OPTrust and partners launch climate-focused strategic investment project

A group of financial institutions, including the OPSEU Pension Trust, is launching a climate-focused pilot project that will map potential future climate impacts on investment performance.

The project aims to integrate quantified risks associated with climate change into standard, forward-looking financial scenarios that drive strategic investment decision-making, according to a press release. The investors involved will use these scenario sets to analyze the effects of various global warming pathways on asset liability management and strategic asset allocation. It’s expected to run until the end of 2018 and, if successful, will be made more widely available to investors by early 2019.

Read: OPTrust sets out climate change action plan

Linking scientific climate data to asset liability management and strategic asset allocation tools, the project will combine existing academic research on climate-related risks associated with several global warming pathways with key macro-economic risk drivers such as growth, inflation and interest rates, noted the release.

Ortec Finance will integrate the results of this mapping into its financial scenario set, which already includes an array of standard financial and economic variables. The piloting investors’ portfolios will then be tested using these climate-savvy financial scenario sets as the key input for the adjusted asset liability management and strategic asset allocation analysis.

According to the release, the aim of the project is for the resulting insights to raise the investors’ understanding of the sensitivities of their investment strategies to climate-related risks, inform alignment to international climate goals and enable forward-looking disclosure in line with the recommendations of the task force on climate-related financial disclosures. Additionally, the pilot aims to inform academia of existing knowledge and data gaps to tailor future research to the financial sector practitioners’ needs.

Read: Climate change task force launches new knowledge hub

“The transition to a low carbon economy will becoming increasingly disruptive, and we have to be prepared as investors,” said Hugh O’Reilly, president and chief executive officer at OPTrust, in the release. “Climate change is much more complex than changing weather patterns, that’s why we’re taking action to develop the tools to translate and incorporate climate change into an investment context.”

The project is a broad collaboration between AP1, OPTrust, Pensioenfonds van de Metalektro, Philips Pensioenfonds and Ortec Finance Canada, along with Cambridge Econometrics and Carbon Delta.