Canada's largest fund managers – including major pension funds – are far behind many of their global peers in managing climate-change risks within their investment portfolios, a new analysis concludes.
Canadian investment funds collectively ranked 11th in a global survey of the world's 500 largest investors by the British-based Asset Owners Disclosure Project, lagging not only leading top-place finishers Sweden and Norway, but also countries such as the United States, Britain, France, China, Brazil and Australia.
The review noted that 12 of the 27 major Canadian asset managers that were studied disclosed nothing about their management of climate change, giving the appearance they "are in denial" about climate-change risk.
"Frankly, this isn't good enough for the Canadian funds, who at the end of the day have to protect Canadians' pensions from this sort of risk," said Julian Poulter, chief executive officer of the Asset Owners Disclosure Project.
Mr. Poulter said Canadian investors have significant exposure to high-carbon industries such as energy and mining, so they should be especially motivated to deal with climate-change risks.
"It simply isn't an excuse. If you have a local, domestic economy that is particularly exposed to one sort of thematic risk, then you hedge your portfolio against it," he said.
Bank of England Governor Mark Carney has made waves in the past year for warning investors to pay heed to climate-change risks, arguing that global goals for reduction of greenhouse gases would require vast fossil-fuel deposits left in the ground, unburned and "stranded," posing a major risk to investors.
Mr. Poulter said his survey includes measures of whether funds are hedging their "stranded asset" risk by also investing in alternative energy and low-carbon initiatives.
He argues, however, that many Canadian funds are behind their global peers because of the "backward policy regime" that prevailed in Canada under former prime minister Stephen Harper, including a lack of support for alternative energy initiatives.
Canada's top-ranked fund manager – the Ontario Teachers' Pension Plan – ranked just 64th globally in the survey, while the giant Canada Pension Plan Investment Board, with $283-billion of assets under management, ranked 74th and the Ontario Municipal Employees Retirement System was 116th. The Quebec Pension Plan ranked 203rd over all.
Michel Leduc, head of public affairs at CPPIB, said the pension fund has developed many strategies to deal with climate-change risk, which it sees as one of the key long-term investment risks the fund has to manage. The board has set up an internal committee to develop strategies to manage risks and has hired an investment expert on renewable technologies, he said.
"This report doesn't come close to representing all that CPPIB is doing to manage this risk," he said on Monday. "We share the view that climate change is a category of investment risk and we also believe that it's a challenge for all significant institutional investors."
Manulife Financial Corp., which ranked 148th out of all funds studied, also incorporates environmental concerns into its risk analysis, spokeswoman Beth McGoldrick said.
She said the company is also one of Canada's "leading arrangers and financers" of renewable energy projects, with $9.4-billion invested in renewable projects around the world. Manulife's global asset-management arm is also a signatory to the United Nations principles of responsible investment, which include a commitment to considering environmental issues in investment decisions.
The survey examined 41 criteria in three broad areas, including how funds engage with companies in their portfolios on climate-risk issues, how they manage their climate-risk exposure and whether they hedge their risks by investing in alternative, low-carbon initiatives.
Only 12 asset owners out of 500 received a top score of AAA, including the giant California Public Employees' Retirement System and the New York State Common Retirement Fund. Almost half of the funds studied received an X, which means they disclosed nothing about their climate-change strategies, including 12 Canadian funds. A further 31 per cent had a score of D, leaving just 20 per cent of all funds studied scoring higher than a D rating.