Ontario's teachers are promised a pension. Our job is to invest the pension fund to help secure their retirement income. As the trustees of teachers’ retirement money, we must consider the best financial interests of all pension plan members and their beneficiaries.
To properly fulfill our responsibilities, we adhere to the following guiding principles and due diligence practices.
| 1. |  | Our mandate is to administer the pension plan and to manage the pension fund in the best financial interests of all 278,000 members and their beneficiaries.
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| 2. | | We look at all investment opportunities that will help to pay teachers’ pensions in the future.
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| 3. | | We believe companies that are responsible, well governed, and compliant with social and industry standards and regulations make good long-term investments. We expect investee companies to respect and comply with the laws and standards of the countries in which they operate. Citizens, through their governments, have set the environmental, social and legal standards for companies to operate within the world.
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| 4. | | We do not get involved in the day-to-day operations of the widely-held companies in which we invest. A company’s management and board of directors are responsible for the benefit of all shareholders to ensure compliance with the laws and standards of the countries in which they operate.
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| 5. | | Our analysis and due diligence process takes environmental, social, governance (ESG) considerations into account as risk factors. We look at these factors to help us understand how they could affect a company’s long-term performance and potentially impact the long-term value of the company.
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| 6. | | We also subscribe to information from two social investment monitoring services that cover Canadian and U.S. companies to ensure we are aware of emerging issues and how companies are responding.
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| 7. | | We are signatories to the U.K.-based Carbon Disclosure Project (CDP) and the Extractive Industries Transparency Initiative (EITI). We support these initiatives due to their focus on enhanced disclosure for investors, which further assists us to understand all the risks that could impact the value of the fund's investments.
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| 8. | | We are diligent in seeking shareholder value. We are active in corporate governance initiatives and the development of public policy to make Canadian markets efficient and fair to all shareholders.
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Considerations for plan members
We understand that plan members are sensitive to some investments held by the fund. The pension plan is designed to provide retirement security for more than 278,000 teachers and pensioners – many of whom have different concerns and priorities. While teachers can reflect their personal views in their personal investments, restricting the pension fund’s investments would likely reduce the fund’s long-term investment return and may cause teachers to pay more for their pensions in the long run.
If teachers want us to avoid specific sectors or investments and are willing to risk earning lower returns, teachers (through the OTF) would have to first agree on what investments are acceptable, and then convince the Ontario government – the other plan sponsor – to change the law.
The following questions should be considered:
| 1. | | What criteria would suit all members?
Determining specific and workable criteria is a complex topic and people have many different views. Some teachers have approached us with requests to restrict or divest of investments due to a wide variety of concerns such as labour relations, the environment, health and job creation.
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| 2. | | Can teachers agree on criteria?
There are 170,000 active teachers contributing to the plan and 108,000 pensioners, many of whom have different opinions about how their pension fund should be invested.
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| 3. | | Will both plan sponsors, the OTF and the Ontario government, agree to accept the resulting rate of return?
A 1% reduction in the rate of return would result in approximately $1 billion less for the fund annually – that’s about what teachers contribute in a year. And it means the plan would need $1 billion more in contributions from teachers and the government every year. Both the OTF and the government would have to agree to the selection criteria and be willing to accept the risk of lower investment returns and higher contributions, or other plan changes if necessitated by a funding shortfall.
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| 4. | | Would the Ontario government change the law?
The Ontario government is one of the plan sponsors and matches teachers’ contributions. The government would have to agree to the special standard and pass a law exempting us from our fiduciary duty. This has happened rarely. The government allowed pension plans to exclude investments in the 1990’s in South Africa because of opposition to apartheid.
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If the law were changed to exempt us from our fiduciary duty to invest for the best financial interests of all teachers, we will follow the law. As professionals, we will continue to do the best job possible to fulfill our responsibilities.
