Financial institutions launch cutting-edge research project to integrate climate change into strategic investment decisionsPosted: September 6, 2018
TORONTO, September 5, 2018 – The financial institutions AP1, a.s.r., OPTrust, Pensioenfonds van de Metalektro (PME) and Philips Pensioenfonds, supported by Ortec Finance - the provider of investment decision technology and solutions - announce the launch of their climate-savvy Asset Liability Management/Strategic Asset Allocation (ALM/SAA) pilot project.
The transition to a low carbon economy will becoming increasingly disruptive, and we have to be prepared as investors. Climate change is much more complex than changing weather patterns, that’s why we’re taking action to develop the tools to translate and incorporate climate change into an investment context.” - Hugh O’Reilly, President & CEO, OPTrust
The goal of the project
The pilot is one of the first efforts of its kind to integrate quantified risks associated with climate change into standard forward-looking financial scenario sets that drive strategic investment decision-making. The pioneering investors involved in the pilot will use these sets to analyze the impacts of various global warming pathways on their ALM/SAA. The pilot is expected to run until the end of 2018. If successful, the climate-savvy scenario set is expected to be made more widely available to investors by early 2019.
The pilot project is a broad collaboration between AP1, a.s.r., OPTrust, Pensioenfonds van de Metalektro (PME), Philips Pensioenfonds and Ortec Finance, along with Cambridge Econometrics and Carbon Delta. Additionally, I Care & Consult, the Institute for Environmental Studies – VU Amsterdam, the Grantham Research Institute at the London School of Economics, Potsdam Institute for Climate Impact Research, Sustainable Finance Lab, Utrecht University and the University of East Anglia offer their expert feedback in this project.
The research and development project, which links scientific climate data to ALM/SAA tooling, is a novel approach to mapping potential future climate impacts on investment performance. The methodology of the pilot is to combine existing academic research on climate-related risks associated with several global warming pathways with key macro-economic risk drivers such as growth, inflation and interest rates. Once completed, the results of this mapping will be integrated into Ortec Finance’s forward-looking financial scenario set that already includes a wide array of standard financial and economic variables. Piloting investors’ portfolios will be tested using these new climate-savvy financial scenario sets as the key input for the adjusted ALM/SAA analysis.
The resulting insights will increase the piloting investors’ understanding of the sensitivities of their investment strategies to climate-related risks, inform alignment to international climate goals through setting Science Based Targets and enable forward-looking disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures. Additionally, the pilot aims to inform academia of existing knowledge and data gaps to tailor future research to the financial sector practitioners’ needs.
With net assets of over $20 billion, OPTrust invests and manages one of Canada's largest pension funds and administers the OPSEU Pension Plan, a defined benefit plan with over 92,000 members and retirees. OPTrust was established to give plan members and the Government of Ontario an equal voice in the administration of the Plan and the investment of its assets through joint trusteeship. OPTrust is governed by a 10-member Board of Trustees, five of whom are appointed by OPSEU and five by the Government of Ontario.
About Ortec Finance
Ortec Finance was created in 2007 through a management buyout of the company ORTEC b.v, which was founded in 1981 by four innovative students of econometrics at the Erasmus University of Rotterdam, who believed mathematical theories and algorithms could be used to optimize the performance of companies. With a team of 250 experts in Rotterdam, Amsterdam, Hong Kong, the United Kingdom, Canada, and Switzerland, Ortec Finance is leading in innovation through strong tie with academic communities, regulators, and practitioners. The company’s long-standing and global client base comprises of leaders in the pensions, sovereign wealth, insurance, asset management, and private wealth management markets. Ortec Finance focuses on providing support for investment decision-making for institutional and private investors. The company designs, builds, and applies solutions for asset-liability management, ex-ante and ex-post risk management, performance measurement and risk attribution, and financial planning.
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