Why is the Canada Pension Plan investing in coal?

When it comes to coal, Canada may not be the environmental angel it makes itself out to be, as investments by the Canada Pension Plan Investment Board show holdings in a number of coal companies around the world —and more are to come, if a proposed billion-dollar deal with Australian coal giant Rio Tinto goes through.

This week at the COP23 climate discussions in Bonn Switzerland, Canada’s Environment Minister Catherine McKenna is working on solidifying a multi-state alliance aimed at weaning the planet off coal. First announced last month and spearheaded by Canada and the United Kingdom, the initiative pushes the negatives in terms of greenhouse gas emissions of reliance on coal-generated power and the positives for the health and safety of today’s and future generations.

The agreement stands in marked contrast to the approach to coal coming from the United States, where President Donald Trump has been open about his commitment to revive the industry which was once an employment mainstay. So far, results in terms of reopened plants have not materialized, but the Trump administration has taken efforts to repeal the US Clean Power Plan aimed at reducing carbon emissions from power plants and Trump has stated that he would pull the US out of the Paris Climate Agreement which it signed in 2015.

Those moves don’t seem to be deterring McKenna, apparently, as she spoke in Bonn, saying, “Canada is committed to phasing out coal … If the U.S. is going to step back, we’ve said we’re going to step up, and that’s exactly what we’ll be doing,” she said.

Yet in one area, at least, that commitment seems wanting: investments made by the Canada Pension Plan Investment Board (CPPIB) include a number of holdings in coal.

There are a number of interesting assets in the $328 billion-dollar portfolio held by the CPPIB, whose mandate is to manage Canada Pension Plan funds on behalf of all Canadians. In addition to being part-owners of Petco in the United States and Homeplus stores in South Korea, the CPPIB has stakes in real estate, film distribution, cruise lines and, it turns out, coal.

A full 1.5 per cent of CPPIB investments are in coal, across 34 companies around the globe. And this past month, the fund looked to up its total by bidding for Rio Tinto coal assets in Australia, to the tune of $2 billion dollars.

That move has been criticized by environmental groups as betraying the government’s stance on greenhouse gas reduction.

“Canada needs clean hands if it is going to convince other countries to phase-out coal but, Canada won’t have clean hands if the Canada Pension Plan Investment Board continues buying coal mines,” said John Bennett, Senior Policy Advisor for Friends of the Earth Canada, who together with more than 20 other Canadian and International organizations sent a letter to Prime Minister Justin Trudeau urging the government to pull back from the bid.

The conflict between government messaging and investments has a long history, says Toby A.A. Heaps, CEO and co-founder of Corporate Knights. “For some reason when it comes to tackling climate change risks, Canadian pension funds give the appearance of being out to lunch,” he said in a column for Corporate Knights magazine. “While baking climate risk considerations into investments is on the core agenda of the G20 this year, the $282 billion Canada Pension Plan Investment Board’s 2015 139-page annual report failed to mention the word ‘climate’ once.”

Worldwide, about 40 per cent of power generation comes from burning coal. In Canada, that number is ten per cent. Canada’s production of coal has been in a moderate decline since a peak in 1997.