Failure to divest carbon assets has cost pension plans $22B, report finds

An analysis by Canadian research company Corporate Knights suggests that some of the world's largest pension plans, including CPP, Ontario Teachers' Pension Plan and OMERS, have lost billions of dollars by not exiting their carbon energy assets three years ago.

In an analysis published Monday, 14 of the world's largest public pension plans with collective assets in excess of $1 trillion US have lost out on $22 billion by not shifting out of coal, oil and gas stocks and into cleaner energy companies in 2012.

The report chose 2012 as its baseline year because that was when the movement to "decarbonize" the investment world began to gather steam in the broader investment community. Since then, a number of endowments, pension plans and other money managers have announced their intention to sell their current oil and gas assets.

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It's an interesting time period also because, while the energy sector has seen large investment losses in the previous 18 months, the selected time frame also includes large run-ups in oil and gas prices that would have driven investment returns higher.

But the group's finding was that, all in all, investing in conventional energy assets cost more money than it made.

"Over $22 billion had been sacrificed as a result of not shifting out of fossil fuels into clean energy stocks three years ago," Corporate Knights founder Toby Heaps said. "Contrary to the conventional wisdom, divesting out of fossil fuels in favour of clean energy has been a huge money-maker."

CPP has lost out on $7B

The report says the Canada Pension Plan has "sacrificed" more than $7 billion in returns since 2012 by not exiting its conventional energy assets. The Ontario Municipal Employees Retirement System or OMERS has missed out on $756 million for the same reason.

Meanwhile another major Canadian pension plan, the Ontario Teachers' Pension Plan or Teachers as it is coloquialy known, hasn't suffered according to the report because it has already quietly decarbonized its portfolio.

The paper's methodology of what it defines as a "dirty" energy asset and what to own instead is rudimentary: any companies in the Top 100 globally in terms of oil, natural gas or coal assets are automatically excluded from consideration.

Instead, the ranking crunched the numbers on what would have happened if the funds had taken the funds they had invested in those companies, and put them toward buying more shares in green energy companies in which they already owned stakes.

Green companies were defined as those who generate more than 20 per cent of their revenues from environmental markets or new energy.

The results seem to pour cold water on the notion that investing in renewable energy will necessarily reduce investment returns.

"Oil and coal prices may recover somewhat over the next several years, but make no mistake — the global economic shift away from declining fossil fuel industries toward the rising clean energy economy is already underway," Heaps said. "Investors who fail to grasp this reality will do significant financial harm to the people who have entrusted them with their savings."