The Ontario Teachers’ Pension Plan’s 2019 climate change report contains its first-ever, independently assured portfolio carbon footprint.
Even as the plan’s assets grew in 2019, it’s overall carbon footprint fell by about 15 per cent, driven in large part by the sale of a particularly high-emitting private asset, according to the report, which was assured by Deloitte Canada.
Between 2018 and 2019, the plan’s public equity exposure, including derivatives and short positions, grew from more than $16.5 billion to $28.7 billion, with its carbon footprint falling from 283 tonnes of carbon dioxide emitted per $1 million of exposure to 203 tonnes.
Meanwhile, private assets grew from $92.2 billion to $94 billion, with tonnes of CO2 emitted per $1 million falling from 59 to 41. By sector, utilities accounted for 34 per cent of the fund’s emissions exposure, followed by materials (25 per cent), energy (14 per cent), industrials (11 per cent), consumers (nine per cent) and information technology and communications (four per cent). Emissions reduction efforts in the utilities, materials and energy sectors played a significant role in the overall shrinking of the fund’s carbon footprint.
“The impacts of climate change on our current and future investment portfolio will be profound and the investment choices the organization makes today will have ripple effects for retired teachers in the coming decades,” said Steve McGirr, the Ontario Teachers’ board chair, in the report. “Boards of directors everywhere have a wide range of issues to grapple with in their oversight role, but the scope of climate-related risks and opportunities is incredibly far-reaching and long term in nature. With sustainability of our pension plan top of mind, it’s essential for our board to be involved.”
While tools enabling institutional investors to better analyze their contributions to climate change are expanding and improving, investors don’t yet have all the data they need to perform these analyses fully, noted the report. In the near term, the Ontario Teachers’ has set itself the goal of integrating climate change considerations into its corporate development strategy. Further, it intends to consult with internal stakeholders and conduct cost/benefit analysis on climate-related benchmarking and reporting for its portfolio companies.
The report also highlighted the Ontario Teachers’ new initiative with Wellington Management Co. and climate change think tank Woods Hole Research Center to boost the pension fund’s integration of climate change science into its investments. In its work with Woods Hole, the report said the fund expects to gain deeper knowledge on “data and assistance in developing a science-based framework to translate general physical climate risks into investment opportunities and decisions; risk peril maps to understand and identify the concentration of climate risks and opportunities in a range of asset classes, strategies and locations; the societal impacts of climate change and potential investment consequences; company and industry strategies to address physical climate risks and inform effective climate action plans.”
As one example, working with both Wellington and Woods Hole, the Ontario Teachers’ is focusing on better understanding the implications of heat, water scarcity and flooding on its current and potential infrastructure and natural resource investments, added the report. “We are seeking to understand how these factors could affect labour, productivity, yields, asset integrity and capital expenditures. By furthering the understanding of how to price in physical risks, we facilitate better capital allocation decisions and bridges between climate science and finance.”