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Climate-Related Disclosures

We endorse the TCFD because we believe that climate change presents both long-term risk and opportunities for the Plan’s financial returns. Our TCFD-aligned disclosures follow.

Governance

The AC Board, senior management and our Sustainable Investing Committee all have active governance roles in our approach to climate change. The AC Board approves our strategy and policies in this area, senior management adopts guidelines focusing on our specific approaches to ESG and climate change and the Sustainable Investing Committee brings together representatives from across the enterprise for more in-depth discussion and analysis. In 2020, the Board approved the disclosure of our carbon footprint as well as our portfolio carbon intensity reduction goal described below. To increase its understanding of their responsibilities with respect to this matter, the Board also received in-depth expert advice on the potential investment impacts of climate change.

Strategy

Climate change presents both physical and transition risks to OMERS investment portfolio. Physical risks include the risk of loss due to extreme weather events or longer-term shifts in climate patterns. Transition risks include changes in government policy, regulation, consumer preferences and technology, which may increase the costs of certain assets (e.g., carbon pricing) or their marketability (e.g., stranded assets). These changes may impact the value of our investments.

Attractive investment opportunities continue to arise as renewable, low-carbon and next generation energy projects continue to increase. New technologies – even new industries – could evolve as the world transitions and adapts.

Our approach to climate change is aligned with the four pillars of our Sustainable Investing Framework: Integration, Engagement, Collaboration and Adaptation.

One tool we can use to understand how our portfolio is positioned against various future climate states is scenario analysis. This year, we worked with our partners in the ILN on a report that provides practical tools to support investors in understanding climate-related disclosures of companies and how their decarbonization scenarios align with the Paris Agreement commitment to limit the global average temperature rise to 1.5°C. This provides us with strategic insight to aid our analysis of climate impacts on both a sectoral and company-specific basis.

TCFD is a global standard to promote the enhancement of climate-related disclosures by corporations and other entities. Its framework recommends disclosing details about an organization’s governance, strategy, risk management and metrics and targets related to climate change.

Risk Management

OMERS has a formal risk framework that governs our approach to identifying and managing risks, including those related to ESG and climate change. We have established a Climate Risk Working Group, comprised of risk professionals from each investment team and representatives from our Sustainable Investing Committee. The mandate of this group includes developing a framework to evaluate climate risk across the portfolio, including our total portfolio carbon footprint.

Where climate change impacts are considered material to a proposed investment, our teams analyze potential impacts to value or to risk—whether positive or negative. They involve internal or external experts as necessary. Each of our asset classes has developed assessment procedures, tailored to their investing approaches and strategies.

We use our influence to address climate change risks specifically through our engagement and proxy voting activities.

Metrics & Targets

In 2020, we continued to evaluate measures to help us understand the implications of climate change to OMERS portfolio. We are disclosing the results of our first total portfolio carbon footprinting exercise based on the recommendations of the TCFD. These carbon footprinting metrics are computed based on assets held as of December 31, 2019 and the most recent emissions data available.

Our methodology:

  • Is in line with the TCFD recommendations for Asset Owners and the Greenhouse Gas (GHG) Protocol;

  • Includes scope 1 and scope 2 emissions;

  • Uses the ‘ownership approach,’ which sets our proportionate ownership of an asset’s carbon footprint equal to OMERS proportionate share of the asset’s enterprise value; and

  • Used GHG emissions data provided by third-party service provider, S&P Trucost Limited (“Trucost”), an affiliate of S&P Global Market Intelligence, and in some cases this came directly from our portfolio assets. Where emissions were not available, estimates were provided by Trucost based on their Environmentally Extended Input- Output (EEIO) methodology.

This approach allowed us to cover $80 billion of $109 billion of OMERS net assets. Carbon accounting is not relevant for cash and certain securities, including foreign exchange hedging contracts, and these amounts have been excluded. We have also excluded securities not covered by Trucost. Certain security types that were not significant in the OMERS portfolio and where data was not visible were also excluded. For more details on the scope of the analysis and further details on our methodology, please see below.

We recognize there are limitations to this approach; it is backward-looking and does not encompass all climate-related risks and opportunities each company faces. Portfolio carbon accounting within the financial industry continues to evolve and iterate to address concerns related to completeness and timeliness of measurement. OMERS participates in those initiatives focused on developing more advanced approaches.

The TCFD recommends that asset owners report on their Weighted Average Carbon Intensity (WACI) as well as consider other metrics. We are reporting on overall carbon footprint and WACI.

