Quebec's Caisse to sell remaining oil production investments, retain pipelines

·5 min read

MONTREAL — Canada's second-largest pension fund manager has announced a plan to divest its oil-producing assets in order to achieve a zero-emissions portfolio by 2050.

Caisse de dépôt et placement du Québec says it will sell its remaining oil production investments by the end of next year as part of its climate strategy but won't part with its stake in pipelines.

The Quebec investment manager says its remaining energy production assets make up one per cent of its portfolio, or about $4 billion in "a dozen" companies.

CDPQ made the announcement as it released its new plan to fight climate change.

As part of the plan, the investment fund says it will create a $10-billion transition envelope that will help support companies in the heaviest emitting sectors such as mining, transport and agriculture to reduce their carbon intensity.

The Caisse has bumped up its carbon intensity target after surpassing its 2017 goal of reducing intensityby 25 per cent per dollar invested. It wants that to fall 60 per cent by 2030 compared with 2017.

It also wants to increase its portfolio of low-carbon assets to $54 billion by 2025, triple the total in 2017 and up from $36 billion currently.

Since the first draft of the strategy in 2017, "the world has changed profoundly and rapidly," said Charles Emond, president and CEO of the Caisse, who is worried about the climate situation which "is deteriorating more quickly than anticipated.”

"There is more than ever an urgency to act," he said at a news conference on Tuesday. "We must therefore accelerate our commitment against climate change, go further and above all, immediately tackle the source of the problem.”

The pension fund manager's move would position it as a climate leader among Canada's major financial institutions, said Shift Action for Pension Wealth and Planet Health, a charitable initiative that encourages pension funds to engage on the climate crisis.

"It is amazing that it took until 2021 for a Canadian pension fund to finally recognize that protecting our retirement savings from the worsening climate crisis inevitably requires abandoning market exposure to high-risk fossil fuels," it said in a news release.

Shift said investments in natural gas are also too risky for the climate and Quebec pensions, and should also be phased out. To limit global warming, it said natural gas must also be kept in the ground and oil and gas production must be reduced by an average of three per cent per year starting immediately.

"The CDPQ’s massive fossil gas infrastructure investments mean that it has not yet reckoned with this reality."

Shift said the Caisse's commitment to cut its carbon emissions intensity are eclipsed in Canada only by a pledge from the Ontario Teachers' Pension Plan Board.

Earlier this month, Teachers' pension fund manager said it aimed to slash the carbon emissions intensity of its investments by 45 per cent by 2025 and by two-thirds by 2030, compared against its 2019 baseline.

However, Shift said Teachers' has not yet explained how its 2030 goal is possible without excluding fossil fuels from its portfolio.

"The CDPQ’s progress stands in stark contrast to the Canada Pension Plan, whose CEO said earlier this year that the Canada Pension Plan has no plans to institute a blanket screen on oil and gas during his tenure."

Besides the climate aspect, investing in oil has been a costly decision, says an environmental group.

The value of the Caisse’s 50 main investments in this sector depreciated by 57.6 per cent between 2011 and 2020, according to an analysis unveiled by the Sortons la Caisse du carbon coalition in February.

It estimates that the Caisse would have generated $16.2 billion more for its depositors If it had invested in an index portfolio excluding oil.

Emond said the rise in oil prices opens a favourable window to sell assets. Crude prices surged to US$75.45 per barrel on Monday, up from US$18.84 in April 2020.

He said it would have been irresponsible to adhere to public demands that it abandon fossil fuels last year.

And Emond said he's not worried that the Caisse will get a lower price, now that potential buyers know they want to sell within 15 months. The news would not be surprising for investors who read its 2017 climate strategy.

“Don't worry. We will be responsible in our role as trustee.”

Despite selling oil production assets, the Caisse plans to retain, but not increase, its investments in the pipeline sector which represents two per cent of the value of its portfolio or about $8 billion.

Emond defended the decision, noting that the vast majority of pipelines transport natural gas rather than oil and the Caisse will not finance the construction of new pipelines.

“The economy needs them [the pipelines carrying oil]. You can't shut them down overnight and throw the economy down,” he said.

"We cannot go from renewable energy which is only five per cent of the world’s supply and replace 80 per cent of fossil energy overnight. ”

The group representing Canada's oil industry criticized decisions like the one made by the Caisse, noting that global energy demand is escalating and the consequences are being felt in Europe.

"(They) will do nothing to impact global demand and only serve to drive investment away from responsible energy developing countries like Canada," said Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers.

"This reduces jobs and opportunities for Canadians while enriching other countries that do not share Canada's environmental or human rights standards. Canadian energy is better for Canadians and better for the world. We would encourage organizations to view Canadian natural gas and oil as a responsible and sustainable investment option."

This report by The Canadian Press was first published Sept. 28, 2021.

Stéphane Rolland, The Canadian Press

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