OPTrust's Climate Change Symposium?

Yaelle Gang of the Canadian Investment Review reports, Translating climate risk into the language of investors:
A few decades ago, people were concerned about the depleting ozone layer. Then, in the late 1980s, the Montreal Protocol was ratified to phase out ozone depleting substances.

Fast forward to today.

The ozone hole is shrinking and is expected to completely close by 2060.

“That says to me that if you get policy makers, if you get business leaders and scientists together you can come to solutions to these kinds of problems,” said James Davis, chief investment officer at OPTrust.

Speaking at OPTrust’s climate change symposium on Nov. 20, 2018, Davis said that an investor’s role is to manage risk.

“We can get a handle on the risk of a recession, stock market volatility, even the systemic risk of a financial crisis that we experienced in 2008, but climate change risk is even tougher,” he said. “We know it’s real, we know it’s slow moving. Its impact is not expected to be felt for many years.”

Because for many investors, the typical investment horizon is within one to three years, investors may think climate change isn’t in their time frame, Davis said. But, with the spread of severe weather like the recent forest fires and floods, the impact is here now.

“We know, as investors in assets, that if there’s uncertainty and rising risk that eventually is going to get reflected in asset prices,” Davis said. “The market is a very effective discount mechanism.”

Despite this risk being real, Davis said that it is not being talked about more because responsible investing, or ESG professionals, are not speaking in the same language as investment professionals.

He highlights that OPTrust has a responsible investment committee with representation from every asset class. He said that when he first joined the committee the discussions were focused on compliance. “The conversations weren’t making this risk feel real,” he said. “The problem was there was no measure of the impact of climate change-related risks that an investor could relate to.”

“If we’re going to manage this risk we need to find a way to measure it,” he continued. So, OPTrust conducted a series of education sessions at the committee to better understand the economic and financial impacts of climate change on their portfolio and assets and engaged with partners. On example is that a partner presented them with a model to figure out a way to better measure climate related risks on earnings, which was focused on public markets.

“This was a wow moment,” said Davis because it allowed them to match climate change to an investor’s decision-making framework.

“The reality is that climate change has the potential to impact our ability to pay pensions,” said Davis.

He said plans need to price climate change risk into their investment decision process better than they currently do.

“Good thing is we are investors and we’re used to pricing risk. This is what we do all day long and, the fact is, if we can do this better than our competitors we might even have an edge.”

Davis said that they are still early in their journey and although there are climate risks there are also opportunities. “Risk and opportunity are often two sides of the same coin.”
Benefits Canada also reports, Could climate change turn Canada’s Arctic into an emerging market?:
As climate change restructures the Canadian Arctic year by year, institutional investors should be paying attention to this all but undeveloped economy, according to one expert.

“For those that live there, the dominant narrative is about how climate change is remaking the Arctic from a frozen periphery to an area of immense geographic and economic significance,” said Jessica Shadian, president of Arctic360, during OPTrust’s climate change symposium in Toronto on Tuesday.

Currently, Canada’s northern territories suffer from a major lack of modern infrastructure, impacting virtually every aspect of life, including access to fresh food, clean water, reliable transportation and the internet, she said. However, the area is rich in natural resources, such as minerals, fish and fossil fuels. But the lack of infrastructure makes it difficult for local communities to harness these resources to bolster economic development, said Shadian. As the area’s weather gradually changes, current challenges are exacerbated but new opportunities are beginning to emerge.

During her presentation, Shadian pointed out the potential for investment in the area, noting many other countries have paid much more attention to their Arctic regions. “Canada lags behind many of its Arctic neighbours,” she said. “Over the past 10 years, Norway has turned its attention north by expanding its Arctic fisheries and offshore gas production.”

Iceland and Greenland both make rigorous use of the Arctic region with an eye towards responsible energy practices, and 20 per cent of Russia’s gross domestic product comes from economic activities in its Arctic, added Shadian.

