UPP is championing active engagement with companies, external managers and policymakers.
The University Pension Plan Ontario’s (UPP) recently announced Climate Action Plan is the “first important step” in its strategy to put sustainability at the heart of its investing policy, according to Brian Minns, UPP’s Managing Director of Responsible Investing.
“The Climate Action Plan is just one aspect of our approach,” Minns told ESG Investor. “We are looking at our approach across a variety of other environmental and social factors. But in the immediate term climate change rose to the fore and we wanted to put our plan on paper.”
Responsible for managing C$11 billion in assets (US$8.4 billion), UPP was founded in 2021 and is jointly sponsored by member universities and faculties from several Ontario universities.
Consisting of four strategic pillars for action – evaluate, invest, engage and advocate – the Climate Action Plan aims to ensure a 16.5% reduction in UPP’s portfolio carbon footprint by 2025 and 60% by 2030 compared to a 2021 baseline.
Other commitments in the plan include implementing a climate transition investment framework, integrating climate risk and opportunity assessments into its investment strategy and joining the UN-convened Net Zero Asset Owner Alliance (NZAOA).
For the latter, Minns noted part of the impetus is a desire to collaborate with other asset owners to mitigate climate-related challenges. “How do you report on Scope 3? How are you implementing existing reporting standards? How do you set climate-related investment objectives? Underlying all of this is the fact we want to contribute to the decarbonisation of the economy, not just our portfolio.”
As well as consulting the guidance published by the NZAOA to formulate its own strategy, UPP analysed and utilised the efforts of its pension fund peers and other initiatives, such as the Institutional Investors Group on Climate Change’s (IIGCC) Paris-aligned Investment Initiative.
“We built out this climate action plan to help us address the climate risks in our portfolio and mitigate some of the worst possible outcomes. If we don’t, the costs are permanent,” said Minns.
Investing in climate solutions is just as important as mitigating risk, he noted, adding that a climate solutions investment target “will be one of the key pieces of the climate transition investment framework”.
According to the plan, once this framework is operational, UPP will only invest in mandates that align with its transition to net zero, setting targets for “new, non-concessionary investments in climate adaptation and mitigation solutions”.
Multi-pronged climate engagement
For existing investments, UPP is prioritising active engagement over divestment, partly due to the complexity of the challenges facing firms in different sectors.
“It’s not just the supply side that needs to decarbonise, but the demand side, too. That’s going to take engagement with the companies we are invested in, to ensure they are taking steps to reduce their emissions,” said Minns.
UPP has pledged to engage with at least 20 high-emitting portfolio companies both directly and collaboratively to make sure they are also decarbonising in line with the fund’s own net zero commitments.
However, Shift: Action for Pension Wealth and Planet Health, a Canada-based charitable initiative working to encouraging pensions to take climate action, has called for more clarity around how UPP will be engaging with oil and gas companies as part of its Climate Action Plan.
UPP is also one of 27 founding members of Climate Engagement Canada (CEC), a collaborative national investor engagement platform with US$2.42 trillion in assets, which is based on Climate Action 100+.
The CEC has an engagement focus list of 40 high-emitting Canadian corporates which will be challenged to produce reports using the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD), develop and implement comprehensive decarbonisations strategies, and align their advocacy activities with the goals of the Paris Agreement. Targeted companies include mining company First Quantum Minerals and oil and gas company Vermilion Energy.
UPP’s Board of Trustees has also published the fund’s investment exclusion policy, which has noted that it will avoid investments in companies extensively participating in the mining or burning of thermal coal to generate electricity.
“In line with NZAOA, we have also been having discussions with our external managers and evaluating their overall approach to responsible investing, encouraging them to engage with companies on their climate transition plans and emission reductions progress,” said Minns.
Alongside engaging with companies and asset managers, UPP has committed to participating in direct and collective advocacy with policymakers.
“There’s definite interest on the government side to engage with the finance sector to catalyse the climate transition that needs to happen,” Minns noted, pointing out that UPP CEO Barbara Zvan has been part of government working groups, such as Canada’s expert panel on sustainable finance.
Research by the Science-Based Targets initiative shows that Canada’s SP/TSX 60 is the index most dominated by fossil fuels among Group of Seven countries, a significant factor in the index tracking a warming scenario in excess of 3°C.
Action from policymakers to support Canadian investors’ efforts is vital, he added.
Last month, the Canadian government published the second round of public engagements for its proposed Frame for Clean Electricity Regulations which has three core principles: ensuring a net zero electricity grid by 2035, bolstering electricity grid reliability, and maintaining electricity affordability for homeowners and businesses.