OPTrust, Toronto, which has put climate change risk management front and center with its C$20.3 billion ($15.7 billion) in investments, is working to align its pledge to reduce climate risk with its version of liability-driven investing, said James C. Davis, chief investment officer.
"This is evolutionary," said Mr. Davis, adding that metrics that work in the public markets don't necessarily apply to climate risk measurement. "For us, we've said there's been a lot of talking about climate change but not a lot being done about it," he said. "Our ability to apply innovation has put us on the leading edge, but we're not anywhere near done on this."
He said member-driven investing — OPTrust's version of LDI that focuses on maintaining full funding for the Ontario Public Service Employees Union Pension Plan, Toronto, instead of targeting a plan termination date — "is about pension certainty, that our members get the pensions they're promised at the current cost. When I look at that, I look at all the risks that can affect that today — equity risk, interest-rate risk, longevity risk. But I can also look at it in terms of longer-term risk, like climate change. It's not acceptable to pick and choose the risks you want to price. You can't do that with climate-change risk, but that doesn't give you an excuse to ignore it."
Hugh O'Reilly, president and CEO of OPTrust, agreed that measuring climate risk is a long-term endeavor. "When it comes to climate change and LDI, I think it's more like a cricket game than a baseball game," Mr. O'Reilly said. "Baseball games usually end after nine innings, but cricket games can go on for days. We think in the long run, our position on climate action fits with our member-driven investing strategy."
But for now, Mr. O'Reilly said, the inability to currently price climate-change risk is a major issue for a plan that was 111% funded as of Dec. 31.
"With our member-driven investing strategy — our LDI — we must get properly rewarded for the risk we take," said Mr. O'Reilly. "We find the issue we need to grapple with is how do we price climate change. With investors like us, even with the information and the technology we can apply, it's hard to properly price it, so that affects us as investors."