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Building Climate Resilience in Canada’s Pension Funds

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On September 20, 2022, Katherine Monahan, Senior Research Associate and Anik Islam, Associate from the Smart Propensity Institute joined the Global Risk Institute for a webinar moderated by Alexandria Fischer of GRI to discuss the recently published report on Building Climate Resilience in Canada’s Pension Funds. The report, which was sponsored by the GRI, was released in July 2022 and explains the challenges that researchers, regulators, and everyday Canadians face in determining the climate risks associated with their retirement savings. The report also provides practical guidance and recommendations on how pension funds can strengthen climate resilience.

The session kicked off by identifying three primary types of climate risk: (i) physical risk (such as extreme temperature and weather events affecting financial returns); (ii) transition risk (shift to a low carbon economy naturally results in investment risk driven by market changes, and changes to consumer patterns); and (iii) liability risks (climate change-related risks stemming from insufficient or inaccurate disclosures coupled with a lack of good governance could give rise to litigation risk).

Mr. Islam highlighted that to understand climate change related risks, Canadian pension funds need to undertake advanced climate risk modelling and scenario analysis (capturing physical risks and transition risks). The pension funds also need to obtain accurate information from portfolio companies and assets, upon which informed decisions can be made. There are ongoing challenges, however, to obtaining accurate, complete, consistent and comparable data, which is an issue capturing broad attention.

To build climate resilience, eight of the largest Canadian pension funds have committed to net-zero emissions by 2050 or sooner. These commitments were analyzed in the research paper across four dimensions for comparison as follows:

  1. Boundary of the targets
  2. Time frame
  3. Mitigation strategies
  4. Climate solution financing

Ms. Monahan made the following recommendations for pension funds seeking to build climate resilience:

  • Establish net-zero commitments and targets (across short, medium and long-term horizons)
  • Net-zero implementation (create a solid implementation plan and carry it through)
  • Credibility (be aware that net-zero commitments are currently voluntary, and perceived or actual greenwashing is a legitimate concern)
  • Disclosure (building trust around the commitments requires regular reporting on key metrics and tracking of progress on those commitments). Ms. Monahan noted many international frameworks exist to facilitate disclosure and reporting.

Speakers

Katherine Monahan headshot

Katherine Monahan
Senior Research Associate,
Smart Prosperity Institute

Anik Islam headshot

Anik Islam
Associate, Smart Prosperity Institute