Our responsible investing principles balance risk, return and reputation
Ontario Teachers' has established a set of five responsible investing principles that guide our actions. Our principles are outlined below, along with some examples of how we put them into practice.
We also offer our perspectives on responsible investing issues that may be of interest to plan members: climate change, regulated water utility investments and sustainable property management.
Click on Principle to learn more.
Principle 1: We consider and evaluate environmental, social and governance (ESG) factors alongside other risk factors in our investment processes because we believe they can materially impact the value of our investments.
Practice: ESG analysis is integrated into different stages of our investment processes.
At the due diligence stage, before an investment is made, hundreds of factors are analyzed and red flags can pop up. If we feel the risks from ESG factors are greater than the potential financial return, then we simply don't invest.
While we hold an asset, we manage and monitor ESG factors alongside other factors. For example, GCT Global Container Terminals, one of our infrastructure companies, is a member of Green Marine, a certification program for the maritime industry. Participants commit to reducing their environmental footprint each year. GCT's board, including directors from Teachers', encouraged the company to join the program. GCT has invested in energy-efficient equipment and taken steps to reduce truck idling times at its facilities.
Principle 2: We are engaged owners and take a responsible approach in our asset management practices. We believe that good governance is fundamental to effective responsible investing.
Practice: Governance is the structure a company puts in place to ensure it is well-run. See the Governance Basics page to learn about governance in general. Strong governance and effective board oversight are important in all of our investments. We have long believed that good governance is good business. We also think good governance is a precursor to good management of environmental and social risks.
We work hard to understand all material risks and promote good governance in all the investments we own. Our ability to do this varies with the type and size of our investment, as shown below.
We're generally not majority shareholders in public companies. We use engagement and proxy voting to encourage good governance practices.
We interact directly with company management when appropriate, vote all of our shares, make our Corporate Governance Principles and Proxy Voting Guidelines widely known, and engage – through submissions and commentaries – with regulators and market participants.
As direct investors in private and regulated assets, we have the opportunity to take large ownership stakes. In these cases, we often have influence over corporate behaviour and may serve on the board of directors.
We use our position to advance good governance, spur value creation if possible and encourage responsible behaviour on all material ESG issues by monitoring company management and using direct influence.
We often retain external investment managers who have special expertise. We seek to understand how each manager evaluates risk because effective risk management is important in achieving long-term returns.
External managers must agree, where applicable, to vote their shares in a manner consistent with our Corporate Governance Principles and Proxy Voting Guidelines. We also monitor their activities for compliance and exchange views and best practices.
Principle 3: We continue to expand our knowledge, deepen our understanding and evolve our practices by continually assessing current and emerging ESG risks. We share experiences across the pension plan by fostering a culture of thought leadership and collaboration.
Practice: We have an in-house education series featuring international subject-matter experts and interactive sessions to help our investment professionals stay current on ESG concepts and management. Our Responsible Investment Committee, which has representation from all of our asset groups, acts as an internal resource to share knowledge across the pension plan, and our investment professionals attend industry events and review research findings.
Principle 4: We seek clear and relevant disclosure of information that may assist us in making investment decisions.
Practice: When possible and appropriate, we ask our portfolio companies and external managers directly for information. We schedule calls and meetings with management teams to better understand company operations, ESG risks and opportunities. We may use expert consultants and databases to advise us of potential ESG factors. And we support industry initiatives calling for better disclosure of ESG-related data.
Principle 5: We collaborate with like-minded investors to more effectively execute these principles.
Practice: We work with leading organizations, like-minded peers, market regulators, thought leaders and researchers around the world to advance the practice of responsible investing and improve regulations.
- Asian Corporate Governance Association
- Canadian Coalition for Good Governance
- Carbon Disclosure Project/Water Program
- Clarkson Centre for Board Effectiveness
- Council of Institutional Investors
- Extractive Industries Transparency Initiative
- Global Real Estate Sustainability Benchmark
- Harvard Institutional Investor Forum
- Institute of International Finance
- Institutional Limited Partners Association
- International Centre for Pension Management
- International Corporate Governance Network
- Pension Investment Association of Canada
- Principles for Responsible Investment
Signatories to the PRI Initiative
We have signed the Principles for Responsible Investment or PRI. This international network grew out of an initiative set in motion in 2005 by the United Nations Secretary-General to develop a voluntary framework for incorporating environmental, social and governance (ESG) issues into investment decision-making and ownership practices.
Almost 1,400 asset owners, investment managers and professional service partners have signed on, representing US $59 trillion in assets under management. Read more at www.unpri.org.
Taking part in this initiative improves our knowledge and understanding of the financial implications of ESG factors, provides for greater depth and breadth of analysis, and ultimately helps us to become better asset owners on behalf of our members.
As a signatory, Ontario Teachers' completes the Responsible Investing Transparency Report, which is designed to ensure accountability and facilitate dialogue between investors and their stakeholders.