CPPIB introduces portfolio level transition governance indicator

CPP Investments, which manages the Canada Pension Plan Investment Board (CPPIB) has announced new portfolio-level disclosures related to its carbon footprint. As part of the new disclosures, the fund published a new transition governance indicator, alongside carbon intensity metrics.

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The fund, with roughly $787 in investments, has disclosed portfolio carbon footprints since 2018. The new framework classifies investee companies into categories depending on two paradigms – carbon intensity relative to total enterprise value and a transition indicator intended to assess a company’s ‘transition-related governance’.

John Graham, president and chief executive of CPP Investments says new disclosures bring transparency to the fund’s plans.

“We consider material risks, including climate-related risks and opportunities, to support risk-adjusted returns over decades. We know that progress towards a lower-carbon future will not be linear, and we are committed to continued transparency as we invest across sectors and work with companies to reduce risk and preserve value”, he commented.

CPPIB’s analysis splits the portfolio based on a threshold of 40tCO2e per $1m of enterprise value. According to its statement, the threshold identifies assets from hard-to-abate sectors where carbon intensity is higher. The statement also stresses that the threshold does not communicate underlying degrees of transition risk.

Disclosures published alongside the new framework suggest that roughly $104bn of CPPIB’s investment portfolio was invested in companies above the 40tCO2e/EVIC threshold. Leaving 86.7% of the portfolio below it.

Governing the transition

To supplement the analysis CPPIB also published details of the new transition indicator.

The transition governance indicator is based on ‘observable evidence indicating that a company has taken steps to understand and prepare for transition-related risks and opportunities’.

Observable evidence takes the form of one of three pieces of information – SBTi approved targets, a Transition Pathway Initiative (TPI) quality assessment or CPP Investment’s internally developed decarbonisation investment approach methodology.

If a company meets at least one of the three criteria, an ‘evidence confirmed’ status is assigned. CPPIB’s statement stressed that the indicator is not intended to assess transition performance or risk management.

Of the approximately $104m invested in hard to abate sectors (based on CPPIB’s threshold), $38.8bn was deployed in companies with a ‘confirmed’ status, compared to $65.6bn invested in companies where such evidence was not confirmed.

CPPIB does not interpret the lack of confirmed evidence as indicating higher transition risk. “The absence of alignment with any indicator does not mean the company has high transition risk, it simply means that it is not aligned with one of the three frameworks”, a supporting note reads.

The fund reckons absence of observable evidence could have alternative explanations such as data differences in third-party coverage or data availability for specific sub-indicators.

According to the methodology note, CPPIB’s investment process includes an expectation from companies to manage elevated levels of material transition risk. “Where our existing investment process concludes a company has material transition risk, our expectations of board oversight will be adjusted commensurate with the risk we have diligence”, the document explains.

The Canadian asset owner’s latest transition governance disclosures are set against the backdrop of rising investor interest in transition investing. As asset owner attention shifts toward hard-to-abate industries and their emissions pathways, transition-related assessments of investee companies are likely to proliferate. 

CPPIB has come under pressure last year for abandoning its net zero by 2050 target. At the time, the fund told Net Zero Investor that it intended to continue to integrate climate change into its investment strategy but that interim targets failed to reflect the complexity of its global investment portfolios.

However, climate campaigners have criticised the fund for its significant exposure to the fossil fuel industy. As of Autumn 2024, more than CAD$22.6bn of CPPIB's portfolio was invested in fossil fuels. Since abandoning its net zero target in 2025, the fund has made a further CAD$7bn in new fossil fuel investments, according to research by campaign group Shift.