking Louisianans.”

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When asked to comment, a BlackRock spokesperson said the firm’s view is captured by a line in its Sept. 7 response to a letter it received from a group of 19 Republican state attorneys general saying environmental, social, and governance  investments weaken America’s national security.

“We are disturbed by the emerging trend of political initiatives that sacrifice pension plans’ access to high-quality investments – and thereby jeopardize pensioners’ financial returns,” BlackRock wrote in the response.

Schroder also said that ESG investing “is contrary to Louisiana law on fiduciary duties, which requires a sole focus on financial returns.” He added that ESG investing is “a threat to our founding principles: democracy, economic freedom, and individual liberty. It threatens our democracy, bypasses the ballot box and allows large investment firms to push political agendas.”

Schroder even threw some shade at BlackRock, citing a Bloomberg article that said the $1.7 trillion the company lost during the first half of the year set a record for the largest amount of money lost by a single firm over a six-month period.

“Such huge losses would seem to indicate that BlackRock is either not focused on investor returns or that its ESG investment strategy is flawed,” Schroder said. Although Schroder said the loss was “associated with ESG accounts” there is no mention of ESG in the article.

Meanwhile, the Louisiana State Employees’ Retirement System, which counts Schroder among its board members, reported an investment loss of 6.9%, or $1 billion, for the fiscal year ending June 30, according to its financial report for fiscal years 2021 and 2022. This is compared with a 33.4% return and a $3.7 billion investment gain for fiscal year 2021.

The pension’s net position fell by $1.5 billion to $13.2 billion from $14.7 billion a year earlier, and the total pension liability for LASERS was $20.8 billion and $20.2 billion as of the end of fiscal years 2022 and 2021, respectively.

“The investment loss for 2022 is due to a number of factors including inflation reaching a multi-decade high, aggressive monetary policy tightening by the Federal Reserve, and lingering effects of the Russia-Ukraine conflict,” LASERS said in its report. “The investment income in 2021 is attributable to both global market improvements as well as the asset allocation changes adopted by the board of trustees in October 2020.”

The state pension changed its target asset allocation slightly from 2021 to 2022 as it increased its target for alternative investments to 26% of the portfolio from 24%, while lowering its target allocation to international fixed income to 17% from 18%, as well as its target allocation to cash to 0% from 1%. It maintained its target allocations for domestic equity (31%), international equity (23%), and domestic fixed income (3%).

LASERS said it intends to commit additional funds to alternative assets over time as it becomes under-represented relative to the LASERS target asset allocation. LASERS said it attempts to commit up to 200% of its target weighting to private markets investments to help ensure that the funded portion of the investments approximates the target allocation.

“The board of LASERS recognizes that alternative assets are potentially more risky than other investments of the system,” said the report. “As such, extra care is taken in evaluating and fully understanding all aspects on an alternative investment opportunity.”

 

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