Advocates claim high-risk gas assets are liabilities for pensions

Adam Scott believes pension fund managers who invest in gas are in trouble. Particularly, those who think high-risk gas assets can be saved by hydrogen. This might come as a shock because pension fund managers have long seen gas infrastructure as a low-risk investment. Historically, regulated gas assets offered stable returns and seemed to be a safer, lower-carbon option compared to other fossil fuels. But Scott, executive director at Shift Action for Pension Wealth and Planet Health, says these assumptions no longer hold up in 2025.

“Gas infrastructure faces a terminal decline,” says Scott. “Gas demand is peaking globally within the next five years, according to the International Energy Agency. It's in steady decline in Europe, major markets, and it's approaching this as well in North America. It's shrinking and it's a high-risk business; there's a lot of misplaced optimism in investment circles around the prospects and future for gas.”

Shift’s recent report sheds light on the precarious position of several Canadian pension funds, who collectively own 22 private gas companies and hold significant investments in gas utilities and infrastructure, estimated to be around 350,000 kilometres of pipelines. Scott’s concerns are twofold: the inherent risks tied to the declining gas sector and the lack of “due diligence” currently in many pension fund strategies. “We’re quite concerned by that level of exposure to what has become a high-risk, declining sector,” he says.

Scott warns that the gas industry is also deploying misleading narratives to mask these risks, pointing to hydrogen. Gas companies are increasingly pitching hydrogen as the saviour for their infrastructure. They claim hydrogen can eventually replace gas in existing pipelines, ensuring the infrastructure remains profitable while contributing to a low-carbon future. Scott argues that this “hydrogen hype” is nothing more than an "intentional strategy to delay the transition and to pull the wool over the eyes of investors.”

“None of the companies we examined that were owned by Canadian pension funds have credible hydrogen plans. Several of them have incredibly tiny or almost non-existent hydrogen pilot projects, which have no path forward, no path for commercialization. If you get into the technical details of hydrogen, it becomes apparent quite quickly that it has no ability to replace gas in this gas infrastructure that exists. It's not physically possible in most cases,” asserts Scott.

Paul Martin, a chemical engineer and process development expert, consultant with Spitfire Research and co-founder of the Hydrogen Science Coalition, agrees. “Hydrogen is a decarbonization problem that's being pitched as if it were a decarbonization solution,” he asserts. “The gas industry is trying to sell you the notion that their shares have value post-decarbonization, which they don't. Their assets are not assets. They're liabilities with an abandonment cost post decarbonization.”

Martin explains that 99 per cent of hydrogen today is produced from fossil fuels without carbon capture, “so it’s not actually a clean energy source.” Additionally, blending hydrogen into existing natural gas pipelines poses significant technical challenges, as hydrogen is more corrosive and has different combustion properties than natural gas. Hydrogen also has much lower energy density than natural gas, so the pipeline network would need to be significantly modified to handle the lower energy throughput.

Scott points to investment strategies as a solution, highlighting reallocating capital toward clean electricity infrastructure. "There’s exponential growth in electricity wires and generation around the world," he emphasizes. "None of it is at risk of going anywhere. Our industries as well are switching to using electricity grids. It’s going to be in huge demand."

Martin, however, argues that pension funds should steer clear of investing in clean tech altogether. “Is anything in clean tech an investment? The answer is, no, not really, because there are very few opportunities to do something that's free of greenhouse gas emissions,” says Martin. “Until there’s public policy in place, the smart money is just staying out of it.”

Fundamentally, Scott says pension funds have a fiduciary duty to their beneficiaries. It's not on them to be concerned about how these kinds of assets change over time, but rather, they need to limit their own exposure and the exposure of their members who pay into the fund to the rapid decline of these assets. “I think disclosing fully what they have in the portfolio is key but also disclosing what their investment thesis is,” says Scott.

And while some pension funds have started making shifts to exit gas and other fuel infrastructures, Scott notes many still lack the internal expertise to adequately assess the risks tied to gas investments. "Pension funds have infrastructure teams with deep expertise in the gas sector. That’s what they know, and that’s what they’ve been doing for a long time," he adds. "It’s very hard to turn to those folks and say, ‘Hey, the world’s changed. Our investment strategy needs to change too.’"

“Pension funds need to get serious on aligning the investment strategy with a safe climate, and that means exclusions on new fossil fuel infrastructure and a careful, thoughtful plan for winding down the assets that they have,” adds Scott. “You need to exit those positions. It's not just about saving the climate.”