OTPP and NYSCRF on Climate Change

The Ontario Teachers' Pension Plan (OTPP) released its inaugural Climate Change Report on Friday:

Ontario Teachers’ Pension Plan (Ontario Teachers’) today announced the launch of its inaugural Climate Change Report, written in accordance with the recommendations made by the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD). The report reflects Ontario Teachers’ support for the TCFD recommendations and outlines our practices for assessing and managing climate-related risks and opportunities for the Plan.

The Climate Change Report is a continuation of the decade-long evolution of Ontario Teachers’ approach to climate change, which comprises investing in climate-related opportunities; integrating climate factors in our investment decisions; engaging with companies and partners to encourage climate-positive action; and using our influence with policymakers and regulators to promote stable long-term policies.

“Climate change is one of the biggest and most daunting challenges facing the world.” said Barbara Zvan, Chief Risk and Strategy Officer at Ontario Teachers’. “There are risks to traditional economic and business models associated with the transition to a low-carbon economy, the chronic and acute risks of a warming climate, and the interaction between these forces. Actively managing the related opportunities and risks is central to the Plan’s investment strategy and will be a critical factor to our future success.”

In line with Ontario Teachers’ strong legacy of corporate governance, the report also emphasizes how our board and senior management oversee climate-related risks and opportunities, and our approach to analyzing the potential impacts of climate change at the individual investments and total portfolio levels.

You can read OTPP's 2018 Climate Change Report here. Take the time to read this report, it's only 25 pages and packs a lot of great information.

Below, OTPP's climate change approach:

Our climate approach is based on integrating climate change considerations and exercising our influence by sitting on the boards of private companies. Where appropriate, we engage with boards and management to encourage climate-positive actions by portfolio companies. More broadly, we use our influence with policy-makers, regulators and industry to encourage them to provide clarity on climate-related policies and raise standards to put us on a more orderly low-carbon trajectory.

Our approach also includes developing tools that can help us understand and project future impacts of climate change. For instance, in 2016 we started to develop our LCE Transition Framework. As illustrated on the next page, the framework starts with three scenarios that describe potential transition pathways to a low-carbon economy. The scenarios are driven by five catalysts: policy, technology, consumer preferences, capital and physical impacts. Each scenario gives rise to very different implications for the Plan, so we also identified “signposts” that indicate how the catalysts are changing, and as a result, which path the world might be on. For each signpost we estimate its expected value under each scenario at the end of 2020, 2025 and 2030 and use this to help indicate which scenario we are closer to. The short, medium and long horizons in the discussions that follow correspond to these years.

It's important to understand that OTPP is looking at risks and opportunities of climate change in its approach, and their approach is reviewed by the CEO and integrated in their investment strategy:

All executive and senior managing directors in Investments are accountable to the Chief Investment Officer (CIO) for developing an approach to managing climate change risk for the assets under their management. This includes leveraging our LCE Transition Framework and other tools and expertise as needed. The incorporation of ESG risk management (including climate-related risks) is a component of the corporate and departmental scorecards that are used to assess performance and determine compensation.

Our portfolio managers are responsible for the identification, assessment and management of material ESG risks and opportunities, including climate change, in their investments.

Our Responsible Investing team, which reports to the Chief Risk and Strategy Officer, as well as a cross-departmental climate change working group, support the Investment teams in the assessment, management and reporting of material climate-related issues.

OTPP's Chief Risk and Strategy Officer is Barbara Zvan, and along with Kim Thomassin, Tiff Macklem and Andy Chrisholm, they just put out the Final Report on Sustainable Finance.

Barb is extremely intelligent, she and the rest of the Expert Panel worked very hard on this report and they have done a great service to Canadian and global institutional investors who want to get serious on sustainable finance.

Another wickedly smart person who used to work for Barb at Teachers' is Joy Williams who is now a senior advisor at MANTL314, a boutique consulting firm that specializes in climate risks and opportunities.

