OSFI launching consultation on climate change risks to pensions, financial institutions

While it’s common practice for pension plan sponsors to factor climate risk into investment strategies, there’s more work to be done on factoring climate change into mortality and morbidity assumptions, says Bernard Morency, past chair of the Canadian Institute of Actuaries’ public affairs council and co-chair of its climate change and sustainability steering committee.

“As far as the pension industry is concerned, that’s the next big question — whether to adjust assumptions. At this moment, no one’s comfortable because there’s little data available. If you want to change your assumption, you’ll want to base it on something and not just a feeling.”

In a new statement addressing the impact of climate change across all of the CIA’s practice areas, the organization’s sustainability steering committee outlines several risks, including liability risk stemming from potential exposure to climate-related litigation and the impact of climate change on plan members’ morbidity and mortality.

Read: Withdrawal of real return bonds could financially impact DB pension plans: CIA

In addition to liability risk, the statement outlines physical risk from the increased frequency and severity of extreme weather events and transition risk related to the shift towards a lower-carbon economy and its impact on legislation and institutional investment policies.

The Canada Pension Plan Investment Board is an example of an investment organization that’s yet to adjust these assumptions, says Morency. “[In the CPPIB’s] last actuarial report, the actuary says, ‘We need to consider the impact of climate change on mortality and morbidity assumptions.’ At this moment in time, these assumptions haven’t been adjusted, but it’s on their radar screen and needs to be addressed.”

The statement is part of an effort by the CIA’s sustainability steering committee to address climate-related risks among the organization’s membership. “It’s fair to say people in the [property and casualty insurance] area have been first out of the gate and life insurance has also thought about it,” he says. “But on the retirement liability side, it’s been a little slower in terms of adjusting assumptions and factoring climate beyond statement of investment policy.”

Read: CIA advising CAPSA to consider pension plan liabilities, climate disclosure in ESG risk management guideline