Practical tools for investors: Understanding climate risk across portfolios

Over the last decade, we’ve seen the focus on climate change shift from societal fears of rising temperatures and sea levels led by environmentalists, to the very heart of boardrooms and investment teams assessing climate linked financial risk. Investors across the globe are now grappling with the short-term tensions of financial performance and the longer-term implications of climate risk systemically changing the dynamics of our economic system.

At OMERS, we take the responsibility we have to all our stakeholders seriously; as such, we understand it is essential that we, in partnership with other investors, play a role in in tackling climate change and supporting the global transition towards a more sustainable economy. We believe that by accelerating collective action, increasing the dialogue on the topic and offering robust, practical solutions to fellow investors, together we can address this shared challenge.

Along with our peers in the Investor Leadership Network, we have published a report, co-authored with McKinsey & Company. The report provides practical tools to support investors in understanding climate-related disclosures of companies and how their decarbonization scenarios align with the Paris Agreement and a pathway to 1.5 degrees Celsius. To help investors understand the options, we provide a credible 1.5°C trajectory for ten key sectors and, most important, ten emission reduction levers that would be required to stabilize the climate.

It is clear the investment industry is only at the initial stages of addressing climate risk from a portfolio construction and asset management perspective. Together we can achieve more by:

• Advocating for more transparency, standardization and comparability in reporting
• Enhancing institutional understanding of climate risk
• Incorporating climate mitigation and adaptation into capital allocation
• Engaging with portfolio companies on climate change mitigation

For more information about the toolkit, please access the report here.