IMCO Releases its Interim Net Zero Targets
On Monday, IMCO released its interim net zero targets:
Plan will reduce portfolio carbon emissions intensity by 50% and will invest 20% of portfolio in climate solutions by 2030
TORONTO (November 21, 2022) – The Investment Management Corporation of Ontario ("IMCO") today announced its interim climate targets for 2030, consistent with science-based net zero pathways aimed towards the 1.5°C temperature goal of the Paris Agreement and net zero emissions by 2050.
- An interim science-based target of 50% reduction in portfolio emissions intensity by 2030, as measured against IMCO’s 2019 baseline; and
- Investments in climate solutions totaling 20% of the portfolio by 2030.
"At IMCO, we believe that the global transition to a net zero economy will be one of the more powerful investment trends in the coming years. It will create material risks and opportunities for all investors, including our clients," said Bert Clark, President and Chief Executive Officer, IMCO. "The targets we have set for 2030 reflect our pragmatic approach to helping our clients mitigate the risks and benefit from the opportunities associated with the transition to a low-carbon economy."
IMCO has a plan to achieve these interim targets, taking action across all four areas of its climate strategy:
1. Capital Deployment
- IMCO will increase its investment in climate solutions to 20% of IMCO's portfolio by 2030. Climate solutions are defined in line with the categories detailed in the Green Bond Principles, as set out by the International Capital Markets Association
2. Portfolio Management
IMCO will:
- prioritize partnerships with external managers that have existing or intended net zero commitments
- increase investment in companies with net zero commitments
3. Asset Ownership
IMCO will:
- support its external managers and portfolio companies in establishing Paris-aligned plans and delivering portfolio emissions reduction
- engage with its external managers and portfolio companies to increase the share of its portfolio reporting emissions data
- exercise its right to vote at shareholder meetings, to encourage companies to manage climate-related risks and opportunities
- collaborate with like-minded investors and policymakers to drive collective climate action
4. Climate Guardrails
IMCO will:
- phase out new investment commitments in development of new unabated fossil fuel assets, in line with appropriate global, science-based scenarios
- limit exposure to investments in thermal coal mining and arctic drilling
"IMCO's interim targets are built on a number of practices already followed by our investment teams, and consistent with all of our investment strategies," said Rossitsa Stoyanova, Chief Investment Officer, IMCO. "We are confident in our ability to achieve these targets, especially as we have already made significant investments in the energy transition. These interim targets will drive and guide investment decisions that both earn returns for our clients and make progress towards a low-carbon economy."
For further details on how IMCO will achieve its interim targets, read IMCO’s Climate Action Plan.
ABOUT IMCO
The Investment Management Corporation of Ontario (IMCO) manages $79 billion of assets on behalf of our clients. Designed exclusively to drive better investment outcomes for Ontario's broader public sector, IMCO operates under an independent, not-for-profit, cost recovery structure. We provide leading investment management services, including portfolio construction advice, better access to a diverse range of asset classes and sophisticated risk management capabilities. As one of Canada's largest institutional investors, we invest around the world and execute large transactions efficiently. Our scale gives clients access to a well-diversified global portfolio, including sought-after private and alternative asset classes. Follow us on LinkedIn and Twitter @imcoinvest.
OPB also put out a press release on IMCO's interim climate targets to reduce portfolio emissions:
Last November, OPB’s investment manager, the Investment Management Corporation of Ontario (IMCO), committed to reaching net zero portfolio emissions on behalf of OPB and IMCO’s other clients by the year 2050 or sooner. As part of that commitment, IMCO has now set an interim target to reduce its portfolio’s carbon emissions intensity by 50 per cent by 2030 from a 2019 baseline. In addition, IMCO has also set a target to invest 20 per cent of its portfolio in climate solutions by 2030. These targets are consistent with science-based net zero pathways aimed towards the 1.5°C temperature goal of the Paris Agreement and net zero emissions by 2050.
Setting these interim targets is an important milestone on our path to achieving net zero emissions and fighting climate change. OPB and IMCO remain committed to making meaningful progress towards mitigating climate change.
What is net zero?
When we talk about IMCO achieving net zero emissions in our investment portfolio, we are talking about them taking several steps, including changing which companies are held in the portfolio, as well as investing in companies that reduce their greenhouse gas emissions to as close to zero as possible, and then neutralize the impact of any residual emissions that cannot be eliminated by removing an equivalent amount of carbon from the atmosphere.
What are portfolio emissions?
Portfolio emissions refer to emissions that are emitted by the businesses or assets that we invest in through IMCO and are often referred to as financed emissions. As an institutional investor, they make up the majority of our and IMCO’s emissions impact (the balance would be emissions from IMCO and OPB operations).
IMCO’s net zero targets are based on reducing their portfolio’s carbon emissions. To determine their path to net zero, IMCO first had to go through a rigorous exercise to calculate the baseline carbon emissions for their portfolio. IMCO released their 2019, 2020 and 2021 emissions totals as part of their 2021 ESG report. IMCO follows the guidelines set out by the Partnership for Carbon Accounting Financials (PCAF) to measure emissions. This means that IMCO calculates its portfolio carbon emissions (i.e. total financed emissions) in proportion to its share of the total financing (equity and debt) of an investment or asset. IMCO’s net zero targets are based on reducing the emissions intensity of their portfolio.
