Canadian pension giants are grappling with the complex consequences of a national anti-greenwashing rule, which could leave businesses and investors more exposed to legal challenges for issuing environmental claims in marketing materials.
The law, known as the environmental provisions under the federal Competition Act, was introduced in June last year.
The country’s largest pension investor, Canada Pension Plan Investment Board (CPPIB), was criticised for recently backing down from the commitment to make its portfolio and operations net zero of greenhouse gas emissions by 2050. While it is the only known member of the Maple 8 to retreat from its net zero target, the move is an indication that the anti-greenwashing rule is causing compliance anxiety among asset owners, and that a divergence in climate reporting philosophies is emerging.
Funds will be negotiating with the far-reaching impact of the law in the years to come as they are both users of portfolio companies’ ESG data and preparers of their own sustainability reports. Top1000funds.com canvassed key Canadian asset owners on what the new law means for their sustainability targets and engagement with companies on climate reporting.
Climate anxieties
In CPPIB’s explanation of the net zero backflip, which was quietly announced in the FAQs section on the fund’s website this month, it cited worries that “recent legal developments” in Canada are changing how net zero targets are being interpreted.
In particular, it was said there is “increasing pressure” to adopt standardised emissions metrics and interim targets, many of which “don’t reflect the complexity of global investment portfolios”. CPPIB has never committed to interim targets since it introduced the net zero target in February 2022.
The legal contextThe new environmental provisions in the Competition Act essentially introduce the expectation that, from June 2024, any claims promoting products or business activities as having environmental benefits should be backed up with “adequate and proper tests” or “internationally recognised methodologies”. These terms are not defined under the act and leave plenty of room for interpretation – the methodologies could be developed by regulators, standards-setting bodies or different industries, for example. Last week, another part of the provisions called the private rights of action came into effect. Individuals can now bring greenwashing allegation before the Canadian Competition Tribunal, which may accept and adjudicate the claims if it deems them to be “in the public interest”. This means companies and funds can be dragged into drawn-out and costly legal battles over environmental claims, and many Canadian businesses have removed or are considering removing climate commitments simply because it is prudent to avoid the legal risks. |
It previously used emerging markets as a reason. In a Harvard Business School case study in 2024, chief sustainability officer Richard Manley said CPPIB’s allocation to emerging markets “where net-zero was forecast by 2060-2070″ means its emissions would rise in the near-term, and setting interim targets would “constrain portfolio design”.
While the fund was the only Canadian pension manager to explicitly include scope 3 emissions in its net zero goal, climate group Shift was critical of the fund for not including scope 3 emissions in its carbon footprint calculations. The fund cited a lack of information – only 30 per cent of its investee companies report scope 3 emissions – as the reason in its 2025 annual report.
A CPPIB spokesperson said the fund wants to seek “coherence and consistency” in dealing with risks and opportunities of climate change, rather than being tied down to “targets disassociated from how we navigate through the whole economy transition and factors driving change whether interim, medium or quarter century dates”.
CPPIB is not alone in questioning whether climate targets can truly reflect a portfolio’s sustainable impact. The UK’s largest pension fund Universities Superannuation Scheme says it will continue to measure its carbon emissions and plans to produce at TCFD report this year, but going forward the investor will spend more of its energy in engagement with government and corporates than producing reports. Explaining the decision, CEO Simon Pilcher said the fund would rather divert time spent on reporting to ratcheting up pressure on policymakers to facilitate policies friendlier to climate solutions.
“Our portfolio has decarbonised significantly, but to put it bluntly, it’s not made a jot of difference in the real world and our focus is on a real-world impact rather than window dressing of our own portfolio,” said Pilcher.
Divergence
But most of CPPIB’s Canadian peers have doubled down on climate targets. Weeks after CPPIB’s decision, Québec’s CDPQ published its next five-year climate strategy, which reaffirmed its commitment to net zero. The fund has $58 billion invested in so-called “low-carbon assets at the end of 2024, and is running ahead of its 2017 goal to reduce the portfolio carbon intensity by 60 per cent before 2030.
