Steam rises as people look out on Lake Ontario in front of the skyline during extreme cold weather in Toronto on Saturday, February 13, 2016.Mark Blinch/The Canadian Press
A group of institutional investors is demanding that Canadian public companies improve their disclosure on climate-change-related risks and the steps they are taking to reduce them.
In a new declaration, 30 primarily Quebec-based financial organizations and investors representing $1.2-trillion in assets under management call on all exchange-listed companies to release more financial data. The investors say they need better information in order to assess the resiliency of potential investments' business models, and that they plan to work with companies to lessen their climate-change-related risks.
The declaration, signed by major pension funds such as the Public Sector Pension Investment Board, the Caisse de dépôt et placement du Québec and British Columbia Investment Management Corp., is the latest effort by institutional investors to get companies to change the way they think about and report their long-term exposure to environmental factors.
"We feel that investors coming out publicly will increase the pressure on those publicly traded companies to take steps to face climate change," said Matthieu Cardinal, vice-president of public affairs and strategic partnerships at Finance Montreal, an organization formed to promote Quebec's financial-services industry that is leading this initiative. "Ultimately, the goal is to reach a low-carbon-emitting economy. So, investors want to see that and investors that sign the declaration are strong proponents of that," he said.
The topic of mitigating climate change's impact on investment returns has become more mainstream among institutional and retail investors alongside co-ordinated international government efforts to tackle global warming. For those with a long-term investment horizon, such as pension funds, considering how climate change will impact a business over decades has increasingly become a factor in asset evaluations. But even investors with shorter timelines must consider how policy changes could have a disruptive effect on a company.
Asset-management behemoth BlackRock addressed that topic in a 2016 note about adapting its own portfolios, saying that, "Some may question the science, but all are faced with a swelling tide of climate-related regulations and technological disruption."
Some voluntary disclosure frameworks for companies to follow have emerged, such as the 2016 recommendations from the Task Force on Climate-related Financial Disclosures, run by the Financial Stability Board organization that is chaired by Bank of England Governor Mark Carney.
This was the standard highlighted by Finance Montréal as a good model for Canadian companies as they seek to disclose more financial data related to climate change.
Mr. Cardinal notes that in other parts of the world, some stock exchanges have adopted "comply or explain" policies where listed companies need to disclose climate-related issues, or show why they have not. Eventually, he said, it may be up to Canadian regulators to enforce such disclosure.
It's already a requirement that Canadian public companies disclose material risks to their businesses, which could include environmental impacts. But the Canadian Securities Administrators (CSA), an umbrella group representing the country's provincial and territorial regulators, said in March that it will review the disclosure of risks and financial impacts associated with climate change. It plans to issue a report based on its research and consultations, but the review has yet to be concluded.
Finance Montreal's declaration was open to global investors with interests in Canadian publicly traded companies and states that these asset managers should "identify and assess investment opportunities that are low in emissions or that promote the energy transition." This is a complicated approach in Canada, where the carbon-heavy natural-resource sector plays a dominant role in driving the economy. There are no current signatories from Alberta.
Mr. Cardinal acknowledges that petroleum products are forecast to be in use for many more decades, but said that Canadian fossil-fuel-focused companies could do more to mitigate the impact of extraction on the environment.
"Green finance – the demand for that is strong. Big pension funds and others have demands from their [members and clients] to move towards cleaner investments," he said.