OTPP, Wellington Leverage Climate Research

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Wellington put out a press release stating it has expanded its strategic relationship with Ontario Teachers’ Pension Plan to leverage climate science research in the pension plan’s investments:
Wellington Management Company LLP (“Wellington”), one of the world’s largest independent investment management firms, and Ontario Teachers’ Pension Plan (“Ontario Teachers’”), the largest single-profession pension plan in Canada, today announced they have expanded their strategic relationship to further integrate leading climate science research into the pension plan’s investments.

This new project builds on the long-standing strategic relationship between Wellington and Ontario Teachers’. The partnership is based on a common investment philosophy and long-term perspective. The focus on climate risk is an example of forward-looking initiatives the two organizations are exploring together that focus on far-reaching changes in the investment landscape.

Wellington and Ontario Teachers’ will collaborate with Woods Hole Research Center, the world’s top-ranked climate change think tank, and draw on its scientific expertise. Ontario Teachers’ will seek to apply findings from leading-edge climate research to the execution of Ontario Teachers’ investment strategies, which span a diverse set of geographies, sectors, and asset classes, and include long-term assets such as private equity, real estate, and infrastructure. This initiative will provide deep insights for Ontario Teachers’ investment teams on the medium- and long-term financial implications of physical climate-related risks.

 “Our investments, particularly those in real assets, require careful consideration of the physical risks posed by climate change. With access to top-quality climate science data, we can build on our own expertise in this area and use the research provided to develop deeper insights,” said Ziad Hindo, chief investment officer at Ontario Teachers’. “The world will not be the same after COVID-19, but our commitment to responsible investing will not change. Strong, mutually beneficial relationships, such as ours with Wellington and Woods Hole, will continue to be a key component of delivering on our commitment.”

 Wendy Cromwell, vice chair and director of Sustainable Investment at Wellington, noted, “We are excited to work with Ontario Teachers’ to bridge the gap between finance and climate science. Physical climate risks are unfolding and will impact companies, economies, and society. It is a privilege to work on behalf of the teachers of Ontario to understand and navigate these risks and opportunities.”

“If humanity is to meet the grand challenge of climate change, all sectors of society will need to participate. This partnership is a powerful step, because it helps business and financial communities understand the physical risks of climate change and how they affect livelihoods,” said Dr. Philip B. Duffy, president and executive director of the Woods Hole Research Center.

About Wellington Management

Tracing our history to 1928, Wellington Management is one of the world’s largest independent investment management firms, serving as a trusted investment adviser to more than 2,200 institutional clients and mutual fund sponsors in 60 countries. Wellington had over US$1 trillion of client assets under management as of 30 December 2019. To learn more, please visit our sustainable investing site and/or our Canadian client site.

About Ontario Teachers’

The Ontario Teachers’ Pension Plan Board (Ontario Teachers’) is the administrator of Canada’s largest single-profession pension plan, with $207.4 billion in net assets (all figures at December 31, 2019). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.7% since the plan’s founding in 1990. Ontario Teachers’ is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario’s 329,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

About Woods Hole Research Center

The Woods Hole Resesarch Center [whrc.org] (WHRC) has been studying climate change and developing solutions since 1985. WHRC works with an international network of partners in the private and public sectors to ensure that science is put to use in climate policy and decision-making. Recent major science and policy projects have taken place in Alaska, Brazil, Mexico, Nepal, the Democratic Republic of the Congo, and others, with collaborators such as the World Bank, NASA, USAID, and The Nature Conservancy. WHRC has earned Charity Navigator [charitynavigator.org]’s highest rating of 4 stars, as well as a Gold Seal of Transparency from GuideStar [guidestar.org]. Follow WHRC on Facebook [facebook.com], Twitter [twitter.com], and Instagram [instagram.com] or subscribe to our monthly newsletter [whrc.org].
This is a great initiative for Ontario Teachers' building on its strategic relationship with Wellington Management, one of the best investment management firms in the world.

I don't know much about The Woods Hole Research Center [whrc.org] (WHRC) but its site states this:
The Woods Hole Research Center studies climate change impacts around the world, and works with partners—from national governments to corporations—to identify and implement opportunities to reduce levels of atmospheric greenhouse gases.

WHRC was founded in 1985 by renowned ecologist George Woodwell to take the insights of science beyond the walls of academia to where they can effect real change. For the last four years, WHRC was named the top climate change think tank in the world by the International Center for Climate Governance.

WHRC scientists have contributed to every IPCC Assessment Report, and helped to launch the United Nations Framework Convention on Climate Change. In 2007, WHRC Senior Scientist Dr. Richard Houghton was part of the IPCC team awarded the Nobel Prize.