CDPQ is often hailed as a sustainability leader among institutional investors, including in an annual pension fund ranking by consultancy Global SWF. Its global head of sustainability and head of CDPQ Global, Marc-André Blanchard, was recently appointed chief of staff for Canadian Prime Minister Mark Carney, fuelling hope that climate progress will be higher on the new administration’s political agenda.
CDPQ’s new target in the next five years is to reach $400 billion invested in “climate action” by 2030, including companies committed to decarbonising their activities and climate solutions, the fund said.
But standing by existing climate commitments from this point on will not only require genuine belief in the impact of sustainable investment, but also rigorous compliance practices. Among measures to help keep track of CDPQ’s portfolio transition status in 2024, the fund adopted a real estate tool to monitor alignment with the Paris Agreement-complied carbon trajectory, as well as enhancing its in-house data compilation process and sustainability rating methodology. Whether more funds would similarly put additional resources into the management of sustainability data remains to be seen.
HOOPP, OMERS and BCI also confirmed commitments to their existing climate plans to Top1000funds.com, while PSP Investments declined to comment. OTPP and AIMCo did not respond to requests for comments.
Ontario’s OMERS said managing climate risk in the portfolio is part of its fiduciary duty for almost 640,000 members and it remains committed to reporting progress on a yearly basis.
Unintended consequences
In another sign of the Competition Act’s side effects, British Columbia’s BCI told the Competition Bureau in a public consultation that as investors, pension funds are both users and producers of company climate reports. While the act’s anti-greenwashing rule applies to consumer-facing marketing information, not investor-facing materials, the fund is worried that the distinction is not sufficiently clear to assure Canadian companies that historical company data will not be interpreted as environmental claims.
The country’s biggest bank, the Royal Bank of Canada, walked away from its environmental promises in May and triggered speculation that more companies will quietly abandon their commitments.
BCI’s proxy voting guidelines state that it will vote against directors at companies that do not provide climate-related information, and it will not accept companies using the bill as an excuse, the submission said.
“We’re disappointed that it has prompted some companies to pull back on their sustainability disclosures – an unintended consequence for investors who rely on access to material ESG data to inform investment decisions,” Jennifer Coulson, BCI’s senior managing director and global head of ESG told Top1000funds.com.
The fund will engage with companies to bring their climate reporting up to global standards, but it is pushing for stricter mandatory climate disclosure requirements in front of the country’s market regulator Canadian Securities Administrators (CSA). The legal development around that is on pause the CSA is worried that the mandatory climate disclosure would make the Canadian market uncompetitive amid ESG pullbacks in the US, but Coulson said “there is no substitute” measures.
International learnings
Australian pension funds have been facing similar anti-greenwashing pressures from their members and the market regulator, the Australian Securities and Investments Commission (ASIC).
In 2020, the A$93 billion Rest Super was sued by a member who argued the fund breached its fiduciary duty by not properly considering the risks posed by climate change. The case resulted in Rest Super issuing a public statement acknowledging the significant financial risks of climate change, as well as committing to a net zero carbon footprint by 2050 and regular progress reporting.
Meanwhile, ASIC made anti-greenwashing one of its top enforcement priorities in 2024, and various super funds were caught up in its legal crackdown. The A$65 billion Mercer Super was fined A$11.3 million by the Australian Federal Court last August for including fossil fuels, alcohol and gambling companies in its ‘Sustainable Plus’ investment options, while the A$15 billion Active Super was penalised with a A$10.5 million fine for investing in fossil fuel, gambling and Russian entities while claiming their exclusions in ESG screening.
There is similar criticism that “nuance is missing” in the Australian regulator’s approach, with the PRI calling for more engagements between ASIC and Australian asset owners to recognise the uncertainties in financing climate transition and the reality of how sustainability goals are translated into investment portfolio.
But for their Canadian peers, perhaps the key takeaway is to “do what they say, and say what they do” when it comes to sustainable commitments if they want to avoid being called out on climate misrepresentation.
This article was corrected on 27th June to clarify that USS has no plans to stop TCFD reporting.
