London, UK—When many Canadians think about their pensions, they think about a long-deserved break, a chance to relax, a well-earned "thank you" for a lifetime of hard work. But the money that funds their monthly retirement cheques is dirtier than they realize, with links to some of the most destructive and polluting companies in the world.
Over 18 million Canadians contribute to the Canada Pension Plan (CPP), making it one of the 10 largest pension funds in the world. In 2013 the Canada Pension Plan Investment Board (CPPIB) managed $192.8 billion in assets on behalf of CPP contributors, with billions invested in Big Pharma, in the arms trade and in energy and extractive companies implicated in conflicts around the globe.
At the same time, the CPPIB had $1.03 billion invested in one of the world’s dirtiest industries—coal production, with $471 million invested in three of the world’s top 10 coal producers: Peabody Energy, BHP Billiton and Anglo American. The CPPIB’s largest coal-related investments are in companies based in Britain, Australia and Canada.
Coal-fired power plants are collectively the world’s largest source of greenhouse gas emissions, making coal a major issue in the fight against climate change. A report released in November 2013 by a coalition of leading climate and energy scientists stated that in order to avoid exceeding a two-degree Celsius rise in global temperatures, the majority of the world’s coal reserves must be left in the ground.
Releasing the carbon from all known coal reserves would, on its own, double what the authors call the "global carbon budget." This is the amount of carbon the Intergovernmental Panel on Climate Change estimates we can release into the atmosphere without triggering catastrophic climate change. On a brighter note, the report’s authors point out that “coal is the fossil fuel that can most easily be replaced by near zero carbon alternatives.”
The CPPIB’s single largest investment in the coal industry is the $360 million invested in English-Australian corporation BHP Billiton, which according to a 2013 Forbes list is one of the largest mining companies in the world. BHP Billiton jointly owns Cerrejón, one of the world’s largest open-pit coal mines, located on the Guajira Peninsula in north-eastern Colombia. BHP’s partners in the Cerrejón mine are British-based companies Anglo American and Glencore Xstrata. The CPPIB has $555 million invested in this trio of companies.
The impact of Cerrejón has been immense—the open-pit mine has devastated thousands of hectares of Indigenous Wayúu land, impacting local waterways and destroying natural habitats. Dust from the mine has increased respiratory problems in nearby communities, and hundreds of mine workers suffer from serious health problems caused by inadequate working conditions.
Entire Wayúu and Afro-Colombian communities have been displaced to make way for the Cerrejón mine, and many families have yet to receive appropriate compensation from the company, according to the World Development Movement. In 2011, the Colombian-based company responsible for managing the mine sought permission to divert 26 kilometres of the Ranchería River, the main river in La Guajira province, in order to exploit coal in the riverbed. Facing fierce local resistance, the company eventually abandoned the project, but other expansion works are currently underway.
Yasmin Romero Epiayu is a member of Fuerzas de Mujeres Wayúu, a local women’s organization that has campaigned against the mine. “When you speak of open-pit mining, you cannot speak of sustainable mining, much less of responsible mining,” she told The Dominion. “[The companies] violate the fundamental rights of the people who live there, those who are the owners of these territories.”
So far, that hasn't stopped the CPP from investing in the project.
“The Canada Pension Plan boasts that it practices responsible investing, but there is nothing responsible about being so deeply invested in an industry that is fueling climate change and putting Indigenous communities in great danger, such as the Wayúu,” said Jennifer Moore, the Latin America program coordinator for MiningWatch Canada. “I think if more Canadians knew about this, they would be horrified.”
The CPPIB also has $22 million invested in US-based Peabody Energy, the third largest producer of coal in the world. Peabody claims to fuel two per cent of electricity worldwide and the company has extensive coal mining operations throughout the US, as well as owning assets in Australia and Venezuela. In recent years, the company sparked controversy by shirking its obligation to provide pensions to former coal miners. In 2007 Peabody spun off coal mines in West Virginia and Kentucky into an independently-traded company called the Patriot Coal Corporation. While Patriot received a mere 13.3 per cent of Peabody’s coal reserves, it inherited 72 per cent of Peabody’s health-care liabilities.
Five years later, Patriot filed for bankruptcy, jeopardizing the financial stability and health care of 20,000 miners, former miners and their families. Disruptions to health-care provision can have serious impacts on coal miners, who not only have an elevated risk of death and injury while working, but also suffer high rates of certain chronic diseases, especially "black lung"(pneumoconiosis) and other respiratory illnesses.
Dr. Bruce Rader, an associate professor of finance at Temple University, wrote in a 2013 report entitled Designed to Fail (the Case of Patriot Coal) that Patriot was seemingly “created to fail in the long-run,” thereby releasing Peabody from its former liabilities to its workers. The United Mine Workers of America (UMWA), a union representing coal miners in the US and Canada, filed a class action lawsuit against Peabody in October 2012, on the basis of a federal law that requires coal companies to provide health insurance for retired miners. The judge ultimately dismissed the charges against Peabody, but the fight to safeguard employee benefits continued through the following year.
After more than a year of negotiations, the UMWA finally reached an agreement with Peabody and Patriot in October 2013. Peabody agreed to pay US$310 million towards healthcare benefits that were originally worth US$600 million when offloaded to Patriot in 2007.
The examples of Peabody Energy and BHP Billiton highlight some of the human rights and employment issues that the CPPIB tacitly supports. Yet even in purely financial terms, investing in coal may be a bad bet.
The CPPIB has a clear mandate “to maximize returns without undue risk of loss.” However, with global temperatures rising and a growing list of environmental catastrophes linked to man-made carbon emissions, many governments face increasing pressure to restrict carbon emissions.
If implemented, new restrictions and initiatives like carbon taxation would leave fossil fuel assets stranded on company balance sheets. According to think tanks like the Canadian Centre for Policy Alternatives (CCPA), this means fossil fuel companies are currently overvalued in terms of their true market worth, a phenomenon that analysts refer to as the "carbon bubble."
Marc Lee, a senior economist with the CCPA and co-director of the Climate Justice Project, said in an interview with The Dominion that the overvaluation of fossil fuel companies poses a serious problem for asset managers. “It means that some of the assets in your portfolio are rated AAA, but they are subprime toxic junk,” Lee explained. “By holding onto them you are actually exposing your beneficiaries or your clients to the risk of a collapse in share prices.”
The CPPIB was unavailable to provide comment, but pointed to their Responsible Investing policy, which states, “[w]e consider and integrate both [Environmental, Social and Governance (ESG)] risks and opportunities into our investment analysis, rather than eliminating investments based on ESG factors alone.” According to a 2013 CPPIB report, the board is involved in initiatives to improve company reporting on greenhouse gas emissions, but it is unclear whether this has led to changes in organizational practices.
Campaigns to discourage investment in carbon-intensive industries have gathered momentum in Canada in recent years. “Divestment is about taking away the social license of the fossil fuel industry, and with it, taking away the political power they've used to act with impunity, polluting politics and undermining climate action,” Cameron Fenton, national director of the Canadian Youth Climate Coalition, told The Dominion.
While investors continue to debate the financial implications of the so-called "carbon bubble," communities located near coal mines live with the immediate environmental degradation associated with one of the world’s most polluting industries.
As Colombian Indigenous leader Romero asked, “What will they do when the world’s biodiversity is destroyed? While the banks are full of money, what will they plant when the world no longer functions?”
Jen Wilton is a freelance journalist and researcher who regularly writes about global mining issues. Jen tweets as @guerillagrrl and blogs at RevolutionIsEternal.wordpress.com.