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The Campaign to “Green” Canada’s Large Defined Benefit Pension Plans: A Mini-Progress Report
By: Neil Hrab
The best of times, the worst of times for Canada's green pension lobby. Environmental advocates urging Canadian pension funds to adopt greener portfolios have seen significant progress — but recent high-profile failures like Azure Power and Northvolt show the road ahead isn't without bumps. In this thoughtful commentary, Neil Hrab explores the growing influence of Canada's green investment lobby, the challenges posed by recent controversies, and a potential path forward rooted in expertise and risk management.
By: Neil Hrab
“It was the best of times, it was the worst of times…”
- First sentence in Charles Dickens' immortal novel A Tale of Two Cities
For the environmentalists who have been lobbying Canadian pension funds to adopt more “green” friendly investment policies (and that campaign's tax-exempt foundation supporters), this Charles Dickens quote probably captures how they must feel at this moment.
On the one hand, this Canadian activist lobby campaign has in the last few years come a long way in terms of credibility. The campaign initially focused on identifying environmentally-minded contributing members of the large Canadian public sector pension plans and trying to enlist them in letter-writing campaigns to pressure the pensions and their boards.
Today, this nationally-active campaign is much more sophisticated than when it first launched. It now annually publishes extensive, detailed critiques of the Canadian pensions' investment strategies from a green perspective. This annual study is helpfully also seen as being credible enough to merit regular coverage by Canada's mainstream media.
What a contrast with the US, where US-based environmentalist groups worry about losing cherished influence over investment allocations due to the Wall Street flight from ESG (a phenomenon surely fed by the sharply anti-ESG stance of the Trump administration).
North of the border, no such mass abandonment of ESG by the large public sector pensions seems in evidence. Canadian pension websites still boast about their respective organization's commitment to environmental, social and governance goals.
But while the “best of times” side of the ledger includes a lot for the Canadian greens to cheer, what about the “worst of times?”
Green investments played an outsized role in Canadian business news in the last few months, and not in a way that can have pleased the greens. One example is Azure Power, an Indian renewable power company which, after receiving investments from two Canadian pension funds was delisted from the New York Stock Exchange -- and now finds itself in the midst of an alleged bribery scandal.
The other concerns a Swedish car battery manufacturer named Northvolt. Northvolt, after receiving investments from four Canadian pensions, as well as separate Canadian government subsidies to build a plant in the Province of Quebec, has just declared bankruptcy in its home country.
Both assets are fairly representative of the sort of “low carbon” emitting investments that the green investment campaign's spokespeople generally would like to see become more popular with the pension plans, and take the place of the pensions' remaining “high carbon” emitting investments in holdings such as oil and gas companies.
Both of these debacles received widespread domestic and international media attention; and when well-publicized investments lose money for pensioners, frank questions from members and sponsors are soon to follow.
On its own, this extra scrutiny of green assets doesn't mean the Canadian environmentalist campaign around pension investments has to fold up its tents. It does mean, however, that as it demands pensions shift to greener pension investment portfolios, the lobby may find itself subject to harder questioning about its general and specific recommendations, and the investment expertise that backs its public statements.
In response, the green pension lobby may want to change course from what has been up to now its mainly publicity-based campaign targeting the Canadian pension sector. Drawing on funding from its cash-rich foundation backers, for example, the lobby could spend time and money in researching and proposing additional best practices for the pensions to follow, rooted in recommendations from the best expertise available globally, to improve their risk screening of and due diligence around green investment opportunities.
The goal: to help the pension sector avoid repeating the Nothvolt and Azure controversies.
Even skeptical pension members and sponsors would have a hard time looking such a gift horse in the mouth.
Neil Hrab worked in the Canadian defined benefit pension sector for 12 years. His views are entirely his own.
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