More about IMCO’s interim targets
As we mentioned earlier, IMCO has set an interim target to reduce its emissions intensity by 50 percent by 2030 in comparison to their 2019 baseline of 75 metric tonnes of carbon dioxide equivalent (CO2e) per million dollars invested.
It is important to note that IMCO’s emissions intensity target covers investments in the asset classes where there is PCAF guidance and established best practices on how to calculate and disclose emissions. The asset classes included in the target represent about 70 percent of IMCO’s portfolio, including:
- Public Equities,
- Private Equity,
- Global Credit,
- Real Estate, and
- Infrastructure.
Most of the remainder of the portfolio not covered comes from government bonds and public market alternatives where guidance is not currently available. As further guidance becomes available on how to measure emissions in other asset classes, IMCO will look at expanding its reporting.
What to expect going forward
The goal of reaching net zero emissions in our investment portfolio by 2050 or earlier is an important commitment that both OPB and IMCO understand will take time and diligence to reach. IMCO’s 2030 interim target is measured based on emissions intensity, which is calculated as emissions per million dollars of investment value. The nature of the intensity-based metric means that a change in the value of a company’s shares or the value of an asset such as a building can influence the emissions intensity measure because the emissions intensity is normalized per million dollars of investment. Therefore, it’s possible that emissions intensity measures could decrease in the future because market values increase even if there is no change in actual emission levels, and vice versa. In 2022, for example, given the volatility in the markets and asset values, many organizations are expecting increases to their portfolio’s emissions intensity because of the decrease in company values.
It’s important to understand that the path to reaching the interim emissions targets, and subsequently, the 2050 net zero targets, may not always be a straightforward decline with year-over-year, linear emission reductions. While IMCO will, of course, track annual performance, what will be critical to us meeting our target is looking at the trend over several years to ensure the general portfolio emission trajectory is tracking down.
Another measure that we expect IMCO will continue to report on to help us assess how we are tracking overall is the total financed emissions (i.e., absolute emissions).
Investing in climate solutions
In addition to the interim targets announced today, IMCO has also set a goal that 20 per cent of its total investment portfolio will be invested in climate solutions by the year 2030. The term climate solution refers to businesses whose primary objective is to solve climate-related challenges and, in turn, slow the advance of climate change. Climate solutions are critical to society’s successful transition to a low-carbon economy. These solutions exist across many different industries, such as energy (example: developing renewable energy sources and alternative fuels), infrastructure (low-carbon transportation), construction (as certified by green building standards such as LEED), and many others. IMCO’s definition of climate solutions is aligned to the categories set out by the International Capital Markets Association Green Bond Principles. By investing in these solutions, we expect our investment portfolio can be well positioned to assist in the transition ahead.
How OPB and IMCO continue work together on ESG
IMCO considers all material ESG factors when it manages OPB’s investments, including climate-related risks and opportunities. We expect IMCO to not only integrate ESG considerations in the investment process, but also to influence investee companies through engagement and shareholder voting to improve corporate practices and to avoid investments with problematic ESG issues.
To learn more about IMCO’s announcement, please visit www.imcoinvest.com.
This is an excellent statement from OPB covering in more detail IMCO's interim climate targets to reduce portfolio emissions.
Of course, not everyone is happy with IMCO's progress on setting climate targets to reduce portfolio emissions.
Jeff Lagerquist of Yahoo Finance Canada reports pension investor's 'huge' climate plan lacks clarity with 'weasel words,' group says:
The Investment Management Corporation of Ontario's (IMCO) newly-released plan to meet its net-zero by 2050 pledge has won limited praise from a climate-focused group tracking the industry. At the same time, Shift Action for Pension Wealth & Planet Health says the manager of nearly $80 billion in assets is hiding behind "weasel words," and raises questions about how its green goals will ultimately be met.
Amid mounting pressure to address climate change, IMCO was among scores of institutional money managers to announce net-zero by 2050 targets last year. The firm, which manages investments independently on behalf of other public pension plans, says energy as a category accounted for four per cent of its portfolio as of Dec. 31, 2021.
On Monday, IMCO announced an interim target of halving the emissions intensity of its holdings by 2030, while investing 20 per cent of the portfolio in "climate solutions." Its plan also describes "climate guardrails" to "phase out new investment commitments in development of new unabated fossil fuel assets in line with appropriate global, science-based scenarios, and limit exposure to investments in thermal coal mining and arctic drilling."
IMCO's pledge comes after Canada resisted pressure at the UN's annual climate conference to sign a final agreement that would commit signatories to a complete phase out of fossil fuels. Shift Action called IMCO's announcement a "big step towards a credible plan" in a press release on Monday.
