The Montréal Carbon Pledge
Understanding climate-related risk as part of sustainable investing
Climate change can have a significant impact on financial markets and investment returns. The Co‑operators seeks to manage the investment risks and opportunities associated with climate change and the transition to a low-carbon economy.
In 2014, The Co‑operators became the first Canadian insurer to sign the United Nations-supported Principles for Responsible Investment (UN PRI)’s Montréal Carbon Pledge, a commitment to measure and publicly disclose the carbon footprints of investment portfolios.
Measuring and understanding carbon footprints and other climate-related risks aligns with the approach to active investing taken by our investment manager, Addenda Capital. (In 2015 Addenda became a signatory to the Montréal Carbon Pledge and was the first Canadian asset manager to disclose the carbon footprints of all its equity funds.)
We measure and monitor the carbon footprints of our investments using two metrics:
- Owned carbon emissions measures our share of the absolute greenhouse gas (GHG) emissions of each of our investments.
- Weighted average carbon intensity shows the average carbon intensity (emissions per revenue generated) of our investments, revealing our exposure to carbon-intensive companies.
We have disclosed the carbon footprint of our equity investments and going forward we will also disclose the footprint of our fixed-income and preferred-share investments.
Owned carbon emissions
In 2015, The Co‑operators equity investments ‘owned’ a total of 75,621 tonnes of CO2-equivalent greenhouse gases (emissions sources scopes 1 and 2 only) emitted by companies in our portfolio. Compared to 2014, we noted a 16% increase in carbon emissions due to higher absolute emissions of select companies in which we have invested (please see graph below).
Our equity portfolio carbon footprint far exceeds emissions from our operations, which totaled 17,149 tonnes of CO2-equivalent emissions in 2015, including sources noted below:
- Scopes 1 and 2 – Corporate fleet vehicles and our largest corporate office locations representing 83% of total floor space.
- Scope 3 – Air travel and personal vehicle business travel.
The Co‑operators net emissions were reduced by 55% in 2015, compared to 2010 emission levels, primarily through purchases of renewable energy certificates from Bullfrog Power.
The fact that our owned emissions are more than quadruple the emissions from our operations reinforces the importance of our approach to sustainable investing, which emphasizes stewardship and advocacy, and encourages the companies we own to manage their climate risks and decrease their emissions.
Weighted average carbon intensity
The weighted average carbon intensity of The Co‑operators equity investment portfolio is shown in the graph below. The Co‑operators North American equities have lower emissions on average than benchmark companies. The carbon intensity of our Canadian REIT holdings are marginally above benchmark.
Methodology: How we calculate the carbon footprint for investments
The methodology for measuring carbon footprints of investments is evolving, and many data gaps exist. The following key points from our methodology ensure transparency in our approach.
- Data sources: 1) GHG data from MSCI ESG Research and Bloomberg; 2) market and fundamental data from Bloomberg; 3) index data from MSCI, S&P. GHG data are from 2014 and cover scopes 1 and 2, as 2015 data are not yet available. Market values for investments were used with data from December 31, 2015.
- Asset classes covered: Our disclosure covers our Canadian, U.S., and international equities, as well as our REIT portfolio. The carbon footprint of our fixed income and preferred shares will be released as part of our 2016 reporting cycle.
- Holdings analyzed: The holdings of Co‑operators General Insurance Company, the largest company in The Co‑operators Group of companies, were used to calculate the weighted average carbon intensity, as they are representative of the holdings of the other companies and managed using the same investment strategies.
- Emissions allocations: Each company’s total emissions were allocated to debt, equity and preferred equity based on the book values for debt and preferred equity and the market value for equity using total capital as the denominator.
Find out more about carbon emissions associated with our operations.