Why Sustainable Investing Is A Win-Win
Editor’s Note: This article is by Alison Loat. Alison is the Managing Director, Sustainable Investing and Innovation (SII) at OPTrust, a defined benefit pension plan with over 98,000 members and almost $23 billion in assets under management, based in Toronto, Canada.
There are few things in life that are truly win-win. Most decisions involve give-and-take, setting priorities, and making sacrifices – today’s losses traded for tomorrow’s triumphs. It is through this lens that investors have historically viewed sustainable investing – a decision to prioritize the planet over profits, responsibility for returns.
At OPTrust, one of Canada’s largest defined benefit pension plans, we believe that value and values don’t have to be opposing ideas. In fact, they go hand-in-hand.
As long-term investors, our role is to look far ahead at challenges and opportunities that could affect our members and their retirement security across multiple generations. Sustainability must be part of the equation.
For OPTrust, our approach to responsible investing has always been rooted in the belief that environmental, social, and governance (ESG) factors can impact risk and return through the life cycle of every investment. However, our thinking has moved beyond looking at ESG factors as not just risks to manage, but also opportunities to seize.
In 2019, I joined OPTrust to launch a new Sustainable Investing and Innovation (SII) team. The team has a dual mandate: to build on our existing approach to responsible investing while identifying investment opportunities at the intersection of sustainability and innovation. The renewed mandate reflects OPTrust’s commitment to overcoming the unique challenges we face as long-term investors for the financial benefit of our members, and society.
The SII team allocates capital to opportunities that fall outside the strategies of OPTrust’s other investment teams. We invest through an incubation portfolio, targeted at 1.5% of the total fund, focusing initially on smaller funds to ensure that we can still be a meaningful, represented investor.
SII’s investment mandate is broad in scope and designed to pursue investments across asset classes; however, we sought to refine the approach by identifying core themes to focus on. We settled on climate change as an appropriate first theme based on our belief that changes to our climate are having and will continue to have, profound impacts on decision-making in the global economy, and investors cannot ignore these shifts.
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In fact, the United Nations recently conducted the largest-ever opinion poll on climate change, questioning 1.2 million people in 50 countries. They found that two-thirds of people across the world believe climate change is a “global emergency”, and a majority supported significant action within their own countries.
Public opinion has reached a tipping point, and ordinary citizens are forcing businesses and policymakers to make the unprecedented economic and industrial transformations that will be required to address the climate challenge.
To avoid the worst-case climate scenarios for the planet, every industry and sector will need to be a part of the transition to a low-emission economy. In sectors such as energy, this is well understood. Investments in renewable energy continue to grow, and investors are actively pushing high-emitting companies to disclose their transition plans and the costs associated with those.
It’s important to remember that energy is just one piece of the puzzle.
As sectors that are among the largest contributors to carbon emissions, agriculture and forestry will have critical roles to play during the transition and sit at the intersection of sustainability and innovation.
While most industries can only mitigate their emissions, agriculture, and forestry are unique in that they have the potential to contribute to a reversal through carbon sequestration. Further, the underlying industry, population, and consumer dynamics of both sectors make the transition even more urgent.
Agriculture is a large contributor to global emissions, and major growing regions are at risk of rising temperatures, extreme weather events, and water scarcity. Forests are among the largest carbon sequestration assets on the planet, and they offer a renewable resource to heavy emitting alternatives when sustainably managed. There are significant opportunities for innovation within both sectors, and there is value to be found in the transition.
This is just a starting point. Taking a targeted, meticulous approach best illustrates the role that institutional investors can play in a greener economy.
At OPTrust, we have taken the view that it is critical for us, as a long-term investor, to focus on the widespread industrial and economic transformation that will be required to ensure the sustainability of our entire portfolio, not to mention the globe.
This will require urgent action and engagement from all corners of society – including regulators, policymakers, citizens, companies, and investors – to ensure the transition is made as quickly and orderly as possible, and we don’t intend to be caught sitting on the sidelines.
We believe that addressing sustainability is in the direct interests of our over 98,000 members, and that sustainability of our pension plan and of the planet go hand-in-hand.
The transition is happening before our eyes, and while being a part of the solution is the right thing to do as stewards of capital for our current and future members, there are also investment opportunities that can’t and shouldn’t be ignored.
That’s what we call a win-win.
Learn more about OPTrust’s approach to responsible investing here.
In the cover picture: Moraine Lake, Canada. Photo Credit: Unsplash.
Editor’s Note: The opinions expressed here by Impakter.com contributors are their own, not those of Impakter.com