CPP Investments Commits to Net Zero by 2050

Today, CPP Investments announced that it is committing its portfolio and operations to being net zero of all GHG emissions, across all scopes, by 2050:

Canada Pension Plan Investment Board (CPP Investments) today announced that we are making a commitment for our portfolio and operations to achieve net-zero greenhouse gas (GHG) emissions across all scopes by 2050.

To meet this commitment, CPP Investments will:

• Continue to invest in and exert our influence in the whole economy transition as active investors, rather than through blanket divestment.
• Achieve carbon neutrality for our internal operations by the end of fiscal 2023¹.
• Increase our current investments in green and transition assets from $67 billion to at least $130 billion by 2030².
• Build on our new decarbonization investment approach that seeks attractive returns from enabling emissions reduction and business transformation in high-emitting sectors.

“The impacts of climate change on the investment landscape are undeniable and have fundamentally transformed the nature of business risks and opportunities. As a capital provider and partner, and with our experience, expertise and financial resources, we recognize the valuable contribution we can make to this challenge,” said John Graham, President & Chief Executive Officer. “Committing our portfolio and operations to net zero by 2050 will help us manage the risks, capture the opportunities, and deliver on our public purpose – to help generations of Canadians build financial security in retirement.”

This commitment is made on the basis of, and with the expectation that, the global community will continue to advance towards the goal of achieving net-zero GHG emissions by 2050. These advancements include the acceleration and fulfilment of commitments made by governments, technological progress, realization of corporate targets, changes in consumer and corporate behaviours, and development of global reporting standards and carbon markets, all of which will be necessary to help enable us to meet our commitment. CPP Investments is dedicated to staying ahead of these developments that will impact our portfolio’s path to net zero.

“Our commitment to achieving net zero by 2050 is aligned with how CPP Investments has been incorporating ESG considerations – in particular climate change – into our investment decisions for more than a decade,” said Deborah Orida, Global Head of Real Assets & Chief Sustainability Officer. “We believe the performance of our portfolio and the generation of long-term investment returns relies upon our ability to adapt to a global economy that is moving toward net zero.”

Fulfiling this net-zero commitment will be done in accordance with CPP Investments’ Climate Change Principles which are focused on a sophisticated, long-term approach:

1. Invest for a whole economy transition;
2. Evolve our strategy as transition pathways emerge and global standards for decarbonization materialize;
3. Exert influence to create value and mitigate risk;
4. Support a responsible transition based on our Investment Beliefs and expertise; and
5. Report on our actions, their impacts and our portfolio emissions.

This commitment follows significant advancements made by CPP Investments in 2021 including the appointment of the organization’s first Chief Sustainability Officer, the proposal of a reporting framework that guides companies to project their capacity to abate GHG emissions, and the launch of our investment approach focused on attractive opportunities to support the decarbonization of essential, high-emitting businesses.

CPP Investments’ position paper on how it will achieve net zero by 2050 can be found on cppinvestments.com.

Notes to editors

¹ Across Scope 1 and 2 GHG emissions and business travel emissions, which fall within Scope 3.
² Figures as at December 31, 2021. We arrived at our definition of green and transition assets by considering different frameworks and taxonomies, including the E.U. Taxonomy. We consider an asset to be green when at least 95% of its revenue can be classified as being derived from green activities, as classified by the International Capital Markets Association. We consider an asset to be transition if it has announced its commitment to net zero with a credible target and plan and is making meaningful contributions to global emissions reduction.

About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2021, the Fund totalled $550.4 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.

More information on the path ot net zero is available here:

As the world moves toward net zero, we aim to manage the investment risks and invest to capture and support value-creating opportunities that will arise as society works to remove greenhouse gas (GHG) emissions from the whole economy.

We believe that the performance of our portfolio will be influenced by how well it adapts alongside the global economy on the path to net zero. As such, we believe stewarding the portfolio to net zero is in the best interests of the contributors and beneficiaries of the Canada Pension Plan and meeting our mandate. We commit our portfolio and operations to being net zero of GHG emissions across all scopes by 2050.

