On IMCO's Inaugural ESG Report
The Investment Management Corporation of Ontario (IMCO) today released its inaugural Environment, Social and Governance (ESG) report for the year ended December 31, 2021. IMCO’s 2021 report, “Adapting to a changing world”, is the first of its kind for the organization and summarizes extensive analysis conducted across the entire organization.
“We view ESG as a strategic business imperative and it underpins every investment decision we make,” said Bert Clark, President & Chief Executive Officer. “We know that considering ESG issues can improve risk-adjusted investment outcomes for our clients, and we understand that our stakeholders want greater transparency on how organizations are managing ESG risks, notably climate change, in their business strategies.”
IMCO’s inaugural report reflects the significant role ESG plays in its business and investment strategy. It also includes IMCO’s first disclosure, in line with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
“As long-term investors, we are committed to meaningful action and progress — especially on significant global issues that affect the entire economy,” said Rossitsa Stoyanova, Chief Investment Officer. “For example, we have identified climate change and decarbonization in our first ever ESG report as some of our top priorities, as they are among the most pressing issues of our generation.”
2021 Report Highlights
- Developed IMCO’s climate strategy and action plan
- Committed to net-zero emissions in our investments by 2050 or sooner
- Became founding and Steering Committee member of Climate Engagement Canada
- Became part of the UN’s Race to Zero and the Glasgow Financial Alliance for Net Zero by joining Paris Aligned Investment Initiative
- Measured carbon emissions connected to our investment portfolio and operations for the first time
- Developed ESG Integration Guideline for all asset classes, ESG External Manager Guideline, and ESG Screening Guideline
- Conducted Sustainable Accounting Standards Board (SASB) materiality and United Nations Sustainable Development Goals (SDG) assessment for all new direct investments
- Proxy Voting Guideline created to incorporate IMCO’s expectation of key priority areas: Climate Change; Diversity, Equity, and Inclusion (DEI); and Corporate Governance
- Published proxy voting decisions before each shareholder meeting on IMCO website
The Investment Management Corporation of Ontario (IMCO) manages $79 billion of assets on behalf of its clients. Designed exclusively to drive better investment outcomes for Ontario’s broader public sector, IMCO operates under an independent, not-for-profit, cost recovery structure. It provides leading investment management services, including portfolio construction advice, better access to a diverse range of asset classes and sophisticated risk management capabilities. As one of Canada’s largest institutional investors, we invest around the world and execute large transactions efficiently. Our scale gives clients access to a well-diversified global portfolio, including sought-after private and alternative asset classes. Follow us on LinkedIn and Twitter @imcoinvest.
IMCO's Inaugural ESG report is available here and it's well worth reading it.
The report is 52 pages including the appendix so I am not covering it all but going through important parts below.
First, let's begin with IMCO's Chair Brian Gibson's message:
Brian Gibson is clear, they attach great importance to ESG topics in their business and investment strategy and this report the culmination of discussion and analysis across the entire organization.
Importantly, it identifies climate change, diversity, equity and inclusion (DEI), and governance as their top priorities for integration across all their investment decisions.
The report also shows how they are integrating recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD), focusing specifically on climate-related risks and opportunities in their investment process.
He states that even though IMCO is a relatively new organization, it is well positioned to become a leader in ESG integration and they see their governance as a way to manage and address material ESG risks and opportunities.
Also, as a large asset manager managing $79 billion in AUM, they can engage companies, external investment managers, investment partners, peers and regulators to drive meaningful change on ESG issues.
Next, a message from Bert Clark, President and CEO of IMCO:
Bert states they view ESG as a strategic imperative and a philosophy which underpins every investment decision they make.
He clearly states that considering ESG issues can improve risk-adjusted investment outcomes for their clients and that stakeholders want more transparency on how organizations are managing ESG risks.
Interestingly and most importantly, he states “the global transition to a low-carbon economy is already proving to be a significant investment phenomenon that poses enormous risks and opportunities for investors that have obligations spanning generations”:
Every day we are seeking new and innovative ways to participate in the low-carbon future. For example, our recent investment in Pulse Clean Energy, a grid-scale battery infrastructure platform, demonstrates how we are unlocking opportunities from the energy transition. We are looking to leverage our scale, expertise, and partnerships to capture ESG opportunities that will deliver sustainable and profitable growth.
IMCO is at an important point in our ESG journey. While ESG considerations have been part of our investment decisions from day one, IMCO made considerable progress in 2021 in formalizing our approach and defining guidelines for all asset classes and managers. Through the Paris Aligned Investment Initiative, we committed to net-zero emissions in our investments by 2050 or sooner and developed a climate strategy to help us get there. We also joined peer investors in initiatives such as Climate Engagement Canada and various investor statements in favour of climate action.
