Pension scheme says country’s new framework will support its net zero strategy; asserts that divestment of fossil fuels amounts to “passing the buck”.
The chief investment officer of the Healthcare of Ontario Pension Plan (HOOPP) said Canada’s new green taxonomy will accelerate the transition to net zero, after publishing new targets and commitments in the scheme’s own climate strategy.
“Having these independent taxonomies really helps HOOPP maintain credibility about where we’re trying to go,” HOOPP CIO Michael Wissell told ESG Investor. “We’re very supportive of the independent work being carried out to create a green taxonomy, which will help hold our feet to the fire on climate.”
Canada’s climate investment gap is high as C$115 billion annually, with the development of its green taxonomy aimed at helping to mobilise and accelerate the deployment of capital in achieving climate objectives.
Canada-based experts have welcomed a new proposal for a green taxonomy, but are concerned it leaves the door open for untested-at-scale and controversial technologies that will allow for continued investment in fossil fuel industries, thereby slowing the net zero transition.
This week, the Canada-based pension plan unveiled its climate plan for achieving net zero by 2050, which seeks to leverage climate-related opportunities via the deployment of C$23 billion in green investments by 2030 and by engaging with companies to adopt “credible, science-based transition plans” to reduce greenhouse gas (GHG) emissions.
HOOPP has more than C$114.4 billion in AuM and its funded status sits at 120%.
Engagement over divestment
The Canadian Pension Climate Report Card, which benchmarks schemes’ decarbonisation efforts, criticised HOOPP for lack of ambition in January. The benchmark report gave HOOPP an F for ‘climate engagement’ and noted that Canadian pension plans overall continue to favour “engagement over divestment” with the aim of developing credible net zero pathways, even with investee companies showing little sign of reducing emissions.
HOOPP aims to engage with investee companies to reduce their carbon emissions “brick by brick” and views divestment as “passing the buck”, said Wissell. “While I respect the views of those that support [divestment] as they believe that is right way forward – I don’t believe that it is.”
HOOPP conducts engagements both directly with companies and through involvement with external initiatives, such as Climate Engagement Canada (CEC), of which it is a founding member.
CEC is a finance-led initiative that drives dialogue between the financial community and businesses to promote a just transition to a net zero economy. This includes an expectation that companies should disclose in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
“More companies are disclosing climate-related data and we are seeing the development of frameworks to encourage businesses to deliver meaningful information – that is a constructive backdrop for our engagement strategy,” he said.
According to Wissell, companies are increasingly aware that managing climate-related risks is “simply part of managing their businesses” and is no longer a “special thing sitting off on the side lines”.
HOOPP’s new climate change investment strategy will focus on “emissions reductions by prioritising real-world emissions reductions over selling assets that may reduce its carbon footprint but not the world’s footprint”.
As part of its climate plan, HOOPP expects to have 50% of its infrastructure and private equity portfolios with credible transition plans and reduce its portfolio’s carbon footprint to 28 tonnes of CO2 equivalent per C$million, compared to a 2021 baseline, by 2030.
“In our climate investment plan, we have committed that in 2025, for oil exploration and thermal coal, we will not enter into long-term illiquid investments in the private space,” said Wissel. “We are committed to ensuring that we’re not facing undue risks, and we’re not exposing ourselves to assets that are not managing climate-related exposures inside their businesses.”
CEC is a finance-led initiative that drives dialogue between the financial community and businesses to promote a just transition to a net-zero economy. This includes an expectation that companies should disclose in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
As part of its new investment strategy, HOOPP has embarked on a “green approach” to passive investment in public equities, investing in ESG indices that differ from “generic” offerings in the market.
“As we look ahead, index composition, and the consideration of climate-related risk, is going to continue to feed into itself,” he said, adding that this dynamic is a key driver behind the pension plan’s commitments outlined in its new climate change strategy.
“We feel the tailwinds at our backs in terms of the opportunities to deploy capital.”
HOOPP serves Ontario’s hospital and community-based healthcare sector, with more than 630 participating employers. Its membership includes nurses, medical technicians, food services staff, housekeeping staff, and many others who provide valued healthcare services. In total, HOOPP has more than 435,000 active, deferred and retired members.