Even China, which has no physical exposure to the Arctic, is realizing the potential of the changing realities in the region, particularly in the case of shipping, she said, noting Canada’s Northwest Passage is already experiencing increased shipping traffic and China is eyeing the potential trade route keenly, hoping to make it a more widely used path.

Ports are another area where local communities see a direct benefit, due to better access to virtually all goods, said Shadian.

As well, beginning to address the crippling lack of infrastructure in Canada’s north could be a tangible option for institutional investors that are concerned with the issue of economic reconciliation with Indigenous peoples, she said. The federal government should correct its mistake of failing to demonstrate the region’s potential to investors, she added.

“Most of Canada’s banks and pension funds have not been provided an opportunity to see the north as an emerging economy, with a strategic value, a human value placed there, and thus cannot see it as a region worthy of consideration let alone investment,” said Shadian.
Last week, OPTrust organized a climate change symposium in Toronto. The full agenda is available here and the speakers are to be found here.

I did not attend this symposium but did get to speak with OPTrust's CEO Hugh O'Reilly on Friday and we went over the main points.

I should also point out Trina Hiscock of TRIA Consulting did a great job covering highlights of the symposium on her Twitter account here and posted some podcasts. I embedded some of her tweets below and thank her for her great coverage.

Hugh told me the main objective of the symposium was to bring climate scientists and big investors together, a first in Canada.

He said the climate scientists presented balanced but "sobering" views on climate change and emphasized the need to address it.

Another objective was to broaden the political discussion and hear opposing and entrenched views from all sides. As Hugh told me: "Move away from downtown Toronto and listen to views from rural areas."

There were plenty of interesting panelists. Dr. Charles Donovan spoke of the need to better measure the risk of climate change and the business case for adaptation to climate change. For example, he discussed how in some areas, "flood-proofing" your basement will be the norm.

Hugh said there was an interesting panel with Christy Clark, Dwain Lingenfelter and Joe Oliver in a discussion on the Complexity of Climate Politics moderated by Tim Shortill.

Ema Howard Boyd talked about regulations stating: "We have to bring together environmental regulations with financial regulations."

And about Millenials and their perspective on climate change:

There were also excellent presentations on how to better measure climate change from ClimateAI and Ortec Finance and a panel on Good, Better, Best: Assessing the Investment Risk which looked at how some of the world’s leading organizations are thinking about climate risk in their business.

James Davis, OPTrust's CIO said: “We look at companies in Canada and abroad for a variety of risks. This analysis adds value to our partnerships. It’s not just based on sector – you need to dig down, doing a bottom-up assessment. “

Ashby Monk of Stanford University spoke of the need for institutional investors and other large organizations to do more to address climate change:

This sentiment was echoed by Tim Hannah, Chair of OPTrust's board and Hugh O'Reilly:

What else? Hugh told me Roger Urwin, the "godfather of governance," also talked eloquently about governance and climate change.

The key thing Hugh emphasized was climate change has risks for institutional portfolios, risks that need to be assessed and measured properly but it also brings opportunities as the "adaptation economy" becomes a reality.

He said institutional investors are taking small steps which will give rise to larger steps to address climate change.

He ended by telling me that when he started working at OPTrust, he wasn't a "climate warrior" but is now convinced addressing climate change risks and opportunities are part of being a good fiduciary, noting something someone told him: "what good is a pension if the world is unlivable by the time the next generation needs to collect it."

Lastly, Hugh is working on another symposium with another interesting topic but I'm not at liberty to discuss it and he told me Felipe Calderón, the former president of Mexico, gave an excellent keynote speech.

Actually, the entire symposium was interesting which is why I invite you to scroll through Trina Hiscock's Twitter feed here. I thank Hugh and Trina for sharing so much with me and everyone else on this symposium.

Below, Dr Charles Donovan introduces the new Centre for Climate Change, Finance & Investment at Imperial College Business School.