The International Centre for Pension Management has released a guide for integrating climate change considerations into investment processes.
“The ICPM climate change guide is unique from others of its kind because it was written by asset owners for asset owners,” said Deborah Ng, director of strategy and risk at the Ontario Teachers’ Pension Plan and one of the contributors to the guide, in a press release. “The goal of the ICPM climate change guide is to share experiences for large asset owners with internal resources and internal management, as well as for smaller funds with predominantly external asset management and consultants.”
Rather than simply focusing on what affect a company may have on the environment, the report also highlights what impacts climate change may have on a company’s material concerns. “Investors need to understand the potential financial impacts this complex issue brings,” said Ng. “Climate change goes beyond the environmental dimension and has influence on social, economic and policy factors.”
The guide outlines practical steps that pension plans can take to contextualize and optimize their actions on climate change with regard to their investments. It also shares new idea, case studies and experiences for other plans.
“For asset owners who have not already done so, it is time to start thinking about policies on climate change, how to integrate the associated risks and opportunities into the investment process, and what initial actions to take,” said Jaap van Dam, principal director of investment strategy at Dutch pension fund Stichting Pensioenfonds Zorg en Welzijn.
The guide focuses on a 10-stage action plan. First is the learning phase where organizations become climate competent by educating those on every level, including the board, on the potential effects of climate change, as well as learning what industry peers are doing.
Next, pension plans can establish governance structures and official processes. The board should actively be involved in the efforts to establish these policies, with additional oversight from management, according to the guide. As far as managing risk, it recommends approaching climate risk in the same way a pension plan would any other financial risk, rather than looking at it through the lenses it may use for other environmental, social and governance risks.
Further, there should be a common understanding across the pension fund about how climate change can impact specific assets, noted the guide. In solidifying these process, the plan should understand how all of its current efforts to address climate change fit together, as well as how much risk it’s exposed to and how it’s being managed.
Once these steps have been established, additional action includes setting up objectives and strategies to clearly manage climate-related risks and opportunities, according to the guide. As well, the pension plan’s position on climate change should be communicated thoroughly within the organization and externally.
As well, climate change practices should be integrated within an pension’s existing risk management process to ensure that it’s always included in investment decisions. Recognizing that following these steps will be a significant undertaking, the guide also recommends that pension plans start small and gain experience and knowledge as they go. There should also be a way for the plan to define and measure its own progress, according to the guide, which notes the strategies should be regularly assessed.