We believe our long-term success, as an employer and an investor, is connected to how well we champion ESG topics in our organization and investments. We have elevated DEI in our own operations and at companies in which we invest by publishing IMCO’s Inclusion and Diversity Statement, creating our DEI council, endorsing the Canadian Investor Statement on Diversity and Inclusion, and appointing diverse candidates to our investee boards. I am proud of this progress in a relatively short timeframe.
While these are important steps, it is only the beginning. I look forward to IMCO building on this progress and am excited by the opportunities as we embark on the next phase of our journey
Well said, I know Bert takes all ESG issues very seriously, especially diversity, equity and inclusion.
Next, let's look at the message from IMCO's CIO, Rossitsa Stoyanova in this inaugural ESG report:
Amid this uncertainty, we believe that ESG simply makes good business sense and contributes to resilience. We believe that companies that strategically manage material ESG risks and even turn them into opportunities will outperform their peers. As a result, we have incorporated these views into every investment thesis across our portfolios.
As long-term investors, we know that ESG is very important to our clients. We are committed to meaningful action and progress — especially on significant global issues that affect the entire economy. For example, climate change and decarbonization, identified in this report as one of our top priorities, is among the most pressing issues of our generation.
To address climate risks in our investments, we are focused on setting interim targets for emission reductions and plans for each investment team to achieve those targets. We are also setting sustainable investing goals to capitalize on opportunities that benefit both our clients and society.
Recall, I interviewed Rossitsa in late April going over their 2021 results and she discussed the Pulse Energy deal and other investments in energy transition:
"For us, Pulse Energy is the first platform investment which means we own it 100%, and it's also a representation of our energy transition strategy. The reason we did this investment is there are diesel generators that are connected to the grid in the UK that deliver energy when the wind doesn't blow. Our strategy for that investment is to convert generators into batteries and use them to store energy from the grid, so basically charge the batteries when prices are low and there's not that much demand for energy and then sell them back t the grid when prices are high which means we get attractive returns but we also contribute to the stability of the grid in a clean way. So that's the strategy around Pulse. The other major strategy we did in Infrastructure was with Brookfield, participating in the take-private transaction of AusNet Services which is the transmission line in Australia."
On climate specifically, I note this from the report:
IMCO has committed to achieving a net-zero emissions portfolio by 2050 or earlier, and will set our interim emission reduction targets later in 2022. We support initiatives that encourage other entities (including portfolio companies) to do the same. We also support better data collection and disclosure around carbon footprints. In the interim, we are making investments to capitalize on the ongoing energy transition
I should publicly commend Hyewon Kong, IMCO’s Vice President, Head of
Responsible Investing, and her team for the incredible work and insights they provided to this inaugural ESG report.
Interestingly, IMCO is tracking its portfolio carbon footprint very closely in line with the PCAF standard which provides methodological guidance to financial institutions:
As far as foundations, the report notes IMCO's ESG strategy is built on four pillars: Integration, Stewardship, Sustainable Investing and Screening.
"With input from our stakeholders, IMCO selected climate change, DEI and corporate governance as ESG priority areas. We are addressing these priority areas in our investment process and corporate operations."
On ESG integration, I note the following:
Integration seeps into their direct investments:
After we make an investment, we continue to manage ESG risks and seek out value-creation opportunities through a range of strategies relevant to each asset class and investment strategy. For example, we have developed management plans at the asset level that prioritize ESG opportunities identified during due diligence, or that incorporate IMCO’s ESG strategic priorities. We also seek to monitor ESG metrics in our investments to assess performance over time.
This is also the case for IMCO's external partners which they vet thoroughly for ESG-related policies:
What else? I note that IMCO takes ESG matters very seriously within its organization, especially when it comes to diversity, equity and inclusion:
I think the ultimate strength of any organization is its employees and you want to have a diverse workplace in every sense, engage everyone and foster openness and diversity in all its forms.
Lastly, I note IMCO's ESG priorities in looking ahead:
Every large Canadian pension investment manager is grappling with these issues and it's important to note ESG is evolving, every organization is looking to improve integration, reporting, stewardship, screening etc.
I welcome IMCO's Inaugural ESG report as a valuable contribution to the ongoing discussions on ESG matters at Canada's large pensions. I would urge everyone to read it carefully here and learn more on their activities governing these matters.
I think everyone who participated in this report should be proud, it is very well written and thought out and I look forward to reading more from IMCO on ESG matters.
Below, once again, take the time to listen to Brookfield’s Mark Carney on the firm’s new $15 billion bet on the clean energy transition. IMCO, OTPP and PSP Investments were part of the anchor investors as was Temasek.
I wish everyone a great Canada Day weekend and a Happy Fourth of July, I'll be back next week.