The Ontario Teachers’ Pension Plan plans to invest $5-billion in some of the world’s biggest greenhouse gas emitters as part of a strategy to boost returns while tackling climate change.
Teachers launched a “high carbon transition” initiative this month that will see one of the country’s largest fund managers, with $242-billion in assets, take significant stakes in businesses with outsized GHG emissions, then back strategies to reduce their carbon output.
“We believe the best way to accelerate the energy transition is by engaging with high emitters rather than passively divesting,” said Ontario Teachers’ chief executive officer Jo Taylor in a speech Thursday to the Canadian Club in Toronto.
Mr. Taylor said Ontario Teachers’ expects to take significant positions in four or five companies that generate up to 10 times the GHG emissions of the pension plan’s typical portfolio company. Over time, the fund manager expects that working with these businesses to lower GHG emissions will significantly improve their valuations and earn benchmark-beating returns for the fund, which is responsible for the retirement savings of 333,000 teachers.
“There is a now-accepted urgency to tackle climate change. This puts pressure on investors to act now to reduce their carbon footprint and that of their investment portfolios,” said Mr. Taylor. “The more progressive investors have taken up the challenge to proactively finance emission reductions at carbon-intensive assets.”
Sectors with outsized GHG emissions include transportation, electricity production, heavy industry and agriculture, and Ontario Teachers’ has three decades of experience as an investor in all of these areas.
The high carbon transition initiative is part of OTPP’s broad climate strategy that also includes helping existing portfolio companies decrease emissions, investing in green assets and issuing green bonds.
Mr. Taylor, who was named CEO in January, 2020, said the fund manager’s environmental, social and governance strategy is also meant to showcase Teachers’ “distinct brand” as an investor on the global stage, “where we are often seen as one of the Canadian pension plans. While we are in good company under that characterization, it does not help us be the first choice with investment partners and to secure and retain the best talent.”
In addition to making direct investments in high carbon emitting companies, OTPP is a founding investor in Brookfield Asset Management Inc.’s initial global transition fund, which closed in June with US$15-billion of committed capital. The Brookfield fund, run by vice-chair and former Bank of Canada governor Mark Carney and Brookfield Renewable executive Connor Teskey, focuses on investments to accelerate the transition to a net-zero economy while delivering strong risk-adjusted returns.
Last month, OTPP reported it has turned in positive performance during the first half of the year, at a time when equity markets sold-off and many asset managers had negative returns. Teachers returned 1.2 per cent in the six months by the end of June 30 and 8.3 per cent over the past 12 months.
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Andrew Willis