The Ontario Teachers’ Pension Plan’s (OTPP) internal private investments programme has returned more than 26 percent since its inception in 1991, according to senior managing director Jane Rowe, who was speaking at the 2018 Responsible Investing Forum in New York on Tuesday.
The $180.5 billion Canadian pension fund, which achieved an overall net internal rate of return of 10.1 percent over that time period, has always placed a general emphasis on socially responsible investing, Rowe said. However, OTPP’s systematised ESG framework is still maturing, as the pension fund built out a separate ESG team from its strategy and risk management group only eight years ago. “We at Ontario Teachers always thought that responsible investing is a journey, because ideas, terminologies and tools are evolving along with our practices,” Rowe said.
OTPP, Canada’s largest single-profession pension fund, considers ESG impacts at all stages of the investment process, according to Rowe. Due to excessive ESG risk, the pension fund refuses to invest in tobacco and coal companies, “because we feel the associated risks outweigh any potential returns”, she added. “We try to hold ourselves to the standard of what would make the teachers of Ontario proud.”
Other potentially troublesome companies, like wastewater treatment firms and alcoholic beverage makers, require increased scrutiny before OTPP is willing to write a check.
Citing studies demonstrating comparable or superior financial performance of ESG-friendly firms in public markets, Rowe stressed that OTPP can continue to invest responsibly without needing to sacrifice returns, in contrast to the potential return discounts of values-based or ethical investing approaches.
OTPP has a 48 percent allocation to alternative investments. Platinum subscribers may click here for the OTPP’s full profile, including key contacts, allocation strategy and fund investments.