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SIO establishes best practices on climate change and investment risk

 

The Social Investment Organization has released a set of climate change best practices for institutional investors that include supporting enhanced climate risk disclosures, voting in support of climate risk shareholder proposals and using new accounting standards to assess climate risk.

"A proactive strategy on climate change needs to be adopted by the Canadian investment community," states the report, entitled Climate Change and Investment Risk: Best Practices for Canadian Pension Funds and Institutional Investors. The report is based on proceedings of an SIO workshop March 11 for institutional investors, investment consultants, asset managers and other interested parties.

The workshop heard from leading international and Canadian experts in the field of climate change investment risk, including David Russell, Advisor, Responsible Investment, Universities Superannuation Scheme (the third largest pension fund in the UK), and Meredith Miller, Assistant Treasurer, Policy for the State of Connecticut's pension fund. Speakers noted that economic changes to be brought about by climate change will have profound impacts on the companies within pension portfolios. These impacts could impair the ability of pension funds to deliver on their future pension liabilities.

The report recommends three best practices that institutional investors can take to assess and manage these climate-related risks:

 

Canadian institutional investors should become signatories to the Carbon Disclosure Project (CDP), a climate risk survey of the 500 largest companies in the world. As of 2003, 87 institutional investors representing more than $9 trillion in assets were signatories to the CDP. Yet, only five of the 87 firms were Canadian. "Greater Canadian participation in this important initiative would help to build awareness of climate change risks by the corporate sector and the financial community in this country," states the SIO report.

Canadian institutional investors should vote their shares in support of reasonable climate change related shareholder proposals. The report states that voting shares is a critical financial asset and an important fiduciary responsibility. "Supporting reasonable shareholder action on issues of climate change disclosure and policy would encourage corporate management to disclose risks and implement appropriate policies and practices on climate risk. The aim is to improve climate risk disclosure and practice broadly across the Canadian economy."

Canadian institutional investors should use emerging accounting disclosure standards to assess companies in their portfolios on climate risk issues. These include recent guidelines by the Canadian Institute of Chartered Accountants to improve corporate disclosure on social and environmental policies as well as forthcoming international standards. "These will provide an opportunity for institutional investors to better assess companies in their portfolio from a climate risk perspective.

For a copy of the full report, visit Climate Change and Investment Risk: Best Practices for Canadian Pension Funds and Institutional Investors.

 

 

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