Further Details on OMERS Portfolio Carbon Footprint Methodology

Standards

OMERS utilizes the following standards and guidelines to inform our approach:

  • Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations for Asset Owners

  • the Greenhouse Gas (GHG) Protocol, and

  • Partnership for Carbon Accounting Financials (PCAF)

Approach

OMERS uses the ownership approach as our foundation for assessment. This means we account for the GHG emissions based on our level of ownership or economic interest we have in a company. We define our ownership in an asset as OMERS share of the asset’s enterprise value. Ownership is computed as the fair market value of OMERS debt and equity investments in the asset, including holding company debt, OMERS Capital Markets held debt (captured within Capital Markets), OMERS Finance Trust (OFT) funding, and other recourse debt, divided by the enterprise value of that asset. We accounted for the emissions from all in scope assets that were held on December 31st, 2019. We used GHG emissions for the 2019 reporting year, or latest available data where 2019 not available.

Scope 1 and 2 carbon emissions are included and are defined by the TCFD as:

  • Scope 1 refers to all direct GHG emissions

  • Scope 2 refers to all indirect GHG emissions from consumption of purchased electricity, heat or steam.

Scope

Our portfolio carbon footprint includes both public and private assets, capturing GHG emissions for $80 Billion of $109 billion of OMERS net assets. Securities that do not currently lend to carbon accounting have not been covered and include assets such as cash, foreign exchange hedging contracts, as well as securities not covered by S&P Trucost Limited (“Trucost”), an affiliate of S&P Global Market Intelligence, OMERS third-party service provider. Certain security types that were not significant in the OMERS portfolio and where data was not visible were also excluded. Guidance on how to account for emissions for certain assets is still evolving and as a result, the scope of exclusions we made were determined to be appropriate for this assessment. GHG emissions data was largely provided by Trucost and in some cases, came directly from OMERS private assets.

Trucost collects the disclosure of GHG emissions for a large universe of public companies globally. In the absence of disclosure, Trucost uses its proprietary Environmentally Extended Input-Output (EEIO) model which combines industry-specific environmental impact data with quantitative macroeconomic data to estimate emissions

The calculation of carbon footprinting metrics also requires financial data such as fair market value, enterprise value and revenue for the assets in which we have invested. Most of this data was sourced internally, however Trucost provided revenue and OMERS percentage ownership based on enterprise value for all in scope publicly listed assets.

The scope of coverage by asset class is as follows:

  • Capital Markets: public equities and private debt investments with a market value of greater than CAD $100K and all single name equity derivatives. Exclusions are government bonds, cash and short-term notes, FX, and interest rate products as per the guidance provided by PCAF as well as some externally managed funds with low visibility.

  • Infrastructure: all private investments with a market value of greater than CAD $100M.

  • Private Equity: all private investments with a market value of greater than CAD $100M.

  • Real Estate (Oxford): all property assets across multiple asset types: office, retail, multi-residential, hotels and industrial excluding non-strategic assets [1].

Metrics

Carbon Footprint

The carbon footprint is calculated as the total emissions for OMERS portfolio (tCO2e) normalized by the market value of the portfolio in CAD millions. This metric is defined by TCFD and is interpreted as the amount of carbon emissions that are generated per $M of portfolio value (tCO2e/$M invested). This metric gives an indication of how carbon efficient OMERS portfolio is relative to others.

Weighted Average Carbon Intensity (WACI)
Computed as the sum of each asset’s carbon intensity (tCO2e/$M revenue) multiplied by the weight of that asset in the portfolio. This metric is defined by TCFD and is a measure of the portfolio’s carbon efficiency or how carbon intense the assets are in which OMERS has invested. This is the metric that the TCFD recommends that asset owners disclose.

Limitations

We do recognize the limitations of a carbon footprint; it is point in time, backward looking and does not translate to a measure of financial risk that would encompasses the full spectrum of climate-related risks and opportunities. Evaluating climate-related financial risk is an evolving discipline and OMERS continues to play an active role in initiatives that are moving forward the development of more advanced approaches.

A key challenge to carbon footprinting is the availability of company disclosed emissions. Many companies do not report this information which requires estimation, thereby reducing accuracy. This is why OMERS has prioritized climate-related disclosure as part of our engagement and advocacy efforts. Please see the public statement signed by our CEO in partnership with our Canadian peers.



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[1] Non-strategic assets refer to assets that are indirectly managed or are credit
investments where Oxford does not have operational control.



Our 2019 carbon footprint metrics are:

58 tCO2e/$M invested

Carbon Footprint
tonnes of carbon dioxide equivalent (tCO2e)


199 tCO2e/$M revenue

Weighted Average Carbon Intensity (WACI)
(weighted by the asset’s value / portfolio value)

We engaged PricewaterhouseCoopers LLC, an independent third party, to conduct a limited assurance engagement on our 2019 carbon footprint metrics. Their assurance report is included here.

Through this initiative, we have gained valuable insight into, and are able to focus on, areas of carbon intensity in our portfolio. It has also allowed us to establish a carbon reduction goal and provided a benchmark for our own progress.


OMERS has

  • a dedicated and growing allocation to clean energy, which totaled $3.3 billion at the end of 2019.
  • set a goal to decrease the carbon intensity of our portfolio by 20% by 2025 (based on the WACI metric) using 2019 as the baseline.

Three wind turbines in a field.