This proactive choice is a continuation of CPP Investments’ long and successful track record of integrating environmental, social and governance considerations, including climate change, into our investment activities to drive enduring financial performance.

Our investment strategy is designed to fulfill our mandate of maximizing returns without undue risk of loss, taking into account the factors that may affect the funding of the Canada Pension Plan and its ability to meet its financial obligations. We anticipate that the whole economy transition will create both investment opportunities and risks. We believe that incorporating factors like climate change and the transition to net zero into our decision-making will help us create sustainable value.

We have made the decision to commit our portfolio and operations to net zero by 2050 after rigorous analysis of the best data and information available today and with a deeply pragmatic mindset. Fulfilling our net-zero commitment will be done in accordance with our Climate Change Principles. These principles highlight that supporting the whole economy transition requires a sophisticated, long-term approach.

Our Chief Sustainability Officer will work closely with our President & CEO and Chief Investment Officer to ensure we maintain a global, cross-enterprise approach to sustainability and deliver on our commitment to net zero. 

What is net zero?

Net zero refers to reducing human-caused greenhouse gas emissions from the global economy to as close to zero as possible. Any remaining greenhouse gas emissions should then be balanced by removing an equivalent amount of emissions, using technology- or nature-based solutions.

So CPP Investments is committing to net zero by 2050.

The announcement, while big, didn't come as a surprise to me.

Why? Because at the end of last year, I had a conversation with Deb Orida, CPP Investment's Chief Sustainability Officer and Head of Real Assets, and confronted her about when CPP Investments will announce its commitment to net zero, and she told me "stay tuned".

I also covered John Graham’s letter to Canadians at the end of the year and felt like an announcement was imminent.

Now, critics will claim CPP Investments is caving to environmentalists or the latter will claim this proves that it and other large Canadian pensions are phony when it comes to their ESG commitments, and claim victory.

Both are wrong. 

CPP Investments values its independence and when it does make commitments, it makes them after deep analysis and always staying true to its mandate:

Our investment strategy is designed to fulfill our mandate of maximizing returns without undue risk of loss, taking into account the factors that may affect the funding of the Canada Pension Plan and its ability to meet its financial obligations. We anticipate that the whole economy transition will create both investment opportunities and risks. We believe that incorporating factors like climate change and the transition to net zero into our decision-making will help us create sustainable value.

In other words, this commitment to net zero doesn't violate its mandate, it enhances it but CPP Investments recognizes the road to net zero will be full of risks and opportunities.

The four key action items to achieve this goal over time are the following:

We will continue to invest and exert our influence in the whole economy transition as active investors, rather than through blanket divestment.

We will achieve carbon neutrality for our internal operations by the end of FY23.¹

We expect our $67 billion investment in green and transition assets will increase to at least $130 billion by 2030.²

We will build on our new decarbonization investment approach that seeks attractive returns from enabling emissions reduction and business transformation in high-emitting sectors. See Investing to enable an economy-wide evolution to a low-carbon future.

Note they are already on target to achieve carbon neutrality in their internal operations by the end of next fiscal year (across Scope 1 and 2 GHG emissions and business travel emissions, which are Scope 3).

But the big driver behind CPP Investments path to net zero is investments in green transition assets which will almost double from $67 billion to $130 billion by 2030.

By that time, I am confident that CPP Investments will be well on its way to its 2050 net zero target, not through blanket divestment but intelligent investments.

