In its 2023 budget, the federal government tapped the Public Sector Pension Investment Board (PSP Investments or PSP) to manage the $15-billion Canada Growth Fund (CGF). But Canadians yearning for ambitious climate action and clean economic growth have reason to be concerned about PSP’s track record when it comes to net-zero investing.
The fossil fuel industry is clearly eyeing the fund for even more subsidies to finance dangerous distractions such as carbon capture and storage (CCS) and fossil fuel-derived hydrogen.
So, PSP must ensure that the fund does not become a $15-billion slush fund for the oil and gas industry and its unproven, uneconomical, unscalable, ineffective CCS and hydrogen fantasies.
Instead, it should support the scale-up and deployment of numerous well-established climate solutions such as offshore wind, solar energy, electric-vehicle battery production, sustainable agriculture, energy efficiency and conservation.
The CGF should also help lower risk of technologies with high emissions-reduction potential to attract additional private-sector investments while bringing social, environmental and economic benefits to Canadian communities.
For its existing pension portfolio, PSP has yet to fully commit to a Paris-aligned climate plan – such as the Roadmap to a Sustainable Financial System in Canada, developed by three Canadian environmental organizations, or Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions from the United Nations’ High-Level Expert Group.
Leveraging the Canada Growth Fund to reduce risk and deploy credible climate solutions that cut emissions and accelerate Canada’s net-zero transition will require PSP to fully commit to achieving science-based climate goals. There are many pitfalls to avoid.
PSP is a Crown corporation that manages $243.7 billion in pension assets on behalf of more than 900,000 federal employees. The federal government chose PSP to manage the CGF because it “requires an experienced, professional, independent investment team” that “operates at arm’s length from the government” and “will be able to move quickly and begin making investments to support the growth of Canada’s clean economy.”
However, PSP has not yet demonstrated the ambition needed to protect pension-plan members from climate-related financial risks and align its portfolio with a safe climate future.
PSP released its climate strategy roadmap in April 2022. It set interim targets to reduce its portfolio’s emissions intensity; it made significant recent investments in profitable climate solutions such as renewable energy; and it developed a green asset taxonomy to classify its exposure to green, transition and carbon-intensive assets.
But PSP is one of the only pension funds among the Maple Eight – an internationally recognized group of Canada’s eight largest public pension managers – yet to make a commitment to aligning its portfolio with net-zero emissions. Shift Action’s 2022 analysis of PSP’s climate strategy gave the federal pension manager a “C” – a mediocre grade even for what Shift Action calls Canada’s fossil fuel-entangled pension sector.
As of March 31, PSP held $833 million in shares of fossil-fuel companies, investing the pensions of federal employees in an industry that is undermining their retirement security. PSP is also the co-owner of TriSummit Utilities, whose subsidiaries own and operate gas utilities in Alberta, British Columbia, Nova Scotia and Alaska (as well as wind and hydroelectric assets in B.C.).
Alarmingly, PSP refers to natural gas as “low-carbon energy” even though a study has found that potential leaks could make it as emissions-intensive as coal and must be rapidly phased out, some organizations say, to avoid dangerous climate outcomes.
PSP actually increased its portfolio’s exposure to what it refers to as “carbon-intensive assets” in “sensitive high-carbon sectors” in 2022, according to an analysis by Shift Action, while claiming that its investment strategy remains resilient in a “failed net-zero scenario by 2050” that would see global temperatures increase by 4.3 C compared with pre-industrial levels
Considering the flooding, wildfire and heat impacts that Canadians are experiencing at a 1.2 C temperature increase, energy finance think tank Carbon Tracker says it’s absurd that PSP thinks it can fulfil its pension mandate in a “failed net-zero scenario.”
PSP has also ignored or refused numerous requests from pension-plan members to disclose the full extent of its portfolio’s exposure to high-risk fossil fuels. This does not bode well for the need for transparency from the Canada Growth Fund.
The federal government plans to exempt the CGF from a section of the Financial Administration Act, which requires Crown corporations to seek cabinet approval for private sector-led investment transactions and other key moves. PSP also has extra powers to withhold documents from freedom-of-information requests.
