Analysis of OPTrust's Climate Strategy Update and 2022-2023 TCFD
Today, OPTrust issued its climate strategy update, Building a Resilient Portfolio for the Long Term - Our Climate Change Strategy in Action, and its 2022-2023 Task Force on Climate-Related Financial Disclosures (TCFD). But OPTrust’s process-heavy approach has resulted in few hard climate targets and no progress toward excluding new investments in fossil fuels, thus demonstrating that the fund is still struggling to align its $25-billion portfolio with climate safety.
Encouraging elements of OPTrust’s Climate Strategy Update and TCFD include disclosure that nearly a quarter of the fund’s external managers and funds have net zero by 2050 commitments and that the pension manager is “aligning our strategy to the Net Zero Investment Framework”, a framework used by Paris Aligned Asset Owners to align their portfolios and investment activities with the goal of the Paris Agreement. OPTrust also created a framework for climate metrics (although it appears that data collection on these metrics is still in its nascent stages), disclosed that compensation is linked to performance objectives including climate, and outlined planned improvements to the fund’s portfolio carbon footprinting.
OPSEU pension plan members will be pleased to know that their pension manager has made some (unquantified) investments in climate solutions, such as early-stage investments in electric vehicle charging infrastructure and geothermal electricity generation.
A modest 2030 emissions reduction target
OPTrust announced a target to reduce the fund’s emissions intensity (scope 1 and 2) by 30% below 2022 levels by 2030. This commitment is less ambitious than that of its Ontario pension peers, including funds that are both smaller and larger. For example,
University Pension Plan, with $11 billion in AUM, has committed to a 60% reduction in emissions intensity below 2021 levels by 2030;
The Investment Management Corporation of Ontario, with $73.3 billion in AUM, has committed to a 50% reduction below 2019 levels by 2030; and
The Ontario Teachers’ Pension Plan, with $249.8 billion in AUM, has committed to a 67% reduction in emissions intensity below 2019 levels by 2030.
No target to increase investments in climate solutions
Unlike several other Canadian pension funds, OPTrust has yet to provide a current figure for its investments in climate solutions, nor has it announced a target for climate solutions investments.
Other commitments
OPTrust will by 2025 “implement enhanced climate due diligence on 100% of new direct investments and external investment partner commitments”, complete “climate evaluations on core, strategic investment partners”, and “engage” and “advocate” for collection and reporting of emissions data.
Why does OPTrust need a custom climate taxonomy?
With numerous taxonomies available worldwide and significant effort put into creating a Taxonomy Roadmap in Canada, it is unclear why OPTrust announced today that it is developing its own bespoke climate asset taxonomy. OPTrust stated its taxonomy will “inform OPTrust of risks to the climate transition including the potential for stranded assets, perpetuating carbon lock-in or being unaligned with transition pathways to net zero” (TCFD, p.10).
A climate strategy must include a credible plan for phasing out fossil fuel assets
OPTrust should not need to develop a custom climate asset taxonomy to understand that its portfolio company Superior Midstream, whose business model depends on the production, processing, transportation and eventual combustion of fossil gas, is a potential stranded asset in emissions pathways that preserve a safe climate for OPTrust members. OPTrust increased its joint stake in the fossil gas infrastructure company from 50% to 100% in 2023, essentially betting OPSEU members’ pension savings on locking in and prolonging the use of fossil gas. While OPTrust highlights its growing investments in renewable energy and other climate solutions, Superior Midstream conveniently goes unmentioned in OPTrust’s Climate Strategy Update.
In the midst of COP28, OPTrust ignores the clear call for a fossil fuel phase-out
Nor should OPTrust need a climate asset taxonomy to determine that the fund should immediately place an exclusion on any new investment in coal, oil, gas and related infrastructure, as per the scientific consensus that limiting global heating to 1.5°C means no new fossil fuel investment and a rapid phase-out of fossil fuels. Unfortunately, OPTrust appears to be ignoring this scientific consensus, along with the latest forecast from the International Energy Agency which shows demand for all fossil fuels peaking and beginning to decline by 2030 at the latest, even in the absence of more robust climate policy measures. According to OPTrust, though, “The global decarbonization journey is one that will present unprecedented opportunities across all asset classes, including traditional energy" (from Our Climate Strategy in Action FAQs, italics added). This misreading of the future of fossil fuels should raise alarm bells for OPTrust members and their OPSEU sponsors.
OPTrust continues to demonstrate that it is focused on behind-the-scenes work to understand and integrate climate-related risk. However, this behind-the-scenes work must lead to demonstrable results in aligning the portfolio with a safe climate future.