OPTrust's Alison Loat Discusses 2021 Responsible Investing Report

 Today OPTrust released its annual Responsible Investing Report:

The report, entitled A Collective Commitment, details OPTrust's 2021 responsible investing (RI) activities, including strengthening its environmental, social and governance (ESG) capabilities, advocating for improved sustainability and transparency in financial markets, and investing in climate solutions.

In 2021 OPTrust:

  • Fully integrated the Responsible Investing Partner Evaluation (RIPE) to capture RI considerations in all new externally managed investments.
  • Represented Canada as one of the signatories on the UN Principles for Responsible Investment's private equity working group.
  • Established a new ