Article: From Duty to Invest to Duty to Divest?: Understanding Fiduciary Duties of Canadian Pension Managers in the Time of Climate Crises

The Canadian pension model has been celebrated as a story of innovation and success. One dark side of this celebrated Canadian story is their poor climate performances manifested by heavy holdings in fossil fuel companies. Canadian pension funds have the motives and capacities to address risks posed by climate change: (1) the large size makes Canadian pension funds necessarily global investors with diversified portfolios subject to systemic risks; (2) in terms of time horizons, Canadian pension funds are enabled to make long-term planning at a global scale, free of short-term partisan politics; and (3) they operate on the presumptions of market inefficiencies. Pension fiduciaries have a duty to invest to preserve pension assets and make periodic payments. However, fiduciary duties have long been misunderstood as obstacles for responsible investing. The author argued that the pursuit of the best interests of pension beneficiaries cannot be reduced to a unitary focus on (short-term) financial gains, which instead requires a balancing of both financial and non-financial risks and returns with intergenerational equity in mind. Moreover, the content of fiduciary duties is socially contingent. Applying the scientific evidence of climate change to “open-textured” fiduciary duties, the author further argued that Canadian pension managers are obliged to divest from fossil fuels and other emission-intensive industries. While obliged to address climate risks in respect of their portfolios, pension fund fiduciaries have never been tasked to solve climate change or eliminate all fossil fuel emissions. Engagement is ineffective with companies whose core business necessitates destruction. To divest is effective harm reduction. To not divest exhibits a lack of prudence, impartiality, and loyalty.