CDPQ to exit oil as Canada continues sustainable finance push

Caisse de dépôt et placement du Québec (CDPQ) will axe all oil producers from its portfolio by the end of 2022 – putting it at odds with fellow Canadian pension fund CPPIB, which ruled out such a move earlier this year. 

As part of its new climate strategy, the C$390bn (€263bn) pension fund manager aims to hold $54bn in green assets by 2025, as well as achieving a 60% reduction in the carbon intensity of its portfolio by the end of the decade. 

 CDPQ said that its remaining oil assets comprised less than 1% of its portfolio, although it is unclear exactly what divestment steps it has already taken. According to its 2020 annual report, it held a 49.5% stake in Canada-based oil and natural gas firm Corex Resources and in 2011, it acquired a 16.55% interest in the 8,800km Colonial Pipeline from ConocoPhillips. RI has reached out to CDPQ for further clarity. 

The announcement came a day before NGOs and beneficiaries revealed they had written to the boards of Canada’s 10 largest pension funds requesting information on how they are meeting their fiduciary duties to serve the long-term interests of members in the face of climate change. Beneficiaries to support the letter, which was coordinated by campaign groups Ecojustice and Shift: Action, include the Presidents of the CUPE Ontario trade union and Public Service Alliance of Canada.

While CDPQ has made the move to divest, other Canadian pension funds have increased their fossil investments. According to Reuters analysis in May, Canada’s top five pension funds had a combined $2.4bn equity investment in the country’s four largest oil sands producers, an increase of 147% on the previous year.

In April, the incoming Chief Executive of the Canada Pension Plan Investment Board, CPPIB, said it would not exit fossil fuels under his watch, describing such a move as “a short on human ingenuity”. A report in August found that CPPIB had increased its shares in fossil fuel companies by 7.7% since 2016, while the Ontario Teachers Pension Plan has increased its stake from 25% to 37.5% in Scotia Gas Networks, and acquired a joint 31.6% stake in Puget Sound Energy with Macquarie in the past three months.

Canada has stepped up efforts to position itself as a leader on sustainable investment. It is currently in the process of developing a taxonomy to identify projects that will support its national climate transition, and RI understands it will launch a domestic equivalent to shareholder engagement network Climate Action 100+ next month. It is also competing with Germany, Japan, Switzerland and the UK to host global ESG reporting rules currently being developed by the International Sustainability Standards Board. 

The country’s Responsible Investment Association (RIA) has also announced this week that it is looking for a new CEO after Dustyn Lanz confirmed he was stepping down from the role for health reasons.

Researchers also published a report this week on the effectiveness of Canada’s comply-or-explain rules on board gender diversity, concluding that the ratio of female directors in reporting firms increased more quickly compared to similar US firms which faced mandatory requirements on diversity.

The study looked at the effects of regulations introduced by the Ontario Securities Commission (OSC) in 2014, which required listed firms to disclose their policies regarding gender diversity on boards and leadership teams, or to provide an explanation for their absence.

It was based on a sample size of 274 firms which were included in the S&P TSX Composite between 2010 and 2016, and conducted by academics from the University of Illinois at Chicago, the University of Delaware and the University of Arizona.

As of 2018, researchers said that 94% of surveyed firms had female directors on their boards, compared with only 56% before the OSC announcement. Firms affected by the regulations were also shown to have added female directors at a higher rate on average compared to similar firms subject to mandatory gender diversity rules under California’s SB 826 law.

Separately, researchers noted that Canadian firms which were most likely to be affected by the OSC amendment – those without a disclosed gender policy and those with an all-male board – had in fact recorded “positive and statistically significant” stock market returns upon the OSC announcement.

In contrast, laggard firms in California reported immediate negative returns upon the introduction of binding quotas for female directors, despite it leading to an overall increase in female board representation over the longer term. “These issues have stoked opposition to policies mandating female board representation,” said researchers.

“Our results suggest that a principles-based [comply-or-explain] approach potentially mitigates some of the costs of complying with rules-based [mandatory] approaches, while still achieving the same broad objective – in this case, increased parity in female representation in boards and senior management,” the study concluded.

It comes soon after US exchange Nasdaq approved new gender diversity requirements which would allow firms to explain the reasons for non-compliance. Researchers said that their study suggested that Nasdaq’s new policy would be effective in improving US board diversity.