Responsible investing: Our singular focus is on long-term pension security
February 13, 2012
Teachers' primary investment responsibility is to act in the best financial interests of the fund. We make our investment decisions much like the rest of the world's financial community does: mainly on the basis of anticipated revenues and expenses, and the degree of uncertainty or risk around those expectations. If a company's financial prospects are positive and reflect the level of risk, we generally expect it to provide good returns.
But other risks—environmental, social and governance-related—are becoming increasingly important in the investment decision:
- Does a company have sound safety practices?
- Is it managing its environmental impacts?
- Are stakeholders represented, and are decision-makers accountable for their actions?
These considerations can affect financial performance, and are part and parcel of responsible investing.
"Responsible investing tries to integrate an analysis of environmental, social and governance (ESG) risks into the more traditional financial analysis of investment opportunities," explains Jim Leech, Teachers' President and CEO. "Ultimately we are seeking the best risk-adjusted returns we can deliver to our members."
Our investment professionals ensure that the plan's funds are prudently invested and managed to help support long-term pension security. This singular focus insulates us from inappropriate or undue bias from not only investment staff, but also plan sponsors and other parties.
Accounting for risks
Before investing a single dollar, our investment teams assess a full spectrum of risks and potential returns. That includes ESG risks, as well as the associated opportunities. We act on emerging threats and opportunities, and advocate for good governance to protect the interests of the pension plan once we make an investment.
Even so, non-financial criteria are not used as screens to exclude or include certain investments. Teachers' makes the best choices based on anticipated risk-adjusted performance. For example, while certain industries such as mining or oil can impact the environment, some companies are better at managing those environmental risks than others. To the extent that these companies' best practices may be expected to earn better financial returns, they become good candidates for investment.
Continually monitoring the market
Teachers' manages a wide range of assets: public and private equities, bonds, commodities, real estate, infrastructure and timberland. Many of these are held for the long term. We continually monitor our holdings against emerging threats and opportunities to reassess risks and returns, and to determine when to sell and seek another opportunity.
We have always taken a responsible approach to investing on your behalf and we continue to adjust our practices as the concept of responsibility and its definition evolves.
Seeking best practices
While responsible investing can be a complex process, our bottom line is always the same: we do what's best for your financial security. "Ultimately we are looking for best practices," adds Jim. "What we've found generally is that companies that have good environmental, social and governance practices perform well financially and make good investments for Ontario's teachers."
Teachers' has a number of initiatives in place to align ourselves with best practices:
- recently signed the United Nations-backed Principles for Responsible Investment;
- signed the Carbon Disclosure Project (and its Water Disclosure initiative), which reports environmental and climate risk performance data from 3,000 of the world's largest companies; and
- use research providers such as Sustainalytics and MSCI ESG research to access data that enables a comprehensive analysis of ESG risks and opportunities.
As a responsible investor, we actively use our ownership positions to promote good governance and advance corporate practices that enhance shareholder value—and thereby, pension security—over the long term. This includes exercising voting rights according to our proxy voting guidelines, and making public our votes and governance commentaries.
Our voting guidelines cover such governance matters as the composition and election of boards of directors, compensation of directors and executives, takeover protection and shareholder rights. We are also actively involved with international governance-minded organizations and are a founding member of the Canadian Coalition for Good Governance.