The Canadian Institute of Actuaries is advising the Canadian Association of Pension Supervisory Authorities to strengthen its proposed guideline on risks related to environmental, social and governance factors, including consideration for pension plan liabilities and climate-related disclosure.

In an open letter to the CAPSA, the CIA suggested including a section on how ESG factors should be considered on the liabilities side of a pension plan’s balance sheet. It also noted climate change may impact the longevity of pensioners and, by extension, the capital adequacy of pension plans.

It also recommended including a comment on how plan sponsors should balance the security of plan members’ benefits and the sustainability of the environment in which the plan exists.

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“While Canada’s largest public sector pension plans have taken a position in favour of greater integration of climate risks in pension management and improved disclosure of climate-related risks, many smaller pension plans are unsure where to start,” said the letter. “We note that scenario analysis is not mentioned as a tool to incorporate climate-related risks in the investment decision process. Large pension plans have used climate scenario analysis as part of requirements to report risk in accordance with the task force on climate-related financial disclosures framework as well as for strategic decision-making.”

The CIA also suggested the guideline better prepare plan sponsors amid a growing international shift towards mandatory climate-related disclosure. “The CIA hopes the clarity provided by this guideline will motivate more plans to take steps in the right direction, such as strengthening their governance and risk management practices related to ESG considerations or requesting more detailed disclosure from their asset managers or outsourced chief investment officer providers.”

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