Finance Canada says one of the CGF’s strategic objectives is accelerating the deployment of “low-carbon hydrogen” and CCS.
Is the growth fund an oil and gas slush fund?
Considering PSP’s spotty record on climate-aligned investing and public transparency, some commenters say Canadians are right to be concerned that CGF could become a $15-billion slush fund for the oil and gas industry, which would serve only to slow Canada’s energy transition.
Canada should indeed de-risk some investments in green hydrogen, but the CGF mandate conflates green hydrogen with fossil-derived hydrogen – the preferred technology of the oil and gas industry – even though a report by Environmental Defence, an environmental advocacy organization, says it faces significant challenges in terms of practicality, emissions and price.
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Meanwhile, some commentators says CCS for oil and gas is one of the most expensive ways to reduce carbon pollution, has proven unable to reduce emissions at scale, is used predominantly to enhance oil production, takes too long to build, and could divert precious time, money and resources to prolonging the use of fossil fuels instead of deploying proven emissions-reduction technologies.
Canada’s oil and gas industry has made it clear that it is certainly hoping for more public subsidies via the CGF.
Gas plant operator Capital Power recently called the CGF a “positive development” and “strategic highlight” for a CCS project as it moves to build and expand gas plants.
The Canadian Association of Petroleum Producers says it “will continue our work with the federal government as it develops the Canada Growth Fund along with other initiatives on CCS and clean technology to create an environment that will support the oil and natural gas industry’s planned multi-billion-dollar investments into lowering emissions.”
The Pathways Alliance of oil sands companies are also angling for a chunk of the CGF to help finance their aspirational CCS plans – even as Pathways has indicated it can’t achieve the federal government’s emissions-reduction targets without production cuts.
As of March 31, PSP held nearly $100 million in shares of Pathways Alliance companies. The alliance is under investigation by Canada’s Competition Bureau for alleged greenwashing and false advertising.
A PSP director concurrently serves on the board of Imperial Oil – a Pathways company that’s under investigation by Environment and Climate Change Canada for leaking oil-sands tailings into the Athabasca River and failing for months to inform regulators and downstream Indigenous communities.
A group of Public Sector Pension Plan members recently asked cabinet to remove this director from PSP’s board. They say her interests, actions and obligations as a director of an oil company are inconsistent with her fiduciary duty to invest in ways that are in pension-plan members’ best long-term interests and that protect the reputation of PSP.
The CGF’s distinct public mandate and PSP’s investments in, and entanglements with, oil companies underscore the need for the CGF to be firewalled from PSP’s pension investment mandate.
PSP also has a record of claiming to invest in decarbonization while indirectly financing CCS. For example, PSP contributed to the Brookfield Global Transition Fund in 2021 – what the company calls “the largest fund focused on the global transition to a net-zero economy.” While Brookfield allocated capital to renewable energy, waste recycling and sustainable agriculture, the fund made separate investments in CCS projects.
Similarly, PSP contributed to the TPG Rise Climate Fund, which seeks to “invest in the entrepreneurs and businesses building climate solutions around the world.” The private fund allocated US$300 million to a controversial carbon-capture pipeline in Iowa.
The federal government and some provincial governments gave at least $5.8 billion combined in subsidies to CCS projects between 2000 and 2020, according to Environmental Defence. The federal 2023 budget includes another $18.1 billion in tax credits for CCS and $17.7 billion in tax credits for “clean” hydrogen over the next 11 years.
A pension plan without a climate plan
Despite record oil-industry profits in 2022 and strong evidence that oil sands companies don’t need additional government subsidies to deploy CCS, Canada’s oil and gas industry is asking for even more subsidies for CCS via the CGF.
These companies are at the same time working overtime to weaken and delay key federal policies to reduce emissions from the oil and gas sector, the Narwhal reports.
The CGF is an innovative financing tool that can help attract the private capital needed to decarbonize Canada’s economy. But PSP does not have a credible climate plan or a particularly encouraging record when it comes to climate-aligned investing.
Its mandate to manage the CGF should raise red flags for Canadians concerned about their tax dollars being used to prop up oil and gas production that must be phased out to ensure a safe climate future.