The OPTrust pension plan has become the first in Canada to release a detailed analysis of the potential risks to its investment portfolio from global warming, predicting its investment returns could improve with modest warming but decrease if there is a major impact on global temperatures this century.
The pension fund, which manages $18-billion in assets for Ontario government workers who are members of the Ontario Public Service Employees Union, examined the effect of a range of possible climate change scenarios on its investment holdings, including the fund's shares, real estate assets and corporate bonds.
OPTrust chief executive officer Hugh O'Reilly said the information will help shape investment decisions going forward, but said work on the project has highlighted the need for better reporting by companies of their carbon emissions and other climate change risks.
OPTrust wants to invest in companies that are best prepared to deal with climate change risks, Mr. O'Reilly said, but the lack of standardized data makes it difficult to compare investment options. He is calling on asset managers and companies to work together on standardizing measures for carbon disclosure.
"It's really hard to reach a conclusion because we just don't have good enough information," he said.
The OPTrust analysis, prepared by consulting firm Mercer, examines risks under four scenarios ranging from a global temperature increase of 2 per cent from preindustrial levels by the end of this century, to a "higher damage" scenario in which temperatures rise by 4 per cent and there are greater physical impacts, such as flooding from rising sea levels.
The analysis found the impacts vary greatly, with sectors such as timber, real estate, agriculture and emerging-market equities expected to benefit from a 2-per-cent increase in global temperatures, but to suffer under more severe scenarios.
Using OPTrust's current asset mix, climate change over a 35-year time frame is forecast to improve investment returns under the least-severe scenario with expected returns of 5.57 per cent, compared with a base-case expected return of 5.53 per cent, while returns are forecast to drop to 5.44 per cent under the the most severe scenario in the model.
The biggest impacts are forecast for the energy and utilities sectors, while less impact is forecast for investments in technology and telecommunications.