Ontario Teachers Pension CEO Jo Taylor: ‘voting against directors sets the tone for change’
Pension fund veteran Jo Taylor explains to Net Zero Investor why and how effective governance is key to achieving long-term value and driving sustainability
The issue of good governance is timelier than ever. At some of this year's largest industry conferences - particularly the recent ICGN summit - accountability, transparency, fairness and responsibility heavily dominate the agenda.
This interest is fuelled by the fact that the sustainability reporting landscape is rapidly consolidating, with the green principles of the International Sustainability Standards Board (ISSB) gaining momentum worldwide.
As reporting requirements become more detailed, more in-depth and more tailored, they are increasingly taking up large amounts of time and resources at investors, their investee companies, banks and other key actors.
At the same time, various debates are raging in different countries around the world. While a strong anti-ESG wind is blowing through large parts of the U.S., its northern neighbour seems to firmly hold on to the idea that any net zero investment strategy should be underpinned by clear and strict corporate governance standards.
One of the leading voices in that debate in Canada is Jo Taylor, since January 2020 the president and CEO of one of the world's largest pension funds, the Ontario Teachers' Pension Plan, which has net assets of more than $249.8 billion.
“In a world marked by rapid change, good governance is more important than ever. Good governance simply means good business,” Taylor said.
"No matter how the world changes, good governance helps create and protect value over time,” said the industry veteran, who is also a member of the pension’s committees for private companies and total fund allocations which reviews investment proposals and resource allocations.
Taylor, originally from London, stressed that companies with good governance practices tend to have policies that support better decision-making and better outcomes.
“One example, having a fulsome board recruitment process allows organizations to build effective and diverse boards with broader skillsets."
“With more inclusive and diverse leadership teams, deeper discussions can be had on corporate strategy, capital allocation and sustainability initiatives, and better decisions lead to better performance.”
Well-governed businesses are also generally more agile in times of change and crisis, Taylor continued, adding that good governance systems enhance his pension’s ability to deliver “our pension promise to our members.”
Last year, Ontario Teachers' paid out just over $7 billion, which is more than double what the scheme received in contributions from its working members.
While he acknowledged that "this funding imbalance will get even more challenging in the future, engaging with companies about their corporate governance practices does help to ensure that we choose the best investments and improve the resilience of the businesses we invest in,” Taylor explained.
With expectations for environmental, social and governance factors rising significantly in recent years, pressure is growing on investee companies to demonstrate progress on the most important issues facing them and their stakeholders, with net zero efforts and subsequent progress being one of the most talked-about agenda items.
This is not any different for Ontario Teachers'.
“To reliably improve the sustainability of businesses, governance structures must be applied to support environmental and social commitments,” said Taylor.
“This is particularly true when addressing the need for businesses to publish clear, relevant and complete ESG disclosure.”
He added that “not only do better disclosure policies and practices help us understand a company’s sustainability efforts, risk profile and opportunity set, they also keep companies accountable to delivering progress against their targets.”
Having "a robust, fully integrated governance component in our climate change strategy, to support engagement on climate-related disclosure, was essential to reduce our portfolio emissions intensity,” Taylor continued.
As part of Ontario Teachers’ strategy, the pension asks portfolio companies to measure and report their carbon emissions and the scheme actively provides resources to help investee companies to do this.
“In turn, increased visibility has allowed us to better understand our portfolio emissions intensity and make progress on reducing it,” Taylor noted.
He said: “Because an effective governance structure guides our emissions-reduction activities, we have made significant strides to boost carbon emissions reporting in our direct private portfolio to over 80% of emissions, up from 37% in 2019.”
Moreover, “better coverage has been an essential part of our activities that have seen us decrease our portfolio emissions intensity by 32% compared with our 2019 baseline," Taylor added.
To Taylor, good governance is simply a win-win approach, with clarity being key.
“Businesses can practice good governance by applying clear policies and practices for boards, employees, operations and supply chains to support more sustainable outcomes,” he stressed.
“Investors can champion desired minimum standards of behaviour through public company voting, and engagement with boards to help reinforce those choices. Voting against directors for a lack of progress, when needed, sets the tone for change.”
In summary, Taylor pointed out that “broadly speaking, we have seen the collective actions of businesses and investors pay off over time.”
“To build a more sustainable future, we need to be champions of the changes that we want to see in the world.”
“Enhancing our own governance practices alongside our portfolio companies is an important part of how we can achieve the best outcomes,” Taylor concluded. “Our investments stand to benefit from the value this creates.”