Opinion: Is net-zero putting Canadians’ pensions in jeopardy?

One investment that calls into question the wisdom of rushing into net-zero is CPP Investments’ significant bankrolling of U.K. energy retailer Octopus Energy.

In the rush to support Ottawa’s commitment to the net-zero transition, the Canada Pension Plan Investment Fund (“ CPP Investments ”) could be putting Canadians’ pensions at risk. Justifying its recent commitment to pursue net-zero, CPP Investments declares on its website, “We believe stewarding the portfolio to net-zero is in the best interests of contributors and beneficiaries of the Canada Pension Plan, and in line with our mandate of maximizing returns without undue risk of loss.” But is that really the case? One investment that calls into question the wisdom of rushing into net-zero is CPP Investments’ significant bankrolling of embattled U.K. energy retailer Octopus Energy.

The U.K. energy retail market is a complicated mess that since June 2021 has seen the collapse of 26 different energy retailers. In 2021, as part of a strategic partnership, CPP Investments invested US$300 million in Octopus Energy, a U.K.-based energy retailer claiming to supply only renewable energy. It also has proprietary software, as well as renewable assets that include an electric vehicle (EV) arm . Oddly enough, it boasts on its website that it “has never made a profit.”

Despite that, CPP Investments followed up its initial US$300 million with further infusions of   US$150 million and US$225 million . At the moment, Octopus is seeking another £100 million (US$120 million) “funding boost” for its EV arm. Not long after securing additional financing from CPP Investments, it made a successful bid for its competitor, Bulb , (“Green energy for all,” according to its website), which has been held in special administration by the U.K. government since its collapse in late 2021.

Founded in 2013, Bulb expanded rapidly to become the U.K.’s fifth largest energy supplier. It offered 100 per cent renewable or offset gas energy to its customers but also never made a profit. In 2021, a year before the war in Ukraine, it became a casualty of the U.K.’s arcane energy supply system, rising energy costs and its own too rapid expansion. Bulb’s private-equity investors balked at providing seemingly endless injections of cash with no foreseeable returns. But because the company had more than 1.7 million customers, it was considered “too big to fail” and the government stepped in.

In a special auction last fall, Octopus Energy acquired Bulb, in the process becoming the U.K.’s third largest energy retailer. But a group of competing companies accused the government of lack of transparency surrounding the deal, as well as preferential treatment and unfair subsidies for Octopus. An application for a judicial review of the deal took place at the end of February 2023 and is now awaiting a decision from the Court . U.K energy consultant Kathryn Porter at Watt-Logic has provided an excellent analysis of who actually controls Octopus, its shaky financial situation and its questionable bases of operation.

Canadians need to be asking questions, too. Why has CPP Investments put US$675 million — so far — into a company that has never made a profit and seems to be on the same trajectory as its former competitor, Bulb? Does CPP Investments’ affinity for net-zero but also zero-profit investments help explain the almost 60 per cent drop in its net income between 2021 and 2022 even though its net assets increased? Is Octopus an outlier in the overall CPP Investments portfolio, or is it part of an emerging trend? And to what extent were Canadians consulted about whether they wanted their CPP savings to be used to force the net-zero transition around the world or would instead prefer a better rate of return?

Such questions might be dismissed or deflected with reference to the CPP Investments declaration: “We can take advantage of short-term market dynamics and hold assets whose rewards may take longer to emerge.” But what if, as with Bulb and maybe now with Octopus, too, the hoped-for rewards never do emerge? Canadians ought to be asking if net-zero is the best way to “maximize returns without undue risk of loss” and ensure the safety of their retirement savings.

Tammy Nemeth is an energy analyst based in the U.K.