Authors: Conor Chell, Samina Ullah
Businesses across Canada – and the world – have yet another reason to develop credible net zero plans now that the Canada Pension Plan Investment Board (CPP Investments) has committed to achieving net zero emissions across its investment portfolio and operations by the year 2050.
On February 10, 2022, CPP Investments announced its net zero plan, which includes a commitment to achieve a net-zero investment portfolio by 2050. CPP Investments had $550.4 billion in assets under management as of December 31, 2021, and has used environmental, social and corporate governance (ESG) factors to inform its investment decisions for more than 10 years.
“Our commitment to achieving net zero by 2050 is aligned with how CPP Investments has been incorporating ESG considerations – in particular climate change – into our investment decisions for more than a decade,” Deborah Orida, Global Head of Real Assets and Chief Sustainability Officer with CPP Investments, said in a release.
CPP’s announcement reflects a global trend among investors, and in particular pension funds, to direct investment toward a specific goal with measurable targets rather than diverse forms of socially responsible investing. This trend also underscores how important it is for companies to develop robust ESG strategies if they hope to attract investment capital going forward.
CPP Promises Active Investment, Rather Than Divestment
Around the world, institutional investors are honing in on companies’ climate change targets, and how they plan to achieve these targets, when making investment decisions. As we discussed in a previous blog, 90% of institutional investors surveyed by EY said they favour companies with specific decarbonization plans, and 86% are looking to invest in companies that have aggressive strategies to reduce their carbon footprint.
CPP Investments isn’t the only managed pension fund that has committed to a net zero investment portfolio by the year 2050 – it isn’t even the first in Canada. The Ontario Teachers’ Pension Plan Board, which manages $227.7 billion in assets, made the same pledge last year and committed to reducing the carbon intensity of its investment portfolio by 45% in 2025 and 67% in 2030. The Caisse de dépôt et placement du Québec (CDPQ), which manages $390 billion in assets, has also made a net zero pledge.
To achieve its net zero pledge, CDPQ has promised to divest all of its oil and gas investments by the end of 2022. CDPQ’s approach to meeting its net zero portfolio target by 2050 contrasts with that of CPP Investments, which said it will use active investment – rather than divestment – to achieve its net zero goal. This means CPP Investments is willing to invest in high-emitting sectors, such as the oil and gas industry, provided that investees have a credible transition plan to achieve net zero with consistent and verifiable milestones.
As an active investor, CPP Investments said in a statement that it plans to exert its influence “on the whole economy transition.” This approach is not unique, according to the Canadian Pensions Dashboard for Responsible Investing, which noted that “there still exists tremendous potential for pensions to play an active ownership role to help carbon-intensive companies leverage their assets to make the transition from ‘grey to green.’”
How Do You Position Yourself As an Attractive Investment?
Now more than ever, companies that do not have a credible net zero plan risk losing access to capital. Even companies in a high-emitting sector can still be viewed as an attractive investment by many institutional investors if they have a credible net zero plan and meaningful targets for reducing emissions. The lawyers in our ESG practice group have extensive experience advising clients in a broad range of industries on developing their ESG strategies. Contact us to learn how we can help.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.