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How long-term capital is helping to drive the transition to net zero

Ziad Hindo, Chief Investment Officer at Ontario Teachers', discusses how long-term investors can help portfolio companies achieve sustainability goals

What role do pension plans play in the transition to net zero? What are the opportunities for investors as governments focus on the green economy? Ziad Hindo, Ontario Teachers' Chief Investment Officer, participated in a panel discussion at the International Corporate Governance Network's (ICGN) annual conference in Toronto where he spoke about the energy transition and what it means to long-term investors.

As investors, what are pension plans doing to address some of the challenges facing the world today?

Ziad Hindo: Over the last two decades, there has been growing conviction that material Environmental, Social and Corporate Governance (ESG) factors are important business drivers for investors and businesses. Today, in many ways, these efforts are looked upon as table stakes. We’re moving into an era of impact investing, where investors and businesses deploy capital and play an active role in finding solutions to the world's challenges in a way that generates good risk-adjusted, sustainable returns.

Impact investing is an area of focus for Ontario Teachers' and is increasingly becoming a critical part of our enterprise strategy. 

How does this affect your approach to climate change?

ZH: Our climate strategy is multi-faceted, it's long-term in nature and it will require capital. It’s at the heart of our impact investing strategy.

In 2021, we made a public commitment to achieve a net-zero investment portfolio by 2050. In doing so, we set interim targets to reduce portfolio carbon emissions intensity by 45% by 2025 and 67% by 2030. To achieve these targets, we are taking a multi-pronged approach. This includes increasing our exposure to green investments. We created a multi-asset class group called VERT (Virtual Energy and Renewables Team) devoted to understanding the energy transition and how we can best invest in it.

We also have a plan to allocate around $5B to High Carbon Transition (HCT) assets, with a goal of using our capital and expertise to help select high emitting companies decarbonize faster. One example would be a utility that uses coal plants to generate energy. As an investor with long-term capital, we can help the company decommission the coal plants over time while changing energy generation to more sustainable sources.

In addition to this, we’re also issuing green bonds through our subsidiary Ontario Teachers’ Finance Trust and engaging with our portfolio companies to help them adopt paths to decarbonization in alignment with the principles of the Paris Agreement.

"One of our most important actions we can take as investors is exercising our voting rights to influence positive change. This is particularly true for topics related to effective boards and governance, which have a huge impact on the long-term performance and sustainability of businesses."

Ziad Hindo
CIO, Ontario Teachers'

What other ways are you supporting portfolio companies to help ensure they're sustainable over time?

ZH: One of our most important actions we can take as investors is exercising our voting rights to influence positive change. This is particularly true for topics related to effective boards and governance, which have a huge impact on the long-term performance and sustainability of businesses.

For our investments in public companies, we vote based on what we believe is in the best long-term interest of the company and its shareholders, and in accordance with our proxy voting guidelines. On the private side, we control approximately 400 board seats. Not all of these companies have the same access to resources that we have, so we try to help them through educational sessions that enhance knowledge on key topics like decarbonization. 

As you look forward, what are some of the overarching trends you’re seeing in relation to climate and sustainability?

ZH: One trend we’re seeing is an increased intervention among countries to support the energy transition. Europe has been setting the standard with its approach to sustainability. More recently, the U.S. has come forward with the introduction of the Inflation Reduction Act (IRA), which we believe is a game changer that will result in a lot of capital being invested in the energy transition. More broadly, the IRA has forced other governments to think about how to compete in a world that is focused on green industrial policy. Governments are now competing among themselves to attract capital and back the next wave of industries that will support the green economy. Canada is promoting some good initiatives, and we think North America as a whole will play a big part in the energy transition. There will be tremendous opportunities for long-term investors like us.

Ziad Hindo

Ziad Hindo on managing risk and general liquidity of assets.

As a pension plan, we have a fiduciary responsibility to pay pensions. We need to have the right liquidity framework in the event of a disruptive market to not only ensure we can continue to pay pensions but also to avoid becoming a forced seller. For us, we built a risk-balanced portfolio that can perform well across different economic conditions. We do this by mixing public and private securities, and the different investment horizons, geographies, and sectors.