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ESG

OPTrust CEO calls on institutions to incorporate climate risk into investing

Hugh O’Reilly

Hugh O'Reilly, president and CEO of OPTrust, on Tuesday told attendees at a climate-change seminar that now is the time for institutional investors to become the force behind incorporating climate risk into investing.

"As Elvis (Presley) noted, 'A little less conversation, a little more action, please.'" said Mr. O'Reilly, in a transcript of a presentation at a New York seminar organized by MSCI in partnership with the United Nations-supported Principles for Responsible Investing.

Mr. O'Reilly said any steps to address climate change, no matter how small, are good steps to take. "Government cannot, nor should it be expected to, act alone in setting regulations," he said. Market-based solutions do exist, and institutional investors can be leaders in driving change within an appropriate regulatory framework."

The problems with pricing climate-change risk are real, but they must be overcome, Mr. O'Reilly said.

"As a pension management organization, OPTrust looks at investments over a long time horizon," Mr. O'Reilly said. "Funded status is our key measure of success — it is the measure that matters. In order to preserve our funded status and fulfill our pension promise to our members, we endeavor to fully understand and price our risk exposure. That includes climate risk. Accurately pricing risk, however, in a world without commitments to proper climate-related disclosure from corporations is almost an impossible task. That brings us back to the need for action."

In June, OPTrust announced its own action plan to manage climate-change risk, focusing on eight points:

  • Improved disclosure on pricing carbon risk.
  • Education of OPTrust's investment professionals and companies on climate-risk impacts.
  • Clear measurement of climate-risk exposure.
  • Integration of climate-risk impact in portfolio construction.
  • Improved measurement metrics.
  • Improved ESG performance.
  • Transparency for its investments and the companies in which it invests.
  • Collaboration with regulators and companies to develop climate-risk solutions.
Mr. O'Reilly said divesting from fossil-fuel companies "does not save us from what is a macroeconomic risk. The fact is that fossil fuels will be part of our economy for decades to come. So, the removal of related companies from an investment portfolio only pokes the carbon bubble — it does not remove the embedded carbon risk. … It is our duty as long-term investors to have a nuanced understanding and approach to the realities of climate change, and so OPTrust focuses on engagement rather than divestment."

OPTrust manages the assets of the C$20.3 billion ($15.6 billion) Ontario Public Service Employees Union Pension Plan, Toronto. The plan was 111% funded as of Dec. 31.