The Montréal Carbon Pledge – Carbon footprint of investments

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 Montreal 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 Montreal Carbon Pledge and was the first Canadian asset manager to disclose the carbon footprints of all its equity funds.)

Our footprints

We measure and monitor the carbon footprints of our investments using two metrics:

  1. Owned carbon emissions measures our share of the absolute greenhouse gas (GHG) emissions of each of our investments.
  2. Weighted average carbon intensity shows the average carbon intensity (emissions per revenue generated) of our investments, revealing our exposure to carbon-intensive companies.

We first disclosed the carbon footprint of our equity investments in 2015, and added the footprints of other asset classes in 2016.

Owned carbon emissions

In 2019, The Co-operators equity investments, corporate bond investments and preferred share investments ‘owned’ a total of 188,990 tonnes of CO2-equivalent greenhouse gases (emissions sources scopes 1 and 2 only) emitted by companies in our portfolio. Compared on a like-for-like basis to 2018, we noted a 30.1 per cent increase in carbon emissions. The ‘owned’ emissions from bonds, common shares and preferred shares increased. The emissions associated with common shares increased partially due to the addition of two utilities companies to the portfolio that are high emitters. The ‘owned’ emissions from bonds and preferred shares increased because of changes in portfolio holdings and changes in emissions intensities of the portfolio holdings.

Our investment carbon footprint far exceeds the emissions from our operations, which totaled 13,947 tonnes of CO2-equivalent emissions in 2019 (see Our Carbon Footprint). The Co-operators net emissions were reduced by 80 per cent in 2019, compared to 2010 emission levels, primarily through purchases of renewable energy certificates from Bullfrog Power. The fact that our owned emissions are more than 10 times 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.

Carbon Footprint

Greenhouse gas emissions emitted by Co-operators portfolio companies during prior fiscal year (tonnes of CO2 equivalent)
Year Tonnes of CO2 equivalent
2019 188,990
2018 145,282
2017 173,283
2016 188,814

Weighted average carbon intensity

The weighted average carbon intensities of some of the portfolios representative of The Co-operators investments are shown in the graph below. The Co-operators equities have lower emissions on average than benchmark companies. The carbon intensity of our Canadian REIT holdings and preferred shares are also below the benchmark. Since 2017, we have been using the S&P/TSX Preferred Shares Index as our preferred shares benchmark, which better aligns with the sector allocation of our portfolio. As with the ‘owned’ emissions calculation, the change in the carbon intensity of our preferred shares portfolio is largely due to a methodology change by our third-party data provider.

Methodology: How we calculate the carbon footprint of 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.

  1. Data sources: 1) Reported and estimated greenhouse gas emissions data from MSCI ESG Research; 2) market and fundamental data from Bloomberg; 3) index data from MSCI and S&P. Greenhouse gas emissions data are from 2017 and cover scopes 1 and 2, as 2018 data are not yet available. Market values for investments were used with data from December 31, for each year.
  2. Asset classes covered: Our disclosure covers our Canadian, U.S., and international equities, as well as our REIT portfolio and preferred shares.
  3. Holdings analyzed: Representative investment portfolios for different asset classes were selected to calculate the weighted average carbon intensities, as the same investment strategies are often used across multiple accounts. The owned emissions calculation considered the invested assets of all companies across The Co-operators group of companies.
  4. Emissions allocations: For the owned emissions calculation, each company’s total emissions, as reported or estimated by MSCI ESG Research, 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.

Weighted Average

Weighted average carbon intensity of The Co-operators equity, Real Estate Investment Trust (REIT) and preferred share portfolios vs Benchmark (tonnes of CO2 equivalent per $million USD revenue)
Equity or Share type Benchmark Portfolio
Canadian Equity 386.15 453.14
U.S. Equity 180.43 57.04
International Equity 146.77 119.72
Global Equity 172.77 96.09
REIT 105.09 114.49
Preferred Shares 406.74 267.69