As environmental, social and governance issues are increasingly recognized as material factors when considering investments and amid growing stakeholder pressure, many options are available for pension plans looking to incorporate ESG into their portfolios.
“Historically, you saw a lot more on the ethical investing end of things — so exclusions, negative screens,” said Eli Angen, principal of responsible investing, strategy and risk at the Ontario Teachers’ Pension Plan, during a session at the 2019 Association of Canadian Pension Management’s conference on Thursday.
“Over time, you’ve seen more and more variety in the approach. And Ontario Teachers’ takes a responsible investing approach. So that’s about integrating ESG consideration across the investment lifecycle.”
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The pension fund’s approach to responsible investing includes four pillars: integrate, engage, influence and evolve, he added.
It integrates across the investment lifecycle, beginning with governance. Every year, the board of directors approves the responsible investing approach and provides oversight, said Angen. And the executive team is accountable for rolling out the approach.
“But then, at the end of the day, the ownership of it really happens with portfolio managers. They’re responsible for the execution. And we do that because we want the person who owns the investment risk to own the ESG risk alongside that because we believe in that linkage.”
The Ontario Teachers’ responsible investment team acts as a support and internal resource, he added. “We do things to support deal teams. We build tools, resources [and] frameworks. We help them get access to good data. But at the end of the day, the decision-making around including ESG still rests with the investment managers.”
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One example of this in action is providing due diligence support to the investment team.
The Ontario Teachers’ responsible investment team has also developed an ESG maturity framework. “That helps identify what are the material ESG issues that apply to any given sector of the economy and we’ve really levered some publicly available tools, like the Sustainability Accounting Standards Board, that have done that mapping, and then refined it for our own use,” noted Angen.
The team also has a fund maturity matrix, which looks at the plan’s fund managers and tries to understand how they measure up against each other and the broader marketplace in ESG practices. “And importantly, none of this is trying to screen someone out because they aren’t incorporating ESG factors,” he said.
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“I mean, if they’ve had really great returns, we’re definitely interested in talking to them. But it’s about understanding what are the opportunities for continuous improvement and how can we help share best practices between them?”
The journey to responsible investing is an ongoing one, said Angen. “We’ve been working on this for a long time and that’s how we’ve gotten to this position, but it’s just important to start and accept that it’s going to be an iterative journey.”
This article was originally published on Benefits Canada‘s companion site, the Canadian Investment Review.