Controversy Arises Regarding Canadian Pension Funds' Connections to Fossil Fuel Sector
In a recent report, climate advocacy group Shift has raised concerns about potential conflicts of interest arising from the presence of fossil fuel company representatives on the boards of Canada's largest public pension funds. The core issues highlighted by Shift include the potential conflict between the fiduciary duty of pension funds to act in the long-term best interests of their beneficiaries and the interests of fossil fuel companies, as well as the risk of directors with ties to fossil fuel companies undermining prudent pension governance.
According to Shift, as of June 1, members of five major public sector pension fund boards also have affiliations with fossil fuel companies. The Canada Pension Plan Investment Board (CPPIB) has particularly high representation, with three out of ten board members having such ties. This situation is especially concerning given that CPPIB recently abandoned its commitment to achieve net-zero financed emissions by 2050, which may reflect a broader conflict between fossil fuel industry interests and climate goals.
The report also points out that pension funds have a legal responsibility to prioritize beneficiaries’ long-term interests, which includes effective management of climate risks that fossil fuel industry interests could compromise. However, CPPIB and other pension funds mentioned in the report, such as AIMCo, PSP Investments, OMERS, and Ontario Teachers' Pension Plan (OTPP), have not commented on the report.
Shift recommends that pension funds should disclose conflicts of interest more transparently and ban simultaneous fossil fuel directorships or enforce strong recusal rules, requiring directors to abstain from decisions related to the fossil fuel industry. The group also calls on the Canadian government to amend Crown appointment policies to exclude candidates with fossil fuel entanglements and to enact legislation such as the Climate-Aligned Finance Act (CAFA) and to improve regulatory standards to match global peers in the UK, EU, and China.
Examples of directors with ties to fossil fuel companies include PSP director, Miranda Hubbs, who sits on the board of Imperial Oil, which is lobbying to dismantle federal climate policies. OTPP board member George Lewis is on the board of South Bow Corp., which oversees part of the Keystone Pipeline, and James Richardson & Sons, Limited, with energy operations through subsidiaries Kingston Midstream and Tundra Oil & Gas. AIMCo's board director, Bob Dhillon, serves on the board of Strathcona Resources, which has lobbied for the rollback of Canada's net zero targets. OMERS board director Diane Kazarian serves on the board of Gibson Energy, which has signed a letter pushing for a rollback of climate policies.
The report also notes that CPPIB remains a major investor in fossil fuels and that oil and gas production is the largest goods-producing industry in Canada, accounting for more than 3% of the nation's GDP. Despite this, CPPIB's CEO, John Graham, stated that while the fund sees the energy transition as an opportunity, it needs to continue supporting the oil and gas sector. Last year, CPPIB announced a USD$1bn investment in Wolf Midstream to ramp up natural gas liquids production.
In summary, Shift's concerns focus on how overlapping leadership roles between pension boards and fossil fuel companies can create conflicts that challenge the governance integrity of public pension funds in addressing climate change risks. The group urges pension funds and the Canadian government to take action to address these concerns and ensure that pension funds are acting in the best interests of their beneficiaries in managing climate risks.
- The report by Shift warns that the presence of directors with ties to fossil fuel companies on the boards of Canada's largest public pension funds, such as CPPIB, AIMCo, PSP Investments, OMERS, and Ontario Teachers' Pension Plan (OTPP), might hamper their ability to manage climate risks effectively, which is a crucial part of their legal responsibility to prioritize their beneficiaries' long-term interests.
- To maintaining their integrity in tackling climate change issues, Shift proposes that pension funds like CPPIB should disclose conflicts of interest more transparently, enforce strict recusal rules or ban simultaneous fossil fuel directorships, and work towards enhancing their governance by adopting regulations similar to those in countries like the UK, EU, and China.
