Ontario Teachers' Pension Plan currently has $30-billion of investments in renewables, energy storage, electrification, sustainable buildings and other assets.
Ontario Teachers’ Pension Plan aims to vastly increase clean-energy investments and push companies in its $228-billion portfolio to set paths to net-zero carbon emissions, as one of Canada’s largest institutional investors shifts its strategy to deal with climate risks.
Teachers said on Thursday it plans to reduce the emissions intensity of its holdings by 45 per cent from 2019 levels by 2025, and by 67 per cent five years later. Emissions intensity measures greenhouse gases per dollar invested. The goals cover the fund’s assets in real estate, natural resources, equity and corporate credit, as well as holdings run by external asset managers, it said.
The plan adds the interim targets and other details to Teachers’ announcement in January that it will seek to get to net zero by 2050, in line with international commitments set out in the Paris Agreement on battling climate change. They show how the country’s third-biggest pension fund, representing 331,000 working and retired educators, plans to transform its investment strategies to thrive in an energy transition expected to take decades.
“It is a fundamental shift. We will be growing significantly our investment in companies that are more green, more climate smart,” Ziad Hindo, Teachers’ chief investment officer, said in an interview. “We’re pivoting all our asset class strategies on the public and private sides to make sure that we dedicate more and more capital to the companies of tomorrow.”
Teachers currently has $30-billion of investments in renewables, energy storage, electrification, sustainable buildings and other assets. Future investments could target a wide range of industries such as agricultural technology, electric vehicles and software to assist companies through the move to lower CO2 energy sources.
The fund will also own interests in companies that may currently have large carbon footprints, but have developed “clear and explicit decarbonization plans,” Mr. Hindo said.
Ontario Teachers’ Pension Plan’s 3.8 per cent net return for first half of 2021 trails peers
The pension plan is one in a large and growing list of global institutional investors managing tens of trillions of dollars in total that are seeking to make an environmental impact while managing money for retirees, investors and taxpayers.
In July, Teachers became an anchor investor in Brookfield Asset Management’s Global Transition Fund, the largest pool of private money so far aimed at accelerating the shift to a net-zero economy. That fund is being managed by Connor Teskey, chief executive officer of Brookfield Renewable Partners LP, and Mark Carney, who served as governor of the Bank of Canada and then as governor of the Bank of England before his term in the latter role ended last year.
Teachers also made a large investment in U.S. private-equity firm TPG’s new climate-focused investment portfolio, called the Rise Fund. It is chaired by former U.S. Treasury secretary Henry Paulson.
Mr. Hindo rejected any notion that Teachers and its pension beneficiaries might be accepting lower returns on investment in exchange for directing its portfolio to climate solutions.
“We don’t view climate risk mitigation only from the risk side. We actually believe it’s return-enhancing,” he said. “If you can establish sustainable businesses that can withstand climate risk and position them as leading players in their own industry segments, those companies will be worth more than their peers.”
When Teachers announced its net-zero plan earlier this year, it faced criticism from a group of about 300 retirement beneficiaries who joined with the environmental advocacy group Shift Action for Pension Wealth and Planet Health in calling for the sell-off of all its fossil-fuel holdings under a tight deadline.
On Thursday, Shift said in a news release that it welcomed the announcement, calling it “the strongest climate commitment we’ve seen yet from a Canadian pension plan.” However, it said Teachers should now explain how it will eliminate the remainder of its oil and gas investments.
Mr. Hindo pointed out that Teachers is not emphasizing those assets as key to its portfolio. Its public oil and gas company holdings by percentage are one of the smallest among major Canadian pension funds and its private oil and gas exposure is less than 3 per cent. Fossil fuels play a role in today’s economy, as natural gas, for example, remains an important heating fuel, he said.
“But beyond their role in transition, as stewards of capital we need to think about the economic life of these assets, and in many instances what we’re seeing is regulations and carbon pricing all converging together is going to make it extremely challenging, I would argue, for that sector over the long term,” he said.
The net-zero plans also include issuing more green bonds to fund investments in climate-friendly technology and companies, and advocating for clear climate policies along with other industry leaders. Teachers said it will report on its progress annually.
Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. E-mail him at jeffjones@globeandmail.com.
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Jeffrey Jones