Commentary
The mandate for pension fund managers is a simple one. They are tasked with maximizing growth of the fund while ensuring risks to the principal are minimized. They are entrusted with large capital pools on behalf of workers to build the fund as much as possible before the contributor retires and begins to draw from the fund. The managers are not to take political motivations or ideological leanings into account. They are to find and invest in the most stable and profitable ventures and companies possible while diversifying the fund for stability.
Because every working Canadian contributes to a mandatory government-managed pension plan and possibly into other private funds, pension funds have become some of the largest capital pools in the country. The Canada Pension Plan is worth over $860 billion, while many public sector pension funds such as the Ontario Teachers’ Pension Plan and Public Sector Pension Investment Board manage hundreds of billions in assets as well.
These massive pension funds are powerful in that the investment choices made by their managers can make or break entire industries. This power has made these funds into a target for environmental and other ideologically motivated groups to try and use them to pressure or collapse industries they oppose. Anti-Israel groups and some indigenous activist groups have used petitions and threats of legal action to try to pressure pension funds away from some investments, but it’s the environmental lobby that really took the pension fund activism to a new level.
A group of four young Canadians backed by environmental groups have taken the management group of the CPP to court with the claim that the fund isn’t adequately responding to climate change. The lawsuit is absurd, but courts have made ridiculous rulings in the past. The suit is backed by Ecojustice, and just defending against the legal action will likely cost the CPP millions of dollars. Ecojustice has some good lawyers, and they are well aware the suit likely will fail, but that’s not the point. The campaign is about harassing pension fund managers and hoping to drive them away from particular investments. The environmentalists hope that if they make investing in profitable energy companies such a pain in the butt due to lawsuits, managers will make other choices.
Recently, an environmental activist group had a Montreal class-action firm warn six of Canada’s largest pension funds against Canadian liquefied natural gas. The environmental group says the funds manage $1.6 trillion between them. A lawyer from the group wrote that disregarding the “more significant, more foreseeable and better understood” financial risks of fossil-fuel investments “may carry legal consequences.” The funds were told to “refrain from investing, either directly or via a private fund, in LNG Canada, Ksi Lisims LNG, or comparable Canadian LNG projects unless they can show those investments meet their statutory and fiduciary duties.
Rather than trying to take a stance based on environmental stewardship, the activists are making the case that fossil fuel investments carry a high risk; thus, pension fund managers have a duty to divest from them for the sake of the pension recipients.
But the risk to the funds isn’t from lack of demand for fossil fuels or that energy companies won’t make profits. The risk comes from the environmental groups themselves as they threaten lawsuits. They create the risk in the first place. It’s akin to protection rackets where thugs would charge small businesses to protect them while the only thing the businesses needed to be protected from was the thugs in the first place.
Workplace pensions are deferred wages, held for the people who earned them, not a pool of public money for causes. The CPP is compulsory for most workers outside Quebec. Contributors cannot opt out and hire a manager who shares their politics. That is why maximizing returns must come first. A shortfall, compounded over a working life, becomes a smaller pension or a higher contribution rate. The activists who want to steer the portfolio are putting the retirement of Canadians at risk, and it’s unacceptable.
This can be stopped without turning courts into investment committees. Parliament and the provinces should make explicit that the duty is financial. Climate risk may be weighed as a financial risk, not used as a licence to ban a sector. Governments should be defending the public pensions and assuring private fund managers that they have their back and will defend them against environmental lawfare attacks. Alberta can keep the funds it oversees, including AIMCo, bound to clients’ best financial interests. Governments that celebrate LNG Canada as nation-building cannot leave trustees to face these threats alone.
Environmental groups should be trying to appeal to citizens to change priorities and investment patterns rather than trying to weaponize pension funds to achieve their goals. This tactic of threatening the security of the funds held for the retirement of Canadians is unconscionable and must be stopped in the courts or through legislation.
The well-being of Canadian seniors is being put at risk.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
