UPP’s responsible investment MD on the investor role of pensions in the energy transition

What role do pension funds play in the transition to net zero? And what are the opportunities for investors as businesses, governments and regulators shift towards a greener economy? Which risks and challenges do multi-billion dollar investors face?

Brian Minns, senior managing director for responsible investing at Canadian pension fund University Pension Plan Ontario (UPP), gives his take on the energy transition and what net zero means for the investee companies of long-term investors such as the UPP, which manages over $10 billion in pension assets and serves over 39,000 working and retired members across 16 participating universities and sector organizations.

NZI was at the Africa Climate Summit last week: renewables was very much the buzzword as several key speakers pointed out that the IEA recently said that investments in solar are set to eclipse oil production this year. Are you very much part of this clean energy journey?

As a long-term investor, we’re looking generations down the line in our assessment of material and systemic risks, including climate change. We see the materiality of climate change as two-fold: our ability to realize investment returns and provide retirement benefits depends on a stable climate; and UPP’s investments affect the stability of the climate.

So how do you incorporate this into your investment strategy?

Energy transition represents a key pillar of our private markets strategy, with renewable energy, energy transition, and decarbonization as priority areas. For example, one of our first private markets investments was in a large fund dedicated to renewable energy infrastructure investments.

Last year, we released our Climate Action Plan, committing to net-zero GHG emissions by 2040 or sooner. A key deliverable of the Action Plan is our Climate Transition Investment Framework, which will evaluate the transition alignment and readiness of our current portfolio and new investment opportunities and set targets for new investments in climate solutions, recognizing the importance of investing in renewable generation and supporting infrastructure to support long-term energy security and affordability.

Can you tell us a bit about your sustainable investment choices. What is the key emphasis in your portfolio?

When UPP launched, the assets of five pension plans at our three founding universities were consolidated into one portfolio, bringing a mix of investments, risk profiles, and approaches to sustainability. We're in the process of transitioning the portfolio to our long-term target asset mix—which includes our path toward a net-zero portfolio by 2040 or sooner. 

When it comes to sustainability, it’s a comprehensive focus across UPP — in how we both invest and operate as an organization — and a fundamental lens through which we derive and protect value for members. We take a system-level approach, meaning that we believe we have a responsibility to promote the health of capital markets and the financial, social, and environmental systems on which capital markets rely. For our members to retire well, these systems need to work well.

So where do you see opportunities for growth?

With specific regard to portfolio areas of growth, real estate and infrastructure are two areas of focus for our private markets team. These asset classes tend to deliver stable long-term returns while helping hedge inflation and they can also offer interesting ways to improve the sustainability of our fund, and the opportunity to co-invest in these areas enhances our level of control and transparency.

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What are some of the key challenges you are currently facing?

A big challenge is, and continues to be, quality data and disclosures about companies’ climate performance and transition plans. Having this information is crucial for our ability to understand climate-related risk, and for assessing and reducing the carbon footprint of our own portfolio. We’ve made it a focal point of our responsible investing strategy to engage with companies – directly and in partnership with other investors and with organizations like CDP and others – to improve their climate disclosures and performance. We also work alongside others to encourage improved regulatory requirements around data and disclosures. We've publicly supported the new ISSB standards and CA100+ and Climate Engagement Canada benchmarks, to improve access to standardized data.

Another huge challenge now, and in the coming years, is the worrying developments related to climate stability. Here in Canada, we’re living through the worst wildfire season in history – fires have burned about four per cent of our forests in a single season, which is more than six times the annual average. We collectively need to double down on advocating for a resilient net zero transition and stable climate.

Given that critical situation and climate stability being under huge pressure, how do you see the role and responsibility of asset owners in influencing or even driving the net zero agenda?

Obviously, climate change presents a risk to individual investment portfolios, but it's also a systemic risk that affects our entire economy and planet. Asset owners have a big role and responsibility in ensuring our financial markets are strong and that the systems supporting them are healthy, too – and this is an area where collaboration with like-minded investors is valuable.

And then we are looking at international alliances.

Yes, we’re a member of the Net Zero Asset Owner Alliance, CA100+, Climate Engagement Canada, the Institutional Investors Group on Climate Change, and other organizations, which help ensure our stewardship is informed by science, while also driving constructive dialogue and clear consensus on expectations for companies along the path to net-zero. Ultimately, these climate-related risks are here and continuing to evolve, and helping companies navigate these risks, and even achieve competitive advantages is beneficial for our investment returns –and society at large. 

When it comes to individual investments in our portfolio, we are seeing positive results from our stewardship efforts, and those of our partners like SHARE. For instance, after a series of engagements and a shareholder proposal, a retail company we’re invested in has agreed to start disclosing scope 3 GHG emissions, which is a precursor to setting targets in that area.

Finally, just across your border, in the U.S., there is a strong anti-ESG wind blowing. Does this impact your investment strategy in any way? Or the corporates you are dealing with?

We pay close attention to international developments – whether that’s rhetoric around ESG, or legal and regulatory changes that could impact our investments or our investment partners. We know there will always be varying perspectives on the role of sustainability in an investment mandate, but our approach is rooted in our understanding that ESG factors affect returns, and therefore we need to use every tool in our toolkit to assess and manage these factors, just as we would any other material factor.

Anything else you would like to share with our readers?

I’d encourage other investors to embrace partnerships and alliances. These groups have been very useful in advancing our knowledge of international regulatory trends and ensuring we’re implementing best practices in our own investing and operations.

Finally, don’t lose sight of the ‘why’ behind your organization’s work. Responsible investing practices strengthen our risk management capabilities, which in turn enhance our ability to build value for our members – and we’re unwavering in our member-first approach to investing. As a member of the plan myself, I am proud of the work our whole organization does to move our portfolio towards sustainability and to promote the health of the systems our investment returns rely on.

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Ontario Teachers’ investment chief: long-term capital powers net zero transition