Responsible Investing Looks Like This
We integrate Responsible Investing (RI) into everything we do, from managing assets to working with partners and even to our interactions with one another. We do this because RI helps us to better evaluate the risk-return trade off of individual investments and meet our goal for plan members over the long term.
Our investment decisions are based on our obligation to help the plan pay members' pensions today and tomorrow. In making those decisions, we are legally bound to be diligent in our investing process, which means carefully assessing risks and weighing those risks versus the potential return expected. The risks we evaluate as part of our duty are both financial and non-financial in nature and include environmental, social and governance issues. Our Statement of Investment Policies and Procedures does not allow us to select or exclude an investment based solely on environmental, social or governance considerations. However, as a responsible investor, we consider good corporate governance to be the over-arching framework for effective company management because strong governance underpins a company's ability to effectively deal with risks and opportunities.
Our investment teams buy and sell assets daily in carrying out our investment strategies and they are responsible for their decisions. Because of the breadth and depth of our team, we created a Responsible Investing Committee drawn from all investment areas. This committee coordinates and manages our RI activities across the plan to ensure we continue to further our knowledge of emerging issues and systematically manage risk.
As we consider new opportunities, responsible investing causes us to evaluate risk and return and give consideration to a third R: our reputation. As a pension plan, our reputation for integrity and innovation is critical. It gives us credibility with regulators and market participants, commands attention with investee companies, makes us the first call when an investment opportunity arises and puts us at the front of the line when bidding for attractive assets. We've earned this reputation for many reasons, including our principles-based approach, the way we adhere to our beliefs, and our growing asset base. Since our reputation represents our social licence to operate, we actively protect it and it is a critical factor in our investment decision making.
We work hard as responsible investors to understand the material risks facing publicly traded (stock exchange-listed) companies so we can earn appropriate returns for our members while protecting the value of their investments. This includes evaluating and monitoring material risks associated with environmental, social and governance issues. We do this in a variety of ways including monitoring company progress, interacting directly with company management when appropriate, voting all of our shares, making our Corporate Governance Principles and Proxy Voting Guidelines widely known, and engaging – through submissions and commentaries – with regulators who are responsible for creating fair, open and transparent markets.
To generate the investment returns we need to help the plan pay future pension benefits, we must take risk. However, we must also evaluate those risks carefully and be appropriately compensated for the risks taken. In direct investing, we often have direct influence over corporate behaviour as majority or direct owners of private and state-regulated assets. In fact, many times we serve on the Board of Directors of investee companies. As responsible investors, we use our position to advance good governance, spur on value creation and encourage responsible behaviour on all material environmental, social and governance issues by monitoring management and using direct influence.
We often retain external investment managers who have special expertise. During the selection process and through the lifecycle of our relationship, we seek to understand how each manager evaluates risk as part of their investing process because we know that effective risk management is important in achieving long-term returns. External managers must agree, where applicable, to vote their shares in a manner that is consistent with our stated Corporate Governance Principles and Proxy Voting Guidelines.We also work collaboratively with these managers, formally monitor their activities for compliance and exchange points of view and best practices. Among other things, this creates a perpetual alignment of interests, and fosters the ongoing development of our collective responsible investing knowledge.
We work collaboratively with leading organizations, like-minded peers, market regulators, thought leaders and researchers around the world to advance the cause of responsible investing and improve regulations. Some of these organizations include:
- Asian Corporate Governance Association
- Canadian Coalition for Good Governance
- Carbon Disclosure Project including its Water Disclosure Initiative
- Council of Institutional Investors
- Extractive Industries Transparency Initiative
- Global Real Estate Sustainability Benchmark
- Institutional Limited Partners Association Private Equity Principles
- International Corporate Governance Network
- Principles for Responsible Investment
- Clarkson Centre for Board Effectiveness
We Are Signatories to the PRI Initiative
As part of our investment approach, we signed The Principles for Responsible Investment or PRI. There are six such principles:
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.
PRI grew out of an initiative set in motion in 2005 by the United Nations Secretary-General to develop principles as a voluntary framework for incorporating environmental, social and governance (ESG) issues into investment decision-making and ownership practices. More than a thousand asset owners, investment managers and professional service partners have signed on to the Principles, representing over US $25 trillion in assets under management.
Read more at www.unpri.org.