Strategy
TCFD recommendation: Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.
Climate change, including its direct impacts and responses to address it, presents risks and opportunities to the Fund. Climate change may affect an investment portfolio through:
- Physical impacts, such as increased flood risk and other severe weather events or changes in agricultural growing seasons.
- Transition impacts, which can include policy interventions, technological innovation and consumer choices.
Physical and transition impacts can be either positive or negative for individual companies, entire sectors, geographies and economies.
Today, we can see the physical effects of climate change, and the severity and frequency of extreme weather events are likely to increase. These changes may impact the Fund in several ways, including directly affecting the physical assets of companies
we invest in and increasing demand for climate-resilient infrastructure. In the longer term, the onset of chronic effects could significantly alter the spread of vector-borne diseases, impact agricultural yields and alter global migration patterns.
The longer-term physical impacts of climate change will be influenced by the mitigation actions taken today.
Efforts to mitigate and adapt to climate change may include new policies and legislation, development of technology, and shifts in consumer demand and market forces. Rapid policy changes to curb carbon emissions are the most likely short-term impact and
could lead to increased costs for carbon-intense companies, while presenting opportunities for carbon-efficient alternatives.
TCFD recommendation: Describe the impact of climate-related risks and opportunities on the organization’s business, strategy, and financial planning.
The transition to a net zero future will require immense investment, presenting opportunities for HOOPP to support climate solutions and generate risk-adjusted returns for members. Five sectors that may both enable and benefit from the transition to a
net zero economy are:
- low carbon transport
- clean energy production
- agriculture
- building energy efficiency
- water and waste management
These five areas are major sources of carbon emissions and transitioning to low carbon alternatives is critical to mitigating the worst impacts of climate change. We expect demand for products, services and infrastructure that support the decarbonization
of these sectors to increase. HOOPP will continue to invest in climate solutions across multiple asset classes, including infrastructure, real estate, public equities and fixed income.
Responsible stewardship of our investment portfolio is a key pillar of our sustainable investing approach. We influence change by working with companies to improve their climate resilience and reduce emissions in the real economy. By meeting with companies,
we encourage them to develop credible decarbonization plans and use our proxy votes to support climate-related proposals.
TCFD recommendation: Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
In 2021, we began a top-down climate scenario analysis at the total fund level, looking at three key combined physical and transition scenarios (see descriptions below). The purpose of this analysis is to examine potential impacts to the Fund, and is
not intended to be a prediction of the future.
Scenario 1:
Orderly Transition
(<2°C) | Scenario 2:
Disorderly Transition
(<2°C)
| Scenario 3:
Failed Transition
(4°C)
|
In this scenario, the Paris Agreement has been achieved and global warming is kept well below 2 degrees Celsius by the end of the century. There would be continued physical impacts, however they would not increase in severity indefinitely. To achieve this outcome, an immediate and high level of global coordination is required in carbon pricing, energy efficiency, phasing out fossil fuel subsidies and scaling up low carbon technologies. We look at this scenario because it could potentially present more immediate disruption for industry incumbents. | In this scenario, the Paris Agreement has been achieved and global warming is kept well below 2 degrees Celsius by the end of the century. This outcome assumes a high level of government coordination does not materialize until 2025. We look at this scenario because the more time passes, greater action is needed to achieve the Paris Agreement targets. This could cause sudden and rapid policy changes, and potential market dislocations.
| In this scenario, global warming rises to above 4 degrees Celsius by the end of the century leading to more severe physical impacts along the way. This outcome assumes only existing climate policies remain in place. This scenario informs us of the potential effects of extremely severe physical impacts.
|
Climate scenario analysis is a developing field and there are important limitations related to the quality and availability of input data, methodologies and assumptions. We will continue to monitor the development of standardized scenarios and methodologies
to build on this initial phase of work.