CPP Investments, Canada’s largest pension fund, announced plans Thursday to eliminate carbon emissions in its portfolio and operations by 2050. The fund, which manages $550.4 billion in assets, had long been a hold-out among the slate of institutional investors in Canada and internationally pledging to reach net zero by mid-century. While it’s been slow to proclaim its net-zero commitment, the fund said it’s been working towards this goal for more than a decade.

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It would do anything for net zero: The fund manager said it will increase its investments in “green and transition assets” from $67 billion today to at least $130 billion by 2030. CPP Investments defines green assets as those that generate at least 95 per cent of revenue from “green activities,” based on the International Capital Markets Association’s classifications. A transition asset is one that has made a net-zero commitment “with a credible target and plan and is making meaningful contributions to global emissions reduction.” In an interview with The Logic, chief sustainability officer Deborah Orida said that shift will come from the market itself evolving to be less carbon-intensive, as well as CPP Investments actively seeking out more climate-friendly investments, including those in energy-intensive companies that are working to decarbonize. 

But it won’t do that: Unlike some of its fellow public pension managers, notably including the Caisse de dépôt et placement du Québec, the fund manager is holding firm on its position against divesting from carbon-heavy portfolio assets like oil and gas firms. “We don’t believe blanket divestment divorced from investment considerations is the right way to maximize returns on behalf of our contributors and beneficiaries,” Orida told The Logic. “There is an evolution that needs to occur across the energy ecosystem,” she said, noting that energy-sector firms will play a role in developing the technology to facilitate this shift. 

Why now? The pledge follows intensifying pressure from advocacy groups and pension beneficiaries—a group that includes more than 20 million Canadians—urging the fund to join its peers in creating a net-zero plan. A letter some future pensioners sent to CPP Investments in September 2021 warned the investor of its legal responsibility to manage climate risk, calling for clear emissions-reduction targets and consequences, including divestment, for portfolio companies that don’t have credible plans to meet Paris Agreement goals. 

“This is something we’ve been thinking about for a while. We’re making this commitment on the back of more than a decade of thinking about climate change and incorporating it into our investment decisions,” said Orida, a veteran of the fund who became the fund’s first chief sustainability officer in October, in addition to running the real assets department. “My main focus since being named as CSO is to think about our climate strategy, and how our public position around net-zero is a really important part of that,” she said, adding that changes in consumer and corporate behaviours, as well as government climate policies made the timing right to make the pledge. “We think there’s a clear acceleration of regulation, the technology, the behaviour and the metrics, markets and reporting that will support a transition to a low-carbon economy.”

The reaction: Ryan Riordan, director of research at Queen’s University’s Institute for Sustainable Finance, said the commitment fits squarely with CPP Investments’ sole mandate to maximize returns for pensioners. “It has a very long [investment] horizon. High carbon assets are expected to have low future returns,” he told The Logic.

 Andhra Azevedo, a lawyer for Ecojustice Canada, said that while the organization welcomed the commitment, it was concerned the fund hasn’t set interim targets or time-bound actions to start reducing its emissions, making it “difficult to be confident that CPP Investments understands that achieving net zero by 2050 requires urgent action.” Azevedo also noted CPP Investment’s exposure to fossil fuels—which represented 3.5 per cent of its portfolio, worth about $17.5 billion, as of March 31, 2021—could interfere with it hitting the target. “As of 2021, the International Energy Agency concluded that a pathway to net zero by 2050 means no further investments in new fossil-fuel supply projects,” Azevedo said in an email to The Logic. “To have confidence that CPP Investments is going to achieve net zero by 2050, it needs to address this reality by committing to not invest in or finance further fossil-fuel expansion.”

Riordan, meanwhile, noted that the fund’s size should give it power to influence heavy emitters to transition without divesting. “They will be able to apply pressure on emitters as activist investors,” he said. “I expect them to proactively engage the sector and push them toward decarbonization.”