Joy reached out to me yesterday to tell me the New York State Common Retirement Fund (NYSCRF) just released its Climate Action Plan:

New York State Comptroller Thomas P. DiNapoli today released a Climate Action Plan to protect and invest the assets of the $210 billion New York State Common Retirement Fund (Fund). The plan lays out a path for the Fund to further address climate risk in its portfolio. Subject to fiduciary analysis, the Fund may divest from companies that fail to meet minimum standards. As a first step standards will be developed for thermal coal, followed by other major industries or sectors that present climate risk to the Fund.

DiNapoli’s Climate Action Plan follows his April 16 release of a report from the Decarbonization Advisory Panel, which he created with Gov. Cuomo. The Plan incorporates many of the Panel’s recommendations for managing the Fund’s exposure to climate risks.

“Climate change is one of the most significant risks facing investors and the warnings are growing increasingly dire,” DiNapoli said. “The Fund has taken many steps to assess and address climate risk already, but clearly more must be done and done quickly. This is a proactive plan to mitigate climate risk, capitalize on opportunities in the growing low carbon economy and protect the fund’s long term value. The plan builds on the important work of the Decarbonization Advisory Panel.”

DiNapoli will double, from $10 billion to $20 billion over the next decade, the Fund’s commitment to its Sustainable Investment–Climate Solutions Program. The Fund will also hire dedicated staff to identify sustainable investment opportunities including climate solutions.

The climate action plan will also:

• Continue engagement with portfolio companies to encourage and support climate risk management, strategic planning and reporting;
• Refine external manager evaluation to better assess the climate-related strategies of the Fund’s managers; and
• Encourage index providers to integrate climate risks and opportunities into their index construction.

“It will become self-evident in the coming years that the actions taken by the New York State Common Retirement Fund will show up in its leading investment performance,” said Joy-Thérese Williams, Chair of the Decarbonization Advisory Panel, and Senior Advisor at Mantle314. “Other pension funds and investment managers would be well served to use the Fund’s Climate Action Plan as a blueprint for their inevitable move to climate resiliency.”

"We applaud New York State Common Retirement Fund's new climate action plan as it will be a leading initiative among the nation's largest public pension funds," said Mindy Lubber, Ceres CEO and President. "It reflects Comptroller DiNapoli's commitment to address the long term risks of climate change and focus on the investment opportunities of our carbon constrained future. We especially applaud the commitment to building staff and investment manager expertise to assess sectors that face high risks from climate change and to create minimum standards to evaluate investments in those sectors."

Since taking office in 2007, DiNapoli has been recognized as a global leader in addressing climate change-related investment risks and pursuing opportunities for the Fund’s investments. For two consecutive years, the Asset Owners Disclosure Project ranked the Fund as the top U.S. pension fund, and third globally, for its efforts to assess and combat climate-related investment risk. DiNapoli’s Climate Action Plan is key to the Fund’s efforts to reduce its exposure to climate risk and to capitalize on opportunities.

The full plan can be found here and I agree with Joy, this plan and the actions undertaken by the New York State Common Retirement Fund will help its performance over the long run.

I encourage all my readers looking to undertake a similar action plan to contact Joy Williams at MANTL314 and talk to her, she really knows her stuff and is easily one of the smartest people I've spoken to about sustainable finance and what pensions should be doing to address risks and opportunities.

Anyway, Barb Zvan joined Peter Tertzakian and Jackie Forrest on the ARC Energy Ideas podcast to discuss the Final Report of the Expert Panel on Sustainable Finance and what it will take to finance a greener Canadian economy. Great discussion on a timely topic, listen to it here.

Below, Gordon Power, owner and CIO of Earth Capital, joins BNN Bloomberg to discuss embracing sustainable finance a week after the federal government's expert panel on sustainable finance released recommendations.

Interestingly, Earth Capital, along with over 450 other investors with $34 trillion in AUM, support an urgent call-to-action to G20 leaders to limit the average global temperature rise to no more than 1.5°C. You can read the statement here.

Also, a sobering discussion featuring political economist Shouvik Chakraborty on how climate change is devastating India with heat waves and water shortages. India is a major focus point for Canadian and global investors so these are real long-term risks they need keep track of.

Lastly, PBS News Hour looks into how an extreme heat wave is gripping much of Europe, breaking records and causing widespread misery. Unfortunately, this is a sign of things to come, we're screwed.