Climate change is one of the most significant physical,
social, technological and economic challenges of our time. Its impacts are
expected to be pervasive and dynamic. The changing planet creates physical and
transition risks, such as water scarcity, biodiversity, extreme weather, and
policy and market risks, as well as investment opportunities in areas such as
technological innovation and renewable energies. As economies transition from predominantly
fossil fuel sources to a lower-carbon world, the transition will impact us all:
governments, businesses, non-profit organizations, individuals and of course
investors. As a prudent investor, we believe in climate-aware investing as part
of our mandate of maximizing returns without undue risk of loss and acting in
the best interests of our contributors and beneficiaries.
Our approach
At CPPIB, climate change has been a focus area for our
Sustainable Investing team for the last decade. We believe that it is our
responsibility to take climate change into account to ensure that we are making
sound investments over the long term. We are undertaking an ongoing project to
thoughtfully ensure that we are positioning our portfolio to perform well
through the transition to a low-carbon economy.
Our strategy is multifaceted and includes:
1. Engagement
There are many different types of capital providers in the
world and as a significant long-term investor we believe we can have a powerful
influence on the companies in which we invest. We seek to create change from the
inside by engaging with numerous Canadian and global companies that are high
emitters of greenhouse gas emissions. Either individually or in collaboration
with other investors, we seek enhanced disclosure from companies and discuss
strategies to help them manage and improve their greenhouse gas emissions and
practices related to climate change. We have also supported numerous
shareholder proposals on climate change through our proxy voting activities and
have co-filed climate change-related shareholder proposals.
We are also a signatory of the CDP, formerly the Carbon
Disclosure Project, which is a widely adopted global disclosure system for
companies to manage their environmental impacts and for investors to access
environmental information for use in their financial decisions.
2. Integration
We have developed a cross-departmental Climate Change
Working Group (CCWG) that actively reviews climate change risks and
opportunities in light of global developments.
The first focus is a bottom-up review of our investment due
diligence as it relates to the consideration of climate change risks and
opportunities. The second focus is to consider approaches for a top-down
assessment of climate risk across our total portfolio. The CCWG’s other focus
is to consider how climate change is positioned in our overall risk framework.
3. Diversification
As a long-term investor, we are investing not only for
today’s beneficiaries, but for multiple generations of beneficiaries well into
the future. We invest in a highly diversified portfolio across sectors, asset
classes and geographies. At this time,
fossil fuels remain an important sector of the global economy. For example,
coal is still responsible for 30% of the world’s energy consumption1, while
renewable energies provide 14% of the global energy mix2 . We are exploring
opportunities in the renewable energy sector in a thoughtful, prudent manner.
For example, in 2009, we invested more than $1 billion in Puget Sound Energy
(PSE), a large producer of renewable energy in the US Pacific
Northwest.
Financial Stability Board (FSB) Task Force on Climate-Related
Financial Disclosures
At the request of the G20, FSB Chairman Mark Carney formed a
private-sector international Task Force on Climate-related Financial
Disclosures to develop recommendations for mainstream financial disclosure of
climate risks and opportunities across sectors. CPPIB is a member of this Task
Force. We look forward to adopting and implementing its recommendations,
engaging with our peers and investee companies on the recommendations and we
hope there will be widespread adoption among companies and investors.
Conclusion
While we are taking action today, we are monitoring new
developments and will evolve our climate change approach over time. We will
continue to put resources toward understanding climate change risks and opportunities
across our portfolio because we think it makes investment sense. Our approach
is consistent with seeking to achieve a maximum rate of return. We will
continue to keep our contributors and beneficiaries informed as our approach to
climate change evolves.
Learn more about our approach to climate change
and our larger Sustainable Investing program.
1 World Energy Council – World Energy Resources 2016
2 IEA`s World Energy Outlook 2016