June 27, 2024

Examining investments at the total portfolio and client portfolio levels allows us to identify broad ESG trends that could have financial or reputational impacts.

We use our proprietary ESG Risk and Opportunity Framework to analyze, measure, and report on ESG opportunities and risks across portfolios, including climate change scenarios. This work helps us make more informed decisions and supports resilient portfolios focused on the long term. It also increases the likelihood of achieving our clients’ financial objectives.

We developed the framework over a number of years, and continuously improve it by updating financial models, estimation methods, and methodologies.

The Framework
BCI’s ESG Risk and Opportunity Framework is designed to support analysis at a total fund, client, asset class, portfolio, sub-industry, and individual asset levels. It consists of five modules:

  • Materiality: identifying relevant material systemic risks for the total portfolio.
  • Scenarios: developing and updating scenarios for each material systemic risk.
  • Sensitivity tool: quantifying the financial impact of systemic risks on every sub-industry.
  • Risk quantification: quantifying the potential financial risk impacts to the portfolio over time.
  • Dashboards: reporting and distributing data and results for each investment decision.

By testing the sensitivity of industries and portfolio holdings, BCI can identify, evaluate, and target areas of opportunity and risk.

Climate Scenarios
The framework’s climate scenario analysis and modelling capabilities allow BCI to evaluate multiple possible future outcomes using standard financial and risk modelling techniques and approaches. The scenarios are updated and refined as new data and estimation methodologies from reputable sources become available, such as the International Energy Agency (IEA) and the Network for Greening the Financial System (NGFS).

We analyze historic and current asset exposures using long-term expected climate change impacts under different climate scenarios, including 1.5°C, 2°C, and 3°C. The framework is used to stress test total portfolio and asset-specific impacts under these scenarios.

Using the Results
We use the framework for client asset-liability reviews and to analyze material transition and physical climate risk during deal due diligence reviews. For clients, the framework shows the vulnerabilities of different strategic asset allocations. For due diligence on potential new investments, where material, BCI evaluates transition and physical climate risks and opportunities. This allows BCI to identify risks, potential risk mitigation strategies, or identify new opportunities at the investment, asset class, and total portfolio levels. For asset classes and portfolio managers, this analysis provides a better understanding of the resiliency of certain types of investments to climate change and other uncertainties.

Between 2018 and 2020, asset allocation decisions, informed by climate change scenario analysis, decreased the climate risk level for the portfolio and increased the potential for transition opportunities. Climate risk in the portfolio has remained relatively stable since 2020, and we expect the actions in our Climate Action Plan will continue to reduce this risk level going forward.

Our ESG team continues to monitor emerging trends like societal and labour risks, biodiversity risks, and increasing cyber security risks that have potential implications for our global portfolio.


1The results represent the measurement of the portfolio climate risk that could materialize by 2050 under a 2°C scenario relative to a 3°C scenario. The 2023 results are not directly comparable to prior years due to incorporation of new datasets from the NGFS and extending the analysis date from 2040 to 2050. Using the prior year reported data and approach, portfolio climate risk levels in 2023 were roughly unchanged relative to 2022 risk levels.