The University of Toronto Asset Management Corp., which oversees nearly $10 billion in pension, endowment and other assets, says it further strengthened its commitment to responsible investing practices last year – all while generating solid, double-digit returns.
In its second annual Responsible Investing Report, the arms-length investing body for U of T said it took additional steps in 2017 to integrate environmental, social and governance, or ESG, considerations into its day-to-day operations.
They included signing on as a participant to Climate Action 100+, an initiative that seeks to engage and influence the world’s largest corporate greenhouse gas emitters, and adopting a BMO Global Asset Management service that pools investor resources in a bid to influence companies on environmental, social and governance issues.
“We’re now part of the conversation,” said Daren Smith, UTAM’s president and chief investment officer. “We’re no longer just a passive player in all of this. We’re attending the conferences, we’ve joined the organizations, and we’re part of the working groups.
“In the long term, what we’re trying to do here will be helpful to many companies and markets in general.”
Relatively small by pension fund standards, UTAM doesn’t pick its own stocks and bonds. Rather, it pursues a “manager of managers” approach that involves carefully vetting investment professionals to find those who are most likely to achieve the university’s investment goals. Those goals include ensuring the pension fund’s assets will be sufficient to meet obligations for current and future members, and protecting the university’s endowments.
Though it has long incorporated a degree of responsible investing in its model, UTAM adopted more formalized ESG protocols two years ago in response to U of T President Meric Gertler’s 14-point plan to combat climate change at the university.
“We’re trying to adopt responsible investing best practices for an organization of our size and business model – and to go above and beyond what the president has asked us to do,” Smith said.
Now a signatory to the United Nations-supported Principles for Responsible Investment, UTAM has worked hard to incorporate an “ESG lens” to the already rigorous process it uses to vet investment managers, Smith said.
“We think it has helped strengthen our manager selection and monitoring process,” Smith said.
In 2017, UTAM’s approach resulted in a 12.4 per cent rate of return for the pension and endowment portions of its portfolio, which respectively accounted for $5 billion and $2.9 billion of assets under management, according to its recently released annual report. Another $2 billion makes up U of T’s short-term working capital pool.
The pension and endowment performance beat the university's target return by 6.6 per cent. UTAM was also able to add value versus the reference portfolio used to assess the contribution of UTAM's active management approach. In 2017, the pension portfolio outperformed the reference portfolio by 1 per cent, and the endowment portfolio outperformed by 0.9 per cent.
UTAM says it has also committed to providing a greater degree of transparency about the impact of its investment decisions.
Last year, for example, it signed the Montreal Carbon Pledge, joining more than 120 global investors with over US$10 trillion in assets under management that have committed to measure and disclose the carbon footprints of their investments.