How Ontario Teachers' is influencing change with portfolio companies

Generating steady investment returns to deliver retirement security is the mission of any pension fund. But there are growing expectations from stakeholders that organizations make a positive environmental and social impact. Can a pension plan do both? Ontario Teachers' CEO Jo Taylor answers this question and more during a recent episode of The Money Maze Podcast with Simon Brewer as part of its series on "Super Allocators."

Positive influence on investment outcomes

"The question I always get asked is, are you willing to compromise your returns to be able to deliver impact, to which the answer is always no," says Jo Taylor, Ontario Teachers' CEO, during his interview with podcast host Simon Brewer. Taylor says the top priority is achieving strong investment returns to keep the pension plan fully funded for members. But he also believes that helping make businesses cleaner and better in a "methodical and thoughtful way" can be achieved while growing the assets of the pension plan.

"We take the view that we want to be able to influence the outcome on the investments that we're involved with," Taylor says. "We can only drive that if we're a material investor in the business, either a control investor or a large minority investor." Supporting greater diversity on boards, in management, and across organizations has been a focused area of influence in recent years, particularly among its 100+ private portfolio companies. In 2017, Ontario Teachers’ committed to reaching 30% representation of women across all board seats they control and reached this goal in 2021, a year earlier than planned. 

In addition, a component of the pension plan's multi-faceted climate strategy are efforts to significantly decarbonize its portfolio. After committing to achieve net-zero greenhouse gas emissions by 2050, Ontario Teachers’ set ambitious interim targets to reduce its portfolio carbon emissions intensity by 45% by 2025, then by 67% five years later. "We've been doing that pretty well so far. We're down 32% so far from our 2019 start metric," he says, adding, "We want to actually help those businesses to be better in terms of their climate emission footprint and we're more able to do that being an investor rather than selling the problem to somebody else."

Investing in green assets

Ontario Teachers' believes that reducing the demand for fossil fuels will be a key element of facilitating the transition to a low-carbon economy, but appreciates this will take time. "I think fossil fuels are necessary for the next few years to be able to see worldwide the transition to sustainable opportunities," Taylor says. Natural gas will likely see continued use in the near-to-mid-term, he says.

The pension plan's leaders see attractive possibilities in expanding renewables and potential in emerging energy technologies such as hydrogen. "We've got a number of investments [such as] in NextEra Energy and hydrogen," Taylor says. NextEra is a global leader in wind and solar power, as well as battery storage. "In the UK, [our portfolio company SGN is] running a pilot project in providing hydrogen to Aberdeen, Scotland to see whether that could work [for heating homes]," Taylor says. Separately, Ontario Teachers’ has provided construction equity for projects being developed by the Advanced Clean Energy Storage Joint Venture, which will be the largest green hydrogen platform in the world upon completion.

In other words, the Ontario Teachers' investment professionals are investing across the spectrum to facilitate the transition to a low-carbon economy. As part of that, Taylor says the firm plans to add an additional $20 billion of green investments in the coming years, targeting a total of $50 billion in green assets.