Four of the biggest Canadian pension funds have stakes in companies that transport Russian gas

This article was written by David Milstead and originally published in The Globe and Mail on April 29, 2022.

Four of the biggest Canadian pension plans have major ownership in European pipeline or gas-distribution companies serving countries that depend on the flow of natural gas from Russia.

The pensions, all of which announced they would divest Russian investments in the wake of that country’s invasion of Ukraine, will not make a similar exit from these holdings, however.

In response to questions from The Globe and Mail, several of the pensions would not explicitly confirm that those companies are indeed transporting any gas from Russia. In many cases, the companies merely transport customers’ gas, with no say in where it comes from or goes. All said the companies they hold are powerless to take action against Russia in the absence of government sanctions or other regulatory intervention.

Ontario Teachers’ Pension Plan owns a 69-per-cent stake in Societa Gasdotti Italia, Italy’s largest natural gas transmission network. Italy imported 40 per cent of its natural gas from Russia in 2020, according to research firm Eurostat. The pension plan acknowledges “a small proportion” of the gas it transports “is likely to have originated in Russia.”

British Columbia Investment Management Corp. owns 32 per cent of Open Grid Europe, a natural gas transmission network with 12,000 kilometres of pipelines that transmit about 70 per cent of Germany’s gas shipping volume. Its customers include gas producers and traders, network operators and large industrial facilities. Germany imported 59 per cent of its natural gas from Russia in 2020, according to Eurostat.

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BCI also owns 26 per cent of Czech Gas Networks, the largest natural gas distribution network in the Czech Republic. The company’s network transmits gas to consumers.

Ontario Municipal Employees Retirement System (OMERS) owns 50 per cent of Net4Gas, the Czech Republic’s gas pipeline transmission operator.

The Czech Republic imported 86 per cent of its natural gas from Russia in 2020, according to Eurostat.

And Caisse de dŽp™t et placement du QuŽbec owns 20 per cent of Fluxys SA in Belgium. That country imported just under 8 per cent of its natural gas from Russia in 2020, according to Eurostat. However, the Institute for Energy Economics and Financial Analysis, a U.S. think tank that promotes the transition to sustainable energy, says that Fluxy’s terminal in Zeebrugge has been shipping Russian liquefied natural gas around the world, “contributing to the profit margins of Russian fossil fuel projects.”

For the funds, which were quick to announce their divestment from Russia after its invasion of Ukraine, their pipeline ownership illustrates it’s not so easy to keep Canadian pensioners from profiting when Russia is aided economically. Russia’s continued export of gas and coal has kept its economy running and underwritten the war in neighbouring Ukraine, conducted in defiance of global condemnation.

It also illustrates the pensions face economic risk: The Russian invasion has caused European nations to question their reliance on Russian energy and explore reducing or eliminating Russian supply. Longer term, the transition to a greener future in Europe may allow the countries to eliminate Russian natural gas before supplies from other nations.

Patrick DeRochie of Shift Action for Pension Wealth and Planet Health, a climate advocacy group, said “pension funds can’t pretend that they aren’t responsible for the real-world impacts of the businesses they own, even if those businesses are heavily-regulated utilities.” Shift, which criticizes pensions for their holdings in carbon-based energy, brought the issue of the pensions’ European holdings to the attention of The Globe and Mail.

“In the case of the war in Ukraine, these businesses transport and retail the products of Russia’s state-owned gas utility, indirectly funding Putin’s aggression,” he said in e-mailed comments. “The pension funds seem to treat infrastructure investments as low-risk cash machines, but there are real-world implications for business models that help prop up authoritarian regimes and lock in the continued use of fossil fuels.”

Net4Gas, for example, was placed on a rating watch negative – a warning that a debt downgrade may occur – by Fitch Ratings in early March, less than two weeks after the Russian invasion. The watch, Fitch said, reflected the increased and rising risks to Russian gas company Gazprom’s “willingness and ability to honour its obligation under its ‘ship-or pay’ gas transit contracts with Net4Gas, which make up more than 70 per cent of the company’s revenues.”

In an e-mailed reply, OMERS spokesperson Neil Hrab said Net4Gas “is a fully regulated entity. As such, Net4Gas is legally obliged to make its pipeline capacity available to any customer who wishes to ship their gas in the Czech Republic and cannot reject any customer who satisfies the formal requirements set by national/European legislation and regulation.” Mr. Hrab said Net4Gas “is in compliance with all applicable international sanctions laws and continues to monitor the situation closely.”

OMERS and the other three pension funds all made public comments about divesting Russian stocks in the first week of March as international pressure increased on large investors to pull out of the country. The four funds said Russia was not “an investment market” or that they had no “direct investments” in the country, suggesting Russian exposure was via stock-index investing.

BCI CEO Gordon Fyfe called Russia’s actions “egregious” in explaining why it was departing from policy to comment on its investment activities. All said they would comply with Canadian sanctions or expressed support for global ones.

BCI spokesperson Gwen-Ann Chittenden said in an e-mail that the fund “is not involved in day-to-day matters” at either its investments in Open Grid Europe and Czech Gas Networks Investments, so it could not respond to questions about how the two companies would respond to the Russian challenges.

Open Grid Europe said the European Hydrogen Backbone Initiative – of which it, Next4Gas and Fluxys are a part – has accelerated efforts to reduce European reliance on Russian energy, moving up its plans for a new hydrogen transport system to 2030, from 2035. “In the wake of the Russian invasion of Ukraine, the onus is on European countries to achieve greater energy independence.”

In an e-mail, Teachers spokesperson Dan Madge said given its location in southern Italy, “the vast majority” of natural gas transported through Societˆ Gasdotti Italia’s network comes from North Africa and Azerbaijan via the Trans Adriatic Pipeline. “A small proportion comes into their network via the TAG Pipeline System and the natural gas in that system is likely to have originated in Russia.”

The company, Mr. Madge says, “provides an essential role in transporting natural gas but does not procure or import it and therefore has limited influence over where it is sourced.”

Caisse spokesperson Conrad Harrington said in an e-mail that Fluxys has “no financial interest in Russia and does not own the gas that passes through its infrastructure; it only transports and stores it.”

The terminal in Zeebrugge is, he says “by law, an open access facility and no customer can be discriminated against. In the absence of European sanctions on Russian gas, Fluxys is obliged to respect its agreements with all customers. However, should sanctions be put in place, Fluxys would of course comply with them.”

The Caisse, which held several hundred millions of dollars’ worth of Russian stocks, in part through an investment strategy of replicating global indexes, sold them in the days leading up to Russia’s invasion of Ukraine.

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