2030 Finance | September 13, 2017

Québec’s largest pension fund turns to carbon budgets to address climate risks

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Investment managers at Caisse de dépôt et placement du Québec have a new tool to help them account for the increased financial risks posed by climate change: Carbon budgets. These “budgets” allow managers to allocate a specific amount of carbon-dioxide emissions that might result from an investment decision, effectively setting limits on the carbon footprint of a manager’s portfolio.

Within the carbon budget, “you have to make choices as to where you invest and how you invest because what we invest in has carbon consequences, which we have to think about,” said Michael Sabia, president and CEO of the fund, which manages $223 billion in public pension and other assets. Climate change has financial repercussions, Sabia said, and should be addressed like any other risk.

“For a long-term investor, climate change is going to introduce another level of risk, another dimension of risk, into our decision-making,” Sabia said at an impact investing panel discussion in Montreal last week.

Canada’s environmentalists are skeptical and want a clearer signal that the fund is moving to divest from fossil fuels. According to Karel Mayrand, an executive director of the David Suzuki Foundation, Caisse has increased investment in fossil fuels over the last year to 18 months.

“We understand that you cannot [divest] overnight,” Mayrand said. “We’re willing to work with them and I think they’re ready for that.”