Following a historic year in 2023 where temperatures reached alarming levels while flash floods and wildfires continued to wreak havoc worldwide, the question now is whether we are in for a repeat in 2024. Against this backdrop, many investors are looking at ways to make their portfolios more climate-resilient, as initiatives engage with companies on reducing carbon emissions while standards and guidelines focus on increasing disclosure.

Considering the economic and investment implications of climate change, which are difficult to predict, both large and small investors may be wondering where to start. To bring a heightened climate awareness to their portfolios, many have moved forward one step at a time. This includes Co-operators, through its impact and climate investing goals, and its asset management company, Addenda Capital, which manages an impact fixed income  strategy in addition to being a member of the Net-Zero Asset Managers initiative.

At a recent webinar, executives from both firms shared insights on why and how they set out on this journey. Speaking on behalf of Co-operators were Karen Higgins, Executive Vice-President, Finance and Chief Financial Officer, and Lesley Christodoulou, Vice-President, Finance and Chief Accountant. Addenda was represented by Ian McKinnon, its Chief Investment Officer, while Monika Freyman, Vice-President, Sustainable Investing, acted as moderator. Following are some key takeaways.

Understanding Risk and Solutions Amid a Global Outlook

  • Organizations should be cognizant that even though emerging standards are compliance-related , a bigger picture exists. There is an opportunity to look equally at risks, at your strategies and at opportunities related to climate.
  • Starting its journey 16 years ago , Co-operators sees climate change as a threat to its purpose, creating risks to the financial security of Canadians. Its portfolio seeks to drive action and catalyze markets toward a net-zero, climate-resilient society. It aims to invest in mitigating climate risks while also building climate adaptive solutions that will protect and enhance the security of its members, clients, and communities.

Developing a Path and Embracing Ambiguity

  • Taking the time to plan an approach that suits your organization, leaders, and governance structure is important for reaching the right place. Furthermore, organizations should not hesitate to seek help where they need it. While Co-operators actively shares its insights and experience, for instance, Addenda is well positioned to be a trusted partner in investors’ journey toward a sustainable portfolio.
  • Firms should seek ways to build talent from the inside, with curious and skilled people that are open to learning more and embracing ambiguity.

Valuing Education

  • Both Co-operators’ and Addenda’s early challenges included education and communication, both within the organizations and with various stakeholders. Instead of focusing on divesting assets in fossil fuels, the conversation quickly turned to active ownership and impact investing, which features the intention to generate positive, measurable social or environmental outcomes alongside a financial return. Addenda’s approach also included engaging with issuers and policy-makers on a range of topics, including the promotion of sustainable markets.

Impact Investing as a Key Element

  • Impact investing aims for market returns or better  while seeking positive social or environmental impacts, which is a win-win scenario, said Karen Higgins. Key to making it a compelling proposition is the ability to track and report on investments’ impacts. 
  • In 2015, Co-operators adopted an impact investing policy, initially setting out to reach 6-10% of its consolidated invested assets in impact investing. It exceeded the target within three years. Its current 2030 goal seeks to attain 60% in impact or climate transition investments. At the end of 2023, it was well on its way, reaching nearly 50%, or $5.9 billion.

Hard Work Leading to Innovation

  • Starting with a single sustainable investing professional in 2011, Addenda now relies on a team of six, in addition to individuals dedicated to sustainable investing research within investment teams. Remaining challenges include collecting quality data to manage impact investments.
  • Following the creation of its Impact Fixed Income Pooled Fund in 2018, with the support of Co-operators, Addenda’s active investor approach led to the creation of its Climate Transition equity pooled funds in 2021, focusing on companies making specific commitments to lower their carbon emissions.

To watch the replay of the webinar:

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