Pension investor's 'huge' climate plan lacks clarity with 'weasel words,' group says

A recent study noted a “significant transparency gap” when it comes to monitoring the pension industry’s progress on climate goals. (GETTY)

The Investment Management Corporation of Ontario's (IMCO) newly-released plan to meet its net-zero by 2050 pledge has won limited praise from a climate-focused group tracking the industry. At the same time, Shift Action for Pension Wealth & Planet Health says the manager of nearly $80 billion in assets is hiding behind "weasel words," and raises questions about how its green goals will ultimately be met.

Amid mounting pressure to address climate change, IMCO was among scores of institutional money managers to announce net-zero by 2050 targets last year. The firm, which manages investments independently on behalf of other public pension plans, says energy as a category accounted for four per cent of its portfolio as of Dec. 31, 2021.

On Monday, IMCO announced an interim target of halving the emissions intensity of its holdings by 2030, while investing 20 per cent of the portfolio in "climate solutions." Its plan also describes "climate guardrails" to "phase out new investment commitments in development of new unabated fossil fuel assets in line with appropriate global, science-based scenarios, and limit exposure to investments in thermal coal mining and arctic drilling."

IMCO's pledge comes after Canada resisted pressure at the UN's annual climate conference to sign a final agreement that would commit signatories to a complete phase out of fossil fuels. Shift Action called IMCO's announcement a "big step towards a credible plan" in a press release on Monday.

"Last year, we saw a wave of pension funds releasing net-zero by 2050 targets, actually saying 'we intend to act on climate,' but not a lot of detail on how they were going to get there," Adam Scott, the group's executive director, told Yahoo Finance Canada. "There's some stuff in [IMCO's plan] that we haven't seen a lot of from Canadian pension funds, so we're excited to see that."

IMCO was formed in 2016 in a bid to increase scale and efficiency by pooling together smaller public-sector funds, an idea promoted by former Finance Minister Bill Morneau during his tenure in Canada's pension industry. Today, Toronto-based IMCO manages investments for the Ontario Pension Board, the Ontario Provincial Judges Pension Plan, the Workplace Safety and Insurance Board, and the Workplace Safety and Insurance Board Employees' Pension Plan Fund.

According to Statistics Canada, assets in Canadian pension funds topped $2.2 trillion in the first quarter of 2022. A recent study by the Smart Prosperity Institute and The Global Risk Institute in Financial Services notes a "significant transparency gap" when it comes to monitoring the industry's progress on climate goals.

While Scott stops short of accusing IMCO of greenwashing within its latest climate plan, he says "weasel words" like "new," "unabated," and "appropriate" can create confusion and allow loopholes.

"This is where it gets tricky," he said. "I don't know what phase out new commitments means. You would phase out existing commitments, or you would screen new investment commitments. How are you phasing out new things that you haven't done yet? That's a head-scratcher."

"They use the weasel word 'unabated fossil fuel.' They don't provide a definition of what abated means," he added. "There is no abating oil if you're burning it as gasoline in your car."

Yahoo Finance Canada contacted IMCO to clarify details of its climate policies, but a response was not returned in time for publication.

Scott says he struggles to see how any new investment in fossil fuel assets could be aligned with science-based net-zero scenarios informing the decision. However, he feels IMCO's plan should be held up for its commitment to divest if environmental engagement with companies is not successful, while specifically committing funding for climate solutions.

"That's quite substantial, and something that we really celebrate," Scott said. "We'd like to see a lot of other pensions doing that. We think that's huge."

Overall, he feels Canada's pension industry has made noteworthy progress on climate change. He points to the Caisse de depot et placement du Quebec's move to abandon all of its oil production assets by the end of 2022 as a recent victory.

"They've pretty much completed that. They've eliminated oil entirely from their portfolio," he said. "A few years ago, basically none of the big pension plans had any targets."

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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