Quebec pension giant Caisse to exit remaining oil-producing assets, setting up $10-billion green fund

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The Caisse de dépôt et placement du Québec is selling off its remaining oil-producing assets and setting up a $10-billion fund to decarbonize other high-emitting industrial sectors in a new stage of its strategy to get to net-zero emissions by 2050.

Canada’s second-largest pension fund said Tuesday it will jettison its oil-production holdings, which make up 1 per cent of its portfolio, by the end of next year to keep it from contributing to growth in global supplies. The move, lauded by environmental groups and derided as “irresponsible” by the Alberta-based oil and gas sector, represents a new bar on climate action for the country’s pension plans.

The Caisse currently owns about $4-billion in shares of Canadian and international oil producers, after spending the past few years reducing positions as it applied climate-risk calculations to investment decisions. The fund still had interests in Suncor Energy Inc. , Lundin Energy AB , Occidental Petroleum Corp. and Pioneer Natural Resources Co. , among others, at the end of 2020.

It will hold onto investments in oil and gas pipelines, including U.S.-based Colonial Pipeline Co., as part of its infrastructure portfolio, saying they remain necessary as the world gradually switches over to greener energy sources.

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The new transition fund will support companies in sectors with heavy greenhouse gas emissions, such as cement and steel makers, to reduce their carbon intensity. The projects it invests in must be new and certified as credible by external evaluators.

Caisse chief executive Charles Emond said the institution entered a new phase of its strategy of using its financial might in the battle against climate change while also generating returns for beneficiaries of the $390-billion fund. Focusing solely on buying green-energy and emissions-free assets won’t allow it to meet its climate goals, he said.

“We have this overarching objective of net zero by 2050, and the math just simply doesn’t add up,” Mr. Emond said in an interview.

“We came to the conclusion that 80 per cent of our total portfolio is zero or low- emission assets. Looking also at the fact that there’s a lot of hype and high valuation in some greener sectors, how do we go about continuing to generate returns with the right level of risk for our depositors, and move the needle even more on the transition?”

Hence the twin initiatives of divesting oil and pushing for decarbonization in other sectors that are seeking to slash their carbon footprints.

The moves follow dire warnings in a report this summer by the United Nations Intergovernmental Panel on Climate Change about the destructive impact of carbon emissions if the world fails to meet reduction targets. Institutions such as pension plans, with their capital allocation decisions, have a major role in helping to drain carbon out of the global economy.

The Caisse sets itself apart from many financial players by exiting oil production rather than going the “engagement” route of maintaining investments and trying to influence companies to slash emissions. Other retirement systems, such as the Ontario Teachers’ Pension Plan, have also de-emphasized fossil fuels. Teachers said this month it aims to vastly increase clean-energy investments and push companies in its portfolio to set paths to net zero.

The Caisse said it exceeded targets it set in 2017 to bulk up on green assets and reduce carbon intensity. Now it aims to have $54-billion in green assets by 2025 and achieve a 60 per cent cut in carbon intensity by 2030. Today it has $36-billion in green assets, including renewable energy and sustainable buildings.

The decision to divest the oil interests follows some movement in the Canadian energy sector toward reducing carbon emissions. Earlier this year, the country’s largest oil sands producers, including Suncor, set their own strategy to get to net zero through greenhouse gas reduction technology, carbon capture and investments in clean tech.

A senior oil industry official criticized the Caisse’s decision, saying it ignores investments companies across the sector are making to reduce their carbon intensity, and benefits producing countries with less stringent environmental regulations as demand for fuels surges following the pandemic.

“My first thought was that it’s irresponsible, first to those that they hold the investments for, and for the environmental outcomes that they are purporting to do it for,” said Tim McMillan, president of the Canadian Association of Petroleum Producers.

Meanwhile, the Alberta government pointed out that Quebec is Canada’s second-largest market for refined petroleum products and said any decisions to divest from the oil and gas industry are “short-sighted and disconnected from reality.” The province has been struggling to arrest a years-long decline in investment in the sector.

“Oil and gas will remain an integral part of the global energy supply mix for the next several decades, and that energy should come from Alberta,” said Jennifer Henshaw, spokeswoman for Alberta Energy Minister Sonya Savage.

Mr. Emond did not rule out new investments in energy projects if they are specifically aimed at the transition to net zero. “We’re trying to send the right signal with our capital that we’re serious to take that pivot,” he said.

He pointed out that returns from the oil sector have been generally weak over the past decade and often volatile.

Adam Scott, director of the advocacy group Shift: Action for Pension Wealth and Planet Health, which has called for accelerated fossil fuel divestments, said the Caisse’s actions show it is equally concerned about financial and environmental results.

“It’s assumed that we’re talking about only the moral case, but we’re actually saying this is the smart thing for you to do, avoiding exposure to a very high-risk sector and the risks are growing every day,” Mr. Scott said. “So it just makes sense to say that if it’s not a significant part of the portfolio, do we need it? And the answer is no.”

Jeffrey Jones writes about sustainable finance and the ESG Sector for The Globe and Mail. E-mail him at jeffjones@globeandmail.com.

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