"Last year, we saw a wave of pension funds releasing net-zero by 2050 targets, actually saying 'we intend to act on climate,' but not a lot of detail on how they were going to get there," Adam Scott, the group's executive director, told Yahoo Finance Canada. "There's some stuff in [IMCO's plan] that we haven't seen a lot of from Canadian pension funds, so we're excited to see that."
IMCO was formed in 2016 in a bid to increase scale and efficiency by pooling together smaller public-sector funds, an idea promoted by former Finance Minister Bill Morneau during his tenure in Canada's pension industry. Today, Toronto-based IMCO manages investments for the Ontario Pension Board, the Ontario Provincial Judges Pension Plan, the Workplace Safety and Insurance Board, and the Workplace Safety and Insurance Board Employees' Pension Plan Fund.
According to Statistics Canada, assets in Canadian pension funds topped $2.2 trillion in the first quarter of 2022. A recent study by the Smart Prosperity Institute and The Global Risk Institute in Financial Services notes a "significant transparency gap" when it comes to monitoring the industry's progress on climate goals.
While Scott stops short of accusing IMCO of greenwashing within its latest climate plan, he says "weasel words" like "new," "unabated," and "appropriate" can create confusion and allow loopholes.
"This is where it gets tricky," he said. "I don't know what phase out new commitments means. You would phase out existing commitments, or you would screen new investment commitments. How are you phasing out new things that you haven't done yet? That's a head-scratcher."
"They use the weasel word 'unabated fossil fuel.' They don't provide a definition of what abated means," he added. "There is no abating oil if you're burning it as gasoline in your car."
Yahoo Finance Canada contacted IMCO to clarify details of its climate policies, but a response was not returned in time for publication.
Scott says he struggles to see how any new investment in fossil fuel assets could be aligned with science-based net-zero scenarios informing the decision. However, he feels IMCO's plan should be held up for its commitment to divest if environmental engagement with companies is not successful, while specifically committing funding for climate solutions.
"That's quite substantial, and something that we really celebrate," Scott said. "We'd like to see a lot of other pensions doing that. We think that's huge."
Overall, he feels Canada's pension industry has made noteworthy progress on climate change. He points to the Caisse de depot et placement du Quebec's move to abandon all of its oil production assets by the end of 2022 as a recent victory.
"They've pretty much completed that. They've eliminated oil entirely from their portfolio," he said. "A few years ago, basically none of the big pension plans had any targets."
The Shift Action for Pension Wealth and Planet Health released a statement on IMCO’s new Climate Action Plan and commitment to phase out investment in new fossil fuels.
I note this part:
While IMCO’s Climate Action Plan demonstrates significant progress that puts it in the orbit of leading Canadian pension funds on climate, IMCO must strengthen a few key pieces:
IMCO must clarify its timeline for “phas(ing) out new investment in development of new unabated fossil fuel assets” and for phasing out its existing investments in fossil fuel assets. IMCO must also explain how any new investment in fossil fuel assets could be aligned with the science-based net-zero scenarios informing its decisions.
IMCO must clarify what role, if any, carbon capture technologies might play in its investments toward achieving net-zero emissions by 2050;
IMCO must measure and report the Scope 3 emissions associated with its portfolio, as Scope 3 is an essential indicator of climate-related transition risks.
The people at Shift email me these statements every time some Canadian pension fund releases an ESG report for climate action plan.
Basically, if they do not see total divestment from oil & gas, they rip into the reports which is why you have to take everything they publish with a grain of salt.
I'm not saying they don't offer some valid criticism sometimes but I haven't been tremendously impressed with their work. I feel they have an overriding agenda that takes precedence and they really don't understand how Canada's large pension funds are addressing climate change.
The most important question I'd ask these Shift people is how can you possibly address climate change without engaging with the oil & gas industry?
Another important question I will raise here is how will we address climate change without adding more nuclear energy to the mix? Wind and solar farms are nice and dandy but unless Canada's large pensions get real on nuclear, they aren't going to be providing long-term climate related solutions.
Anyway, take the time to read IMCO’s Climate Action Plan, it is excellent and well written (I didn't see any 'weasel words' in there, just very clear English).
The most interesting part is on page 4 on how IMCO targets 20% of the portfolio invested in climate solutions by 2030:
For example, go read my comment on IMCO's inaugural ESG Report to see examples of climate related solutions.
My advice to all of Canada's large pension funds is not only to give us targets but tell us where you'll be focusing your activities to reduce carbon emissions.
For example, give us emissions by asset class and tell us "we still have a lot of work in real estate and infrastructure" but things are going according to plan.
These total emission statements are meaningless to me, I want to know which asset class emits the most and what concrete steps with concrete timelines are being taken to address the problem.
I would have liked to have spoken to Bert, Rossitsa or someone else at IMCO about their interim climate targets but nobody bothered to contact me to set up a discussion which is unfortunate.
Below, Mark Gallogly, Co-Founder & Managing Principal, Three Cairns Group; Damilola Ogunbiyi, CEO, Sustainable Energy for All; Mark Carney, UN Special Envoy for Climate Action & Finance; Co-Chair, GFANZ discuss the future of carbon markets at Bloomberg Green at COP27.
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