Four young Canadians have launched a legal claim against the Canada Pension Plan (CPP) Investment Board (CPP Investments), Canada’s largest pension fund manager, alleging that it is mismanaging and has underestimated climate-related financial risks to the $732B in assets under management of the CPP. The claim alleges that by underestimating and failing to disclose climate-related financial risks, CPP Investments could expose Canadians to dramatically reduced retirement benefits, the need for substantially higher contribution rates, or both.
This bulletin briefly summarizes key information regarding the claim.
Overview. The claim notes that CPP Investments has publicly recognized climate change as a significant investment risk, but “backtracked” on its net-zero commitment earlier this year. The applicants allege that this reversal, combined with ongoing fossil fuel investments, demonstrates an absence of sufficient measures to manage climate-related financial risks in the best interests of younger contributors.
The youth applicants, which are all anticipated to receive pension benefits after 2050, argue that by severely underestimating and failing to disclose climate-related financial risks, CPP Investments is failing to:
- properly manage climate-related financial risks, thereby jeopardizing the long-term value of the portfolio and the security of contributors’ benefits; and
- adequately identify and assess climate-related financial risks to CPP funds, including in its use and reporting of the MSCI Climate Value-at-Risk model without describing how it applies judgement to the results despite the alleged uncertainty regarding the model’s ability to adequately capture systemic risks from higher degrees of warming.
The claim relies on the latest research on the severe impacts of climate change (including the triggering of tipping points and cascading risks) on society and financial systems beyond 1.5°C of warming.
According to Ecojustice, the claim is the first climate case against a pension fund investment manager “anchored in the duty of impartiality and even-handedness in a multi-generational context” and is also likely the first in the world to “advance allegations that challenge a financial institution’s use of third party ‘black box’ financial / economic models for scenario analysis.”
Requested relief. The applicants are not seeking monetary damages. Instead, they are requesting:
- declarations from the court regarding CPP Investments’ obligations to contributors and beneficiaries to address climate-related financial risks to the CPP funds it manages; and
- orders for CPP Investments to disclose information about how it approaches climate-related financial risks.
Significance. This case follows other youth-led litigation in Canada (see our previous bulletin here), and represents the first Canadian lawsuit to directly challenge a pension fund’s climate-risk management practices. The outcomes of the claim could have broad implications for institutional investors, fiduciary standards, and climate-related disclosure obligations in Canada’s financial sector.
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.
