Climate change risks weighed

Plan managers trying to assess risk

CALGARY• A decision by an Ontario public pension manager to study the potential consequences of climate change is the latest sign pension plans are increasingly becoming concerned about how it can hurt the bottom line.

OPTrust released a report last week that reviewed how four climate scenarios, factoring in policy changes and disasters including hurricanes and wildfires, would affect its $ 18 billion portfolio.

“The reality is there’s a lot of talk about climate change, there’s lots of thinking about it, but from an investor’s perspective we’re just at the beginning of the conversation,” OPTrust CEO Hugh O’Reilly said.

O’Reilly, who manages the plan on behalf of the Ontario Public Service Employees Union, said it’s a struggle to figure out the risks given how little companies reveal.

“In the context of issues around climate change and carbon, and the effect of climate change on companies we invest in, the standards of disclosure, they’re just, we can’t make meaningful or informed decisions,” he said.

The report by consultancy firm Mercer showed that under a best- case, twodegree Celsius rise in global temperatures — achieved with climate change policies and mitigation action it described as ambitious and stringent—investments in some industries such as energy and mining could take a hit, while other areas like infrastructure, real estate and agriculture could benefit.

Under a worst- case scenario, with a four- degree Celsius rise by the end of the century and higher physical damage factored in, the report found no upside and advocated prevention.

Last September, a report from Toronto-based law firm Koskie and Minsk concluded climate change is one of the biggest risks faced by Canadian pension plans, and managers may be forced into taking public stands to fulfil their legal duties.

In December, in launching its climate assessment program in the U.S ., Mercer said even under the two- degree C scenario the average U.S. public pension could lose billion sin dropped asset values. It also said not acknowledging and responding to such risks could be a breach of fiduciary duties.

The European Union passed new rules last year requiring pension funds to consider the risk of environmental, social and governance risks in their investment decisions and to document their efforts in their investment policy principles.