At OMERS we believe that climate change and the transition to a lower-carbon economy can have a significant long-term impact on the financial performance of the companies and assets in which we invest. We have endorsed the Task Force on Climate-Related Financial Disclosures () as we believe it is the most effective standard to deliver the information investors need to assess climate risk. Our TCFD-aligned reporting follows:
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 2021, the Board approved our Net Zero 2050 goal and a commitment to establish successive five-year interim reduction goals, building on our initial goal of a 20% reduction in carbon intensity by 2025. To increase their understanding of their responsibilities with respect to this matter, Board members receive regular reporting on our sustainable investing practices, which in 2021 included education sessions on carbon accounting, the transition to net zero and climate-related investment opportunities.
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. This year, we worked with our partners in the ILN on the Climate Change Physical Risk Toolkit, which serves as a common framework for investors to address direct and indirect physical risks associated with climate change. The Toolkit is complemented by a Resource Guide, which offers investors a searchable database of credible, third-party resources to help analyze specific physical climate risk.
Transition risks include changes in policies and legal, technology, markets, and reputation, 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 emerge and grow.
Our approach to climate change is aligned with the four pillars of our Sustainable Investing Framework: Integration; Engagement; Collaboration and Adaptation, as described on previous pages.
The TCFD recommends using climate scenario analysis as a tool to help organizations better understand their resilience under various climate pathways. In 2021, we completed our first climate scenario analysis, leveraging the capabilities of a third-party asset-liability management service provider. This enabled us to complete top-down scenario analysis, considering macroeconomic factors such as long-term GDP growth and inflation, climate-related government policies, transition risks and physical risks. This exercise enabled us to explore three scenarios: an orderly transition under the Paris Agreement, a disorderly transition under the Paris Agreement, and a failed transition. These scenarios are aligned with certain Intergovernmental Panel on Climate Change Representative Concentration Pathway scenarios.
The analysis completed demonstrates that the potential impacts to our portfolio are highly dependent on the scenario that unfolds and the sectors and regions in which we invest, rather than limited to specific asset classes, sectors, or geographies. The findings highlight areas of both risk and opportunity for the Plan and emphasize the importance of our integrated decision-making process, which considers climate-related scenario analysis at the total portfolio level. The climate scenarios were also incorporated in the preparation of the OMERS 2021-2022 Asset-Liability Study, which aims to determine the long-term target asset mix for the Plan. We anticipate continuing to refine this analysis as the variables for each scenario evolve, and as new information becomes available.
OMERS has a formal risk framework that governs our approach to identifying and managing risks, including those related to ESG and climate change. In 2021, climate change risk was explicitly added to our Investment Risk Policy, Risk Appetite Statement and Statement of Investment Policies and Procedures.
The Climate Risk Working Group is comprised risk professionals from each investment team, representatives from our Sustainable Investing Committee, and other functions across the Plan. 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 ESG 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. This includes becoming a founding participant of Climate Engagement Canada, which leads collaborative engagement with Canada’s highest carbon-emitting companies.
Metrics & Targets
In 2021, we continued to evaluate measures to help us understand the implications of climate change to OMERS and to view our portfolio through this lens. We are disclosing the results of our second total portfolio carbon footprinting exercise as well as our exposure to green assets for the first time. Our carbon footprint is computed based on the recommendations of the TCFD. These carbon footprinting metrics are based on assets held as of December 31, 2020 and the most recent emissions data available.
Is in line with the TCFD recommendations for Asset Owners and the Greenhouse Gas (GHG) Protocol
Includes Scope 1 (direct emissions that occur from sources owned or controlled by a company) and Scope 2 emissions (indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling)
Uses the “financed emissions approach”, which sets our ownership of an asset’s carbon footprint equal to OMERS proportionate share of the asset’s enterprise value
Uses GHG emissions data provided by a thirdparty data provider, MSCI Inc. (MSCI), for publicly listed assets. Where emissions are not available, estimates are provided by MSCI based on their carbon emissions estimation models
Uses data provided directly by our private assets. Where emissions data is not available, we apply an estimation approach using public proxies and subindustry emission intensities as applicable.
Carbon accounting methodologies continue to evolve, and we continue to revise our approach and scope of coverage in line with these developments. For example, we added index and basket equity derivatives to our scope of coverage this year using notional value to account for equity exposure.
Our scope for footprinting includes all Plan assets that have a current footprinting methodology, position transparency and data availability.
Following this approach, we were able to calculate the carbon footprint on $91 billion out of the $132 billion of total portfolio exposure. The 2020 footprint does not include cash, short-term notes, currency instruments, short positions, interest rate swaps, commodities and sovereign securities, among other items. For more details on the scope of analysis and .
While footprinting is valuable for assessing climate change impacts on our portfolio, it also has limitations; it is backward-looking and does not encompass all climate-related risks and opportunities each company faces. Portfolio carbon accounting continues to evolve and iterate to address concerns related to completeness and timeliness of measurement. OMERS participates in those initiatives focused on developing more advanced approaches.
The TCFD recommends that asset owners report on their Weighted Average Carbon Intensity (WACI) as well as consider other metrics. WACI measures the portfolio’s carbon efficiency and considers total emissions relative to the business’ revenue and the weight of the asset in the OMERS portfolio. We report annually on overall carbon footprint and WACI. We measure our results against our WACI reduction goal of 20% from 2019 levels by 2025. Over the past year, we achieved a 4% reduction in WACI.
Our 2020 carbon footprint metrics are:
57 tCO2e/$M invested
tonnes of carbon dioxide equivalent (tCO2e)
191 tCO2e/$M revenue
Weighted Average Carbon Intensity (WACI)
(weighted by the asset’s value / portfolio value)
We engaged PricewaterhouseCoopers LLP, an independent third party, to conduct a limited assurance engagement on our 2020 carbon footprint metrics. Their assurance report is included in the Reference section of this on page 137.
As part of OMERS approach to climate change, we are regularly looking for new models and metrics to evaluate the portfolio through an ESG lens. Understanding how the portfolio is positioned against green, low carbon, and transition taxonomies is a key area of work for the Climate Risk Working Group. OMERS took the first step this year to identify the portfolio’s green asset exposure using the International Capital Market Association’s (ICMA) Green Bond Principles and June 2021 Guidance Handbook. We plan to expand these categories over time as sustainable finance taxonomies are further developed. At year-end 2021, investments in green assets1 totalled more than $18 billion including green buildings, renewable energy, and energy efficiency assets.
1 Green assets are presented as net of financial leverage and gross of economic leverage, recourse debt and other contractual liabilities.