Active ownership, accompanied by a concrete set of stewardship goals, is critical for long-term value creation, said Delaney Greig, director of investor stewardship at the University Pension Plan, during a session at the Canadian Investment Review’s 2024 Global Investment Conference in April.

The UPP, which was established in 2021 as a jointly sponsored defined benefit pension plan for Ontario’s university sector, is a diversified global investor that uses external management services and partners with private market investors for co-investments. Its approach to responsible investing includes active monitoring of systemic issues that can directly impact the progress of the economy as a whole in addition to individual companies.

Read: 91% of Canadian institutional investors say climate change is top ESG concern: survey

“Because of their impact on our investment portfolio and economic stability in the long term, environmental, social and governance factors need to be addressed as part of or, at the very least, consistent with our fiduciary duty and the best interest of our members.”

At the institutional investor level, stewardship is defined as the use of rights and influence that an organization may have to protect and enhance long-term value for clients and beneficiaries, said Greig, adding this definition extends to environmental and social assets given the impact that climate change has on global economic performance.

It’s important that stewardship activities have specific goals in mind, she said. As a key stewardship tool, direct engagement allows asset owners to leverage their influence on portfolio companies towards outcomes such as the adoption of climate-related targets or improving workforce gender or racial diversity.

Read: 2023 Risk Management Conference: How UPP is focusing on active investing in its climate action plan

There are benefits to this dialogue on both sides. For institutional investors, it can provide a better understanding of companies’ unique circumstances on their journeys to adopt better business practices. For companies, these discussions can provide specialized knowledge and know-how to analyze, integrate and navigate complex ESG issues within their operations.

Collaborative engagement initiatives, which bring together like-minded investors and stakeholders, amplify the impacts of stewardship activities from any one actor. As these initiatives gain momentum, they are evolving to match the needs of institutional investors, said Greig. As such, the UPP is a founding member of Climate Engagement Canada, an organization of 46 asset owners and managers with more than $6 trillion in assets under management, to engage Canadian companies across high-emitting industries including energy, materials, industrials and utilities.

“UPP favours active engagement and constructive dialogue over excluding or selling investments. While excluding certain investments can mitigate investment risk, this is not generally effective for changing behaviour on systemic issues.”

Read: University pension plans engaging investees on climate change risks

For the UPP, exercising voting rights allows the plan to hold publicly traded companies accountable for implementing responsible ESG practices. Bringing proxy voting activities in-house is one way that it has been able to become more directly involved in the decisions of a company. The benefit of this model, said Greig, is that an asset owner can vote in alignment with its own views of systemic issues impacting the portfolio rather than relying on managers who often take a company-by-company approach.

Policy advocacy is a relatively new but important stewardship lever for asset owners, she said, noting it involves promoting market-wide changes through policy standard setting and norms. “We think it’s important because it affects the rules of the game. We need to advocate for transparency, disclosure, governance considerations and market incentive structures that are consistent with long-term stability and our ability to generate long-term, stable returns.”

Read more coverage of the 2024 Global Investment Conference.