Some of Canada’s largest institutional investors are looking for comprehensive and realistic climate transition plans from investees as part of an extensive due diligence process.
However, Jennifer Coulson, global head of environmental, social and governance at the British Columbia Investment Management Corp. says these plans aren’t yet the norm, adding investors are working directly with investee companies to align strategies.
“Energy transition plans are something that we want to see from carbon-intensive companies because they provide us with a kind of strategic roadmap.”
When the BCI conducts its due diligence, she adds, it looks for the company’s high-level commitments, its short term targets and the overall strategy.
The Office of the Superintendent of Financial Institutions’ B-15 guideline pushed investors to look more seriously at the importance of climate risk management. This push has been further supported by the issuance of international sustainability standards from the International Financial Reporting Standards Foundation, which have now been translated into Canada through the Canadian Sustainability Standards Board.
“There’s been a growing realization that [climate change] is very important and to us the it’s important because it’s an essential part of our fiduciary responsibility,” says Bertrand Millot, head of sustainability at the Caisse de dépôt et placement du Québec.
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The Caisse started its climate policy journey following the Paris Agreement in 2015, he adds, gradually installing action through an earnest internal plan, including investment management. When engaging with companies, it used to ask for the firm’s carbon accounting but now he stresses the need for an entire business plan that takes climate change into account.
The considerations around climate change are here to stay, he adds. “To us, opportunities and risk are central to fiduciary responsibility. We want companies that are well aligned for the future and are aware of their vulnerabilities and potentially [know how to] mitigate them, if there are any.”
The BCI employs ESG considerations as part of its investment decisions and serves as an active owner engaging directly with portfolio companies to develop these critical plans, Coulson says.
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“When it comes to integration, for any active investment decision that we’re making, we look at how exposed a company is to climate change — evaluating transition as well as physical risks and opportunities.”
Both organizations depend on communication with investee companies to engage. The BCI wants to be a resource and offer constructive responses to plans but it also has to operate within its own targets, Coulson notes.
“If a company has made a high-level, net-zero commitment by 2050, having a robust transition plan helps to ground that aspiration in reality and gives us a better sense of how they plan to navigate the various risks that we see playing out over the next decades.”
The review process includes an evaluation of the approach’s depth to reduce emissions within the context of a specific industry, Millot says.
“Our role here is to push companies to be ambitious. . . . We’re not asking them to do some things that will make them unprofitable, that is not the plan at all. The plan is to be prepared for the future.”