Canada’s largest pension fund CPPIB takes engagement approach to net-zero

CPP Investments plans to double green and transition asset investments to $130 billion by 2030 as part of its 2050 net-zero plans but will not divest from oil and gas companies.
Canada’s largest pension fund CPPIB takes engagement approach to net-zero

The Canada Pension Plan Investment Board, better known as CPP Investments or CPPIB, announced net-zero greenhouse gas (GHG) emission goals by 2050 through a decarbonisation approach focused on influencing transition within high-emitting sectors as opposed to divestment.

The plan also includes increasing its investments into green and transition assets from $67 billion to $130 billion by 2030 and a carbon neutrality goal by the end of the next financial year (2023).

“We will continue to invest and exert our influence in the whole economy transition as active investors, rather than through blanket divestment,” the fund wrote in its announcement on Thursday (February 10).

The fund will continue investing across the energy spectrum, from conventional energy such as oil and gas, to renewables like wind and solar power a spokesperson told AsianInvestor.

"We believe using blanket divestment as a tool to reach net zero will impede the world’s path to get there," the spokesperson said. "Blanket divestment detached from investment considerations means losing the ability to enable the energy evolution by applying constructive influence through impactful engagement. We are using our influence to encourage all companies to develop viable transition strategies."


In contrast, its peer, Canadian pension fund CDPQ (Caisse de dépôt et placement du Québec), announced last year that it also had a 2050 net-zero goal which included disposing of its remaining assets in the oil production sector by the end of 2022.

READ ALSO: Coal divestment pressure builds on Asian asset owners

However, founder and managing director of GlobalSWF Diego Lopez said that both CPPIB and CDPQ are at the forefront of pushing for responsible investing.

"The engagement approach has been traditionally preferred by Canadians, as opposed to the divestment approach, which is often used by Scandinavian and Asian-Oceanian funds. It has been argued that engagement can actually be more effective as the investor tries to steer the portfolio companies in the right direction," he told AsianInvestor.

He added that both have ambitious plans to increase investments in green assets, with CDPQ planning to increase its C$36 billion in low-carbon assets by 1.5 times by 2025 and CPPIB to double its green and transition assets by 2030.

"According to our data platform, in the past six years, CPPIB and CDPQ were actually the world’s top two spenders in green assets: CPPIB with $7.6 billion in 11 assets and CDPQ with US$ 3.6 billion in 10 assets," he provided.

"Lastly, our 2021 GSR Scoreboard rated CDPQ with a 96% and CPP with a 88%, among the best scores around the world, too."

In a statement, Deborah Orida, global head of real assets and chief sustainability officer, said that CPPIB has incorporated environmental, social and governance (ESG) considerations into investment decisions for more than a decade.

“We believe the performance of our portfolio and the generation of long-term investment returns relies upon our ability to adapt to a global economy that is moving toward net zero,” she said.

CPPIB invests in sustainable assets in several ways, for instance through its Sustainable Energies Group (SEG) formed in April last year that has allocated more than $20 billion in the global energy sector. 

The fund also has a thematic investing team tasked with identifying companies that respond to physical, regulatory and technological risks.

For instance, under its thematic investing umbrella, CPPIB invested in US-based animal-free dairy maker Perfect Day in 2020, leading its $300 million Series C funding round alongside Singapore’s Temasek and Li Ka Shing-backed Horizons Ventures.

The fund also works towards having its sizeable real estate portfolio be green building certified, with 403 across 27 countries having been certified. CPPIB had 21% of its portfolio allocated to real assets in 2021, up from 4.7% in 2006.

Source: CPPIB FY2021 Results published May 2021

In Asia, the fund has also invested in ReNew Power, an India-based renewable energy developer and operator with clean energy capacity diversified across wind, solar, hydro and rooftop solar assets as part of its Fundamental Equities Asia portfolio.

CPPIB had $119.3 billion allocated to Asia as of FY2021, with notable investments that include a $250 million commitment to the Baring Private Equity Asia’s India Credit Fund III, $150 million in Chinese tech firm Kuaishou, and $412 million in the GLP Japan Income Fund, which focuses on private open-ended logistics real estate.

The $550.4 billion fund will also continue to report its carbon footprint annually in alignment with the Task Force on Climate-related Financial Disclosures (TCFD). This includes transparent reporting of the fund’s weighted average carbon intensity of its investment portfolio and the amount of carbon emissions generated per $1 million of portfolio value.

"With respect to data, CPP Investments has proposed Abatement Capacity Assessment Methodology for guiding companies to project their capacity to abate greenhouse gas emissions," the spokesperson added. "Our suggested reporting framework would inform corporate boards and senior management to make strategic decisions about how to increase a company’s competitiveness and its progress toward climate commitments."

This article has been updated with analyst comments and responses from CPPIB.

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