climate-related financial risk – Resilient LLP (formerly DeMarco Allan LLP)

Four young Canadians have launched a legal claim against the Canada Pension Plan (CPP) Investment Board (CPP Investments), Canada’s largest pension fund manager, alleging that it is mismanaging and has underestimated climate-related financial risks to the $732B in assets under management of the CPP. The claim alleges that by underestimating and failing to disclose climate-related financial risks, CPP Investments could expose Canadians to dramatically reduced retirement benefits, the need for substantially higher contribution rates, or both. This bulletin briefly summarizes key information regarding the claim. Overview. The claim notes that CPP Investments has publicly recognized climate change as a significant investment risk, but “backtracked” on its net-zero commitment earlier this year. The applicants allege that this reversal, combined with ongoing fossil fuel investments, demonstrates an absence of sufficient measures to manage climate-related financial risks in the best interests of younger contributors. The youth applicants, which are all anticipated to receive pension benefits after 2050, argue that by severely underestimating and failing to disclose climate-related financial risks, CPP Investments is failing to: properly manage climate-related financial risks, thereby jeopardizing the long-term value of the portfolio and the security of contributors’ benefits; and adequately identify and assess climate-related financial risks to CPP funds, including in its use and reporting of the MSCI Climate Value-at-Risk model without describing how it applies judgement to the results despite the alleged uncertainty regarding the model’s ability to adequately capture systemic risks from higher degrees of warming. The claim relies on the latest research on the severe impacts of climate change (including the triggering of tipping points and cascading risks) on society and financial systems beyond 1.5°C of warming. According to Ecojustice, the claim is the first climate case against a pension fund investment manager “anchored in the duty of impartiality and even-handedness in a multi-generational context” and is also…

The U.S. Commodity Futures Trading Commission (CFTC) has released a Request for Information seeking public comment on climate-related financial risk (the RFI). The CFTC notes that the RFI will inform its understanding and oversight of climate-related financial risk relevant to the derivatives markets, underlying commodities markets, registered entities, registrants, and other related market participants. This bulletin briefly summarizes the RFI. The RFI is seeking comments on questions posed by the CFTC around the following topic areas: data; scenario analysis and stress testing; risk management; disclosure; product innovation; voluntary carbon markets; digital assets; financially vulnerable communities; public-private partnership/engagement; and capacity and coordination. The CFTC indicated that it may use the responses and comments received through the RFI to inform potential future actions including the issuance of new or amended guidance, interpretations, policy statements, or regulations, or other potential action by the CFTC. All of the CFTC’s commissioners voted in favour of the RFI. However, Commissioner Mersinger, in a concurring statement included in the RFI, indicated that several of the questions in the RFI were beyond the jurisdiction of the CFTC. Commissioner Mersinger asserted that the CFTC does not regulate commodity markets and does not have statutory authority to create a registration framework for participants within voluntary carbon markets nor the authority to regulate digital assets or distributed ledger technology outside of activities related to derivatives. In addition, Commissioner Pham stated that the CFTC should seek to harmonize any climate risk management framework with existing prudential and other regulatory regimes for registrants already subject to such regimes. The RFI follows the CFTC’s first Voluntary Carbon Convening (the Convening) which discussed issues related to the supply and demand for high quality carbon offsets, including product standardization and the data necessary to support the integrity of carbon offsets’ greenhouse gas emission avoidance and claims.…