Canadian pension scheme to increase clean energy commitments, but invest in transition assets to achieve direct reductions.
The Ontario Teachers’ Pension Plan (OTPP) Board, one of Canada’s largest public-sector pension schemes, intends to “reduce portfolio carbon emissions intensity” by 45% by 2025 and 67% by 2030 against 2019 levels.
The targets cover the fund’s real assets, private natural resources, equity and corporate credit holdings across public and private markets, including external managers. OTPP, which holds C$227.7 billion (€151.9 billion) AUM, committed to achieving net zero emissions by 2050 from its investment activities in January.
As part of its new net zero investment plan, OTPP will “significantly” grow its investments in companies that generate clean energy and “pivot” asset class strategies increasingly towards green investment. The fund said it would actively invest in transition assets to secure “direct and tangible” reductions in carbon emissions, working with portfolio companies to help them implement Paris-aligned net-zero plans.
OTPP also confirmed its commitment to its green bond issuance programme, proceeds of which are used to invest in climate solutions and sustainable companies. The fund issued its first green bond in Q4 2020, in line with Green Bond Principles, raising €750 million 10-year bond for investment in environmentally and socially responsible assets.
OTPP will report annually on progress against its interim and 2050 targets and will also publish details on current progress and future plans in its 2020/21 Responsible Investing Report.
“By significantly growing our portfolio of green investments and working collaboratively with our portfolio companies to transform their businesses, we can make a positive impact by encouraging an inclusive transition that benefits our people, communities and portfolio companies,” said Ziad Hindo, Chief Investment Officer, OTPP.
OTPP holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, on behalf of 331,000 beneficiaries.
As of 30 June, its portfolio includes more than C$30 billion in green investments such as renewable energy, energy storage, electrification, electricity transmission, energy efficiency and green real estate. In 2021, it has committed over C$5 billion to climate and transition solutions to date.
The announcement was welcomed as “the strongest climate commitment we’ve yet seen from a Canadian pension fund”, by Shift Action for Pension Wealth and Planet Health, a Canadian charity focused on encouraging pension funds to improve climate reporting, cut carbon emissions and increase investment in climate change solutions.
But Shift Action called on OTPP to provide greater clarity on how it intends to eliminate its exposure to high-risk fossil fuels.
“A two-thirds reduction in portfolio emissions intensity by 2030 will require significant restrictions on high-carbon investments in oil, gas and coal. A further tightening of these commitments, and a focus on absolute emissions reductions, is required,” said the charity, which had previously been critical of OTPP’s earlier net zero declaration.
The Ontario Municipal Employees Retirement System (Omers) announced that it would reduce the carbon intensity of its portfolio by 20% by 2025 in February.