WHRC researchers continue to work around the world to understand the rapidly changing climate and how we can address it. The Center is currently led by Dr. Philip Duffy, and has about 60 employees, including 46 scientists.
So, this is a very reputable think tank studying climate change impacts around the world, and it works with partners to identify and implement opportunities to reduce levels of atmospheric greenhouse gases.

Why does OTPP care about climate change? To make Ontario's teachers feel warm and fuzzy inside that their pension is doing its part to address climate change?

No, although laudable, Ontario Teachers' is looking at climate change through the prism of long-term risks and how it will impact the organization's mission.

OTPP's CIO, Ziad Hindo was even more specific:
“Our investments, particularly those in real assets, require careful consideration of the physical risks posed by climate change. With access to top-quality climate science data, we can build on our own expertise in this area and use the research provided to develop deeper insights,” said Ziad Hindo, chief investment officer at Ontario Teachers’. “The world will not be the same after COVID-19, but our commitment to responsible investing will not change. Strong, mutually beneficial relationships, such as ours with Wellington and Woods Hole, will continue to be a key component of delivering on our commitment.”
The focus is squarely on how climate change poses risks on real assets -- real estate and infrastructure. Both of these assets have been hit hard from COVID-19 as malls, hotels, and airports were forced to close.

Climateer Investing had a great blog comment today on how commercial real estate in Europe is getting hit hard. I also read research from Moody's Analytics which states Canadian real estate is in big trouble:





No doubt, COVID-19 is roiling segments of commercial real estate and infrastructure which is why distressed debt funds are amassing billions to pick up opportunities over the next year:



But while these are real risks and challenges, the climate research OTPP, Wellington and The Woods Hole Research Center will focus on is to understand long-term risks to Teachers' real assets portfolio.

This is also part of Ontario Teachers' values as responsible investing is at the core of everything they do:



You can read OTPP's 2019 Responsible Investing Report here.

The image below explains how OTPP integrates ESG factors into its investment process to magage risk and add value:


Interestingly, on OTPP's responsible investing site, it states how its airports took measures to reduce their carbon footprint:
Copenhagen Airport is the largest in Denmark and in 2019, 30.3 million people passed through the airport. In 2019, Copenhagen Airport launched an ambitious climate strategy. In addition to achieving carbon neutral status during the year, its long-term climate strategy aims for Copenhagen to be an emission-free airport with emission-free transport to and from the airport by 2030, and for the entire airport, including air traffic, to be emission-free by 2050.

Towards the end of the year, London City Airport had its operations rated as carbon neutral. The airport received this recognition for its exceptional work in managing, reducing and offsetting all the CO2 emissions under its control.

Both airports received their rating from the Airport Carbon Accreditation program, joining Brussels Airport, which achieved this goal in 2018.

Also in 2019, Birmingham Airport announced its commitment to become a net-zero carbon airport by 2033, prioritizing zero carbon airport operations and minimizing carbon offsets. The airport has already cut its carbon emissions by 33% since 2013, and emissions per passenger by more than 50%, despite growing passenger numbers by 40%.

In an important step towards reducing its carbon footprint, Bristol Airport has switched to a 100% renewable electricity supply. This is aligned with the airport’s plans to become carbon neutral by 2025.
As I stated above, airports are getting slammed because of COVID-19 and the forced shutdowns from governments all over the world, and Teachers' and other Canadian pensions heavily invested in airports will see a significant drop in revenues from these investments, even after economies reopen and air travel resumes:



But this won't change Teachers' commitment to responsible investing across public and private markets and the same goes for all of Canada's large pensions.

Carbon neutral airports might sound silly given airplanes are huge polluters but it's definitely a step in the right direction and it bolsters Teachers' investments in these assets over the long run.

Below, asset manager Wellington Management outlines its “partner, invest, engage” framework for sustainable investing and describes how its efforts support the UN SDGs. Wellington’s director of sustainable investment, director of climate research, and investment professionals from the firm’s equity, fixed income, and ESG Research teams share their views and explain their collaborative approach to pursuing better outcomes for clients.

Also, a recent webinar on climate action featuring Heather Goldstone, Woods Hole Research Center (WHRC)'s Chief Communications Officer, Marcia Macedo, WHRC Associate Scientist, and Jonah Gottlieb, Co-Founder and Executive Director of National Children’s Campaign.

Update: Deborah Ng, Teachers' new Head of Responsible Investing, spoke with S&P Market Intelligence about how climate research from this relationship with Wellington and The Woods Hole research Center will help them:



Deborah is a smart lady, well worth reading her thoughts here.


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