In our discussion, Deb Orida explicitly went over five Climate Change Principles outlined in the Policy on Sustainable Investing that informs their decision-making:

•  Principle 1: Invest for a whole economy transition required by climate change. As a long term investor with an investment horizon that spans multiple decades, our portfolio design and security selection must anticipate both the opportunities and risks presented by the whole economy transition required by climate change; not doing so would be imprudent. 
• Principle 2: Evolve our strategy as transition pathways emerge and global standards for decarbonization materialize. We will seek to invest in the optimal transition. This pathway is not yet defined, but will be influenced by government policy, consumer preferences, financial markets and technology innovation. Our legislative objectives will guide our actions as the full picture emerges. 
• Principle 3: Exert influence to create value and mitigate risk. We will leverage our comparative advantages as an engaged and constructive provider of long-term capital to seek to ensure our portfolio companies have developed robust transition strategies that support value creation, reduction of greenhouse gas (GHG) emissions and mitigation of climate risks. 
• Principle 4:Support a responsible transition based on our investment beliefs and expertise. As we seek attractive risk adjusted returns, we will make investments in green assets and transition solutions, but we also stand ready to make investments in industries where supporting these businesses to transition generates superior returns. Accelerating the global energy transition requires a sophisticated, long-term approach rather than a blanket divestment. We are in a position to provide capital that advances decarbonization of the economy to support responsible transition. This includes the sectors and companies at the core of our economy. 
• Principle 5:Report on our actions, their impacts and our portfolio emissions. We commit to disclose the actions we take to deliver upon these principles including the investments we make, the meaningful engagement we undertake and the evolution of our portfolio emissions. The global economy transition will be dynamic and not linear. We will provide reporting of GHG emissions from our portfolio and commit to evolving this reporting as relevant new metrics emerge.

She told me: "We don't believe in blanket divestment. We are in a position to provide capital that advances decarbonization of the economy to support responsible transition. This includes the sectors and companies at the core of our economy."

Richard Manley, Managing Director, Head of Sustainable Investing, CPP Investments, who helped write these principles, notes the following:“ESG considerations are inextricably linked to our ability to successfully achieve our investment objectives. Our Policy reflects the growing body of evidence showing that companies that integrate consideration of ESG-related business risks and opportunities are more likely to preserve and create long-term value.”

You begin to understand why committing to net zero was only a matter of time and why it doesn't violate the Fund's mandate and mission, it enhances it. 

Moreover, the press release states:

This commitment is made on the basis of, and with the expectation that, the global community will continue to advance towards the goal of achieving net-zero GHG emissions by 2050. These advancements include the acceleration and fulfilment of commitments made by governments, technological progress, realization of corporate targets, changes in consumer and corporate behaviours, and development of global reporting standards and carbon markets, all of which will be necessary to help enable us to meet our commitment. CPP Investments is dedicated to staying ahead of these developments that will impact our portfolio’s path to net zero.

Again, everything is done thoughtfully and not pressured by external political interest groups.

Equally worth noting is this passage from the path to net zero above:

As we embark on this journey, we will adhere to our longstanding practice of openness and transparency, including in the consistency and regularity of information-sharing with our stakeholders. We will seek to enhance the scope of our disclosure as relevant data and metrics become available and our thinking evolves. We will also continue to produce analysis and research where we believe we can contribute to the global conversation on advancing the measurement and management of climate risk as well as investing in attractive opportunities that emerge along the path to net zero.

Recall, CPP Investments is one of the founding organizations behind the ESG Data Convergence Project and it is part of the steering committee members. 

This means it takes its leadership role seriously and will continue its long tradition of openness and transparency and  will work collaboratively to figure out best practices for disclosing the best data across public and private markets.

In other news, CPP Investments ended its third quarter of fiscal 2022 on December 31, 2021, with net assets of $550.4 billion, compared to $541.5 billion at the end of the previous quarter.

I don't cover these quarterly reports because I prefer to wait till the fiscal year ends in March to properly cover results but always read them and recommend you do too.

Below, Richard Manley, Managing Director, Head of Sustainable Investing, CPP Investments took part of this Climate Week NYC event last fall which brought together investors and finance & accounting professionals to discuss how climate information and reporting can be improved to meet business and investor needs.