CPPIB pledges to achieve net zero by 2050, but won’t pursue blanket fossil fuel divestment

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The Canada Pension Plan Investment Board has joined other large pensions and corporations with a pledge to achieve net-zero carbon emissions by 2050, but maintains “blanket” divestment of energy investments is not part of the plan.

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“We actually think blanket divestment is counterproductive,” said John Graham, chief executive of the organization that manages investments for the Canada Pension Plan, the country’s national pension scheme. 

He said companies heavily involved in fossil fuels are among the most innovative when it comes to the energy transition to a lower-carbon economy.

“We’re going to work with companies, and we’re going to continue to invest in what have historically been high-emitting sectors such as oil and gas, transportation, steel, with a view that these firms play a really critical role in the global economy’s transition to net zero,” Graham said.

The CPP Fund ended the third quarter with net assets of $550.4 billion, a return of 2.4 per cent. Over 10 years, the fund’s annualized net return is 11.6 per cent.

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Graham said CPPIB remains committed to its 2025 target of increasing the share of the fund’s portfolio in emerging markets, including China, to around one-third. It had grown to 21 per cent as of March 31, 2021.

A regulatory crackdown in China over the past couple of years has hindered the performance of companies across sectors including technology — CPPIB was an early investor in e-commerce giant Alibaba, which had been ensnared in the crackdown.

We’re going to continue to invest in what have historically been high-emitting sectors

John Graham

“We (have) our eyes wide open to the risks, and as we talked about internally, the how really matters — how we think about navigating some of these regulatory interventions,” Graham said. 

“We have the capabilities to be a global investor in that we have the relationships, the infrastructure … that local market knowledge, and as we look around the globe, we want to have the ability to invest into the big economies around the world: the Chinas, the Indias, the Brazils.”

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He said the global diversification, in turn, opens the door to additional “value-added” opportunities, and declined to say whether there would be a rebalancing among the emerging geographies of China, India, and Latin America. However, he said the strategy in emerging markets overall is largely unchanged.

“We have a view on the allocations we want around the globe, and we really build that portfolio over the long term,” he said. “As opposed to being overly tactical at any given moment, we really tried to maintain our long-term perspective and hold on to our long-term portfolio.”

Graham said global supply chain issues and the impact on inflation is proving to be “more persistent” than initially expected by the CPPIB. 

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“Some of the COVID waves that have come through the new (virus) variants … probably disrupted the supply chain more than we would have thought a year ago,” he said in an interview with the Financial Post on Thursday.

While supply chain issues — such as choke points, delays, and border blockades — are contributing to recent inflation, Graham said he expects companies will adjust to address impacts of the COVID-19 pandemic and other factors affecting supply and demand.

“We do continue to believe that the supply chain will repair itself, that capitalism will find a way,” he said. 

“The supply chain disruption will be transient, as organizations figure out how they want to put resiliency into their supply chains… We don’t see it as an as a long term (problem).”

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