OPTrust's Alison Loat on Their Renewed Sense of Urgency

Today OPTrust released its 2020 Responsible Investing Report, detailing its continued long-term commitment to sustainable investing throughout the volatility of the past year:

OPTrust’s responsible investing accomplishments in 2020 include updating its Statement of Responsible Investing Principles and expanding the emphasis on diversity and inclusion in its Proxy Voting Guidelines, developing a cross-portfolio approach to integrate responsible investing in all its externally managed investments, and building an investing program to allocate capital to opportunities at the intersection of sustainability and innovation.

“Environmental, social and governance (ESG) issues create financial and reputational risks, but we also believe that solving these challenges presents significant investment opportunities,” said Alison Loat, Managing Director of Sustainable Investing and Innovation at OPTrust. “We are committed to continually improving the integration of responsible investing principles across the organization, and to finding opportunities that arise when tackling pressing global challenges like climate change.”

In 2020, OPTrust also initiated a renewal of its Climate Change Action Plan and completed carbon risk assessments, including measuring the carbon footprint of its public equity, fixed income, private equity and infrastructure portfolios. Further, the Sustainable Investing and Innovation team also built relationships with sustainability-themed funds, with a focus in the climate space, and made its first investment in early 2021 in a sustainable real assets fund.

Despite the challenges posed by global lockdowns, the organization also continued its work as an active investor. In 2020, OPTrust voted at 2,028 company meetings in 52 countries and engaged 543 companies on key ESG issues. The organization’s responsible investing efforts earned it an A+ for its strategy and governance approach to responsible investing from the Principles for Responsible Investment (PRI).

“Responsible investing is integral to our mission of paying pensions today and preserving pensions for tomorrow,” said Peter Lindley, President and Chief Executive Officer at OPTrust. “While we’ve been on a responsible investing journey for many years, the events of 2020 have given a renewed sense of urgency to the importance of keeping long-term Plan sustainability at the forefront of our investment decision-making and sustainable investing is a key part of that effort.” 

About OPTrust

With net assets of over $23 billion, OPTrust invests and manages one of Canada's largest pension funds and administers the OPSEU Pension Plan (including OPTrust Select), a defined benefit plan with over 98,000 members. OPTrust is a global investor in a broad range of asset classes including Canadian and foreign equities, fixed income, real estate, infrastructure and private markets, and has a team of highly experienced investment professionals located in Toronto, London and Sydney.

Please take the time to read OPTrust's 2020 Responsible Investing Report here.

In total, it's 23 pages but packed with great insights and really gives a great overview of how they are addressing climate change and other ESG issues.

Earlier today, I had a chance to speak with Alison Loat, Managing Director of Sustainable Investing and Innovation at OPTrust. 

I want to thank Alison for another great conversation and Jason White of their Communications team for setting this up and sending me material after our Teams meeting.

Before I get to my conversation with Alison (you can skip to my conservation with Alison below the next section), some highlights and insights from the 2020 Responsible Investing Report:

As you can see, OPTrust was very busy last year beefing up its responsible investing framework.

Sharon Pel, the Chair of the Board, and Lindsey Burzese, the Vice Chair, begin with their message:

As OPTrust marked its 25th anniversary in 2020, it faced one of the most uncertain external operating environments in the organization’s history. In March, COVID-19 was declared a global pandemic and the team quickly transitioned to a remote work environment and adapted to the new realities of a physically distanced world. 

As a Board of Trustees, it was reassuring to see how OPTrust responded to these challenges, seamlessly navigating short-term market volatility while keeping a focus on members’ interests and the Plan’s long-term sustainability. The pandemic highlighted the importance of investment stewardship and in this report, we are pleased to share the progress OPTrust made in enhancing our responsible investing program and commitments to sustainable investing and equality. 

Some highlights from 2020 include the updating of OPTrust’s Statement of Responsible Investing Principles and Proxy Voting Guidelines to reflect evolving best practices. We also developed a capital allocation program dedicated to investing in innovative sustainability solutions and maintained our A+ grade on strategy and governance from the UN Principles for Responsible Investment (PRI).

While 2020’s challenges solidified our long-standing belief that environmental, social and governance (ESG) factors can materially impact risk, return and reputation, the continued evolution of OPTrust’s approach to responsible investing is possible because of our strong foundation. 

We extend our deep appreciation to the team for its resilience in adapting to a difficult operating environment and bolstering its responsible investing efforts amid a period of extreme volatility. Investing responsibly is an integral part of our fulfilling our mission to deliver long-term pension security for OPTrust’s members and it has remained at the forefront, even during challenging times.

Peter Lindley, President and CEO at OPTrust, followed up with his message:

In December 2019, OPTrust realigned our responsible investing function by starting a new team dedicated to sustainable investing and innovation to build on our efforts to generate sustainable returns for members and the fund. We knew that responsible investing was growing in importance, but what we could not predict is how profoundly the world would change a year later. When COVID-19 hit, inequality and sustainability became top-of-mind for many people and the responsible investing efforts at OPTrust have taken on a renewed sense of urgency. 

Throughout 2020, key events like the pandemic and the advancement of the Black Lives Matter movement have called attention to issues ranging from systemic racism, to diversity and inclusion, to workplace health and safety. Meanwhile, climate change remains an issue demanding urgent attention. 

These issues are important to us as an investor, not only from a risk management perspective, but also because challenges can become opportunities for those with the ability and expertise to play a role in solving them. ESG issues are also important to our members. In fact, according to our research, the vast majority of members we surveyed said they believe climate change, labour rights and diversity are important for OPTrust’s investing program.

Despite the challenges of this past year, we maintained our focus on responsible investing. For example, in 2020, we completed carbon risk assessments, including carbon footprinting of our public equity, fixed income, private equity and infrastructure portfolios. We also established a cross-portfolio working group to strengthen the integration of ESG into externally managed investments. 

Our expectations to act responsibly don’t only apply to our portfolio companies – we also hold ourselves to a high standard. In 2020 we signed onto the BlackNorth Initiative’s pledge to help play a role in eliminating anti-Black systemic racism and committed to key efforts internally to make OPTrust a more diverse and inclusive workplace. 

We also strongly believe in the value of defined benefit pensions, not only to members and retirees, but to society and the economy more generally, which is why we launched OPTrust Select in 2018 to allow nonprofit sector workers to participate in our pension plan. Even against the backdrop of a global pandemic, we continued to enroll new members through 2020. The people who have joined OPTrust Select provide a range of critically important services including healthcare, community support and environmental advocacy and it is a true honour to be able to support them in retirement through this pension offering. 

I would like to thank the team for its ongoing efforts throughout a difficult time to ensure we continue to progress on our responsible investment journey for the ultimate benefit of plan members.

Peter highlights a few critical issues here but the bottom line is that ESG issues are important to OPTrust and its members and he doesn't just discuss climate change but the broader ESG issues which include labour rights and diversity.

He also once again highlights the value of defined benefit pensions not only for their members but for society and the economy in general, and discusses how OPTrust Select is growing and allowing more nonprofit sector workers to participate in their plan.

OPTrust's Board approved a Statement of Responsible Investing Principles (SRIP) which provides the principles-based framework that OPTrust applies to incorporate ESG factors into their investing programs. In 2020, they revised the SRIP to reaffirm their guiding principles, which are grounded in our fiduciary duty to ensure sustainable pension security: 

Reflecting their conviction that strong corporate governance contributes to long-term value creation and alignment with stakeholders, their responsible investing program is governed by the following framework:

  • With oversight of OPTrust’s responsible investing program, the Board approves the SRIP and the Proxy Voting Guidelines on an annual basis and receives regular reporting on responsible investing activities and performance.
  • The Board has delegated responsibility for operationalizing the SRIP to the CEO, who in turn has delegated it to the CIO. The CIO oversees the implementation of the responsible investing program.
  • The Investment Division investing teams are responsible for adhering to the SRIP and are accountable for identification, assessment and management of ESG factors in the investment process.
  • The Managing Director, SII, oversees the responsible investing program and supports the Investment Division in instituting responsible investing practices and managing ESG issues. 
  • Chaired by the Managing Director, SII, and accountable to the CIO, the RIC is comprised of representatives from across the organization and serves to facilitate the integration of responsible investing into the investment function.

And here is the Sustainable Investing and Innovation (SII) Group:

As you can see, the group is made up largely of women (gender diversification in action!) and works with representatives across the organization.

What else caught my attention in the 2020 Responsible Investing Report?

I enjoyed reading the Q&A with Andy Alcock, Director of the Real Estate Group (REG) where he noted how OPTrust's REG supported its tenants throughout the pandemic: 

I also enjoyed reading insights from Sandra Bosela, Co-Head of Private Markets Group, Managing Director and Global Head of Private Equity, on active ownership in private markets during COVID-19:

Also, on page 16, Zarqaa Shaikh, Associate Portfolio, Multi-Strategy Investing, Capital Markets Group, discusses OPTrust's new responsible investing partner evaluation framework:


Lastly, the report also has a Q&A with James Davis, CIO at OPTrust on page 19:

Alright, there's more to OPTrust's 2020 Responsible Investing Report so take the time to read it but I gave you the critical points.

Conversation with Alison Loat

Alright, as I stated at the top of the comment, I did get to speak to Alison Loat, Managing Director of Sustainable Investing and Innovation at OPTrust.

Alison is really smart and dedicated and I took as many notes as possible and if needed, I will edit this section.

It's important to note Alison arrived at OPTrust in December 2019, literally right before the pandemic hit. She has worked to build solid relationships at the organization "virtually" and has done outstanding work in a short time span to fortify OPTrust's responsible approach which was already on solid footing. 

Her team has three mandates:

  1. Responsible investing integration with the asset class teams.
  2. Overall renewal of the climate change strategy at the plan.
  3. Building a team and an investment program to allocate capital at the intersection of sustainability and innovation. 

It's that third investing function which we focused on.

As Alison explained, OPTrust targeted roughly 2% on total fund assets ($23 B) to an Incubation Portfolio. While it's open to all asset classes, SII will invest exclusively from those monies.

She told me they have made an initial investment in a private equity fund and have had virtual meetings with many funds. There is no overall benchmark for the Incubation Portfolio, although each deal will have its own benchmark.

She stressed this new initiative is a collaborative effort as is the entire responsible investing framework at OPTrust.

It's Alison's overall views on ESG investing which I find very interesting.

She said that while climate change remains the central focus, OPTrust is also looking at broader ESG issues, including labour rights and diversity.

She also said when it comes to ESG, institutional investors are "flying a plane and building it at the same time," highlighting how ESG investing is still evolving. 

She also stressed how important it is "to start small," especially for smaller asset owners or managers, stay practical and build from there.

For example, they struck a working group from representatives from all of OPTrust's asset class teams to build out a framework, called RIPE (Responsible Investing Partner Evaluation), to enable a more systemic integration of all RI considerations in all externally managed investments, This includes new external managers and funds (see page 16 and above).

"It reflects our values and sustainable investing expectations," Alison said. She also noted they received positive feedback from investment teams and partners about the clarity this provides.

They also work with asset class teams to support particular ESG projects, including partnering with a co-investor to build its ESG policy and plan.

She highlighted the "collective intelligence" of the deal teams and their external partners, all of whom helped shape and continue to shape their responsible investing framework. 

What else? We briefly talked about divesting and I let her know I do not believe in it (except tobacco where engagement is futile and even there, it's can be costly to divest). 

Alison told me that pensions have a fiduciary duty first and foremost and not everyone understands why they prefer engagement or agree with that approach.

I told her I've received my share of criticism from left-wing environmentalists who are obsessed with divestment and right-wing pro-oil and gas groups who think there's too much ESG nonsense out there and pensions shouldn't focus on it.

"Well, that means you must doing something right if you're getting criticized from all sides."

Anyway, I always enjoy talking to Alison and truth be told, I wish we could have taped our conversation to embed it here because I couldn't jot down everything we covered.

Alison Loat and the SII team are ramping up their investments and it's going to be interesting to see this team evolve over the next few years. 

I, for one, wish them much success. 

On Thursday, Alison Loat will be hosting an OPTrust/ PAAC event called “Great expectations - How will sustainability define the post COVID-19 world?” : 

The event is free and the public can register for free here

Alison is excited to discuss many policy issues with this great panel and I look forward to watching this event.

Once again, I thank Alison for taking the time to talk to me and if I need to add or edit anything, I will do so as quickly as possible.

Below, a Canadian Club panel discussion on sustainable investing which was moderated by Mark Wiseman and featured Alison Loat (December 2020). Take the time to watch this discussion.