We have always considered material environmental, social and governance (ESG) factors alongside financial factors when making investment decisions, because they can affect risks and returns, as well as Teachers' reputation for excellent performance.
We think of responsible investing as a journey because ideas, terminology and tools are evolving, and so are our practices. Our ESG analysis is becoming more systematic across the pension plan and we know more about the potential impact of ESG factors on financial returns than we did in the past. Our investment teams buy and sell assets daily in carrying out our investment strategies and they integrate ESG analysis into their decisions.
Some ESG factors we have considered in our investment process include: air quality, climate change, energy use, water, food, health, safety, labour rights, human rights, political stability, treatment of foreign investors, shareholder rights, board independence, board diversity and executive compensation.
It can be challenging to analyze such factors because:
- they are often intertwined and can be hard to quantify
- the long-term impact of some ESG issues may not be evident in companies' quarterly or annual financial reports
- data on ESG issues may not be standard across industries or regions
Our Fiduciary Duty
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. Risks can come from financial as well as non-financial factors, and that's why analysis of ESG factors is integrated in our processes.
Responsible Investing Looks Like This
Responsible investing helps us to better evaluate the risk-return tradeoff of individual investments and meet our goal of retirement security for plan members.
We have developed five principles that guide our actions:
- Integrating environmental, social and governance factors into our processes
- Being engaged owners
- Evolving our responsible investing practices
- Seeking relevant information and disclosure
- Collaborating with like-minded peers
Visit the Principles & Practice page to find out more about these responsible investing principles and how we put them into practice.