Canada’s public pension funds and the tar sands dilemma

Funds between a rock and hard place on Alberta projects

Canada’s giant public pension funds are facing a dilemma about how to address the potential environmental catastrophe of the tar sands development projects on their doorstep in Alberta.

That’s one of the key take-outs from the recent Canadian Responsible Investment Conference, organised by the Social Investment Organization in Toronto recently.
Their natural reticence has made Canadian public funds conspicuous by their absence in the worldwide investor furore over the Alberta projects, despite a clear leaning to responsible investment principles. Couple this with the weight of resource companies on the Toronto exchange and the sheer economic imperative that the tar sands represent and the funds understandably face a quandary.

Just one Canadian pension institution, Montreal’s Batirente, went public with support for resolutions against oil majors BP and Royal Dutch Shell organised by campaign group Fair Pensions. No marquee Canadian public fund has gone above the parapet on the issue.

Tellingly, a conference breakout session on tar sands was not attended by any delegates whatsoever from a public pension plan.

The large public plans are advocates of quiet, private, engagement. Their line generally is that they prefer to influence matters from the sidelines.

But they are capable of public engagement when necessary – witness how OTPP and CPPIB went publicrecently with their intention to vote against car parts maker Magna over a change in share structure. So, they are not afraid of making noise when it suits them.

“We absolutely need more pressure from public pension funds [on tar sands],” said Jennifer Coulson, manager of shareholder action at Northwest & Ethical Investments.

The Canadian funds exist in a context where the government and regulatory environment is broadly supportive of the Alberta projects, for obvious economic reasons, so there is little wider public policy or stakeholder pressure on them to intervene.

Canadian funds are not without profile on responsible investment generally. The Canadian Pension Plan Investment Board for example, which co-sponsored the conference, is signed up to the UN PRI, the Carbon Disclosure Project and the Extractives Industry Initiative.

It’s notable the extent to which environmental improvements by tar sands operators are not being driven by investors. Mining group Suncor, seen as being in the lead for its efforts to minimise damage, told RI that these initiatives have been prompted not by investor pressure but by a “social license to operate”.

The Toronto Stock Exchange is home to the largest number of mining and hydrocarbons firms in the world and the pension funds’ portfolios reflect this.

While the outside world may be up in arms, the local pension players are forced by circumstance to, at least publicly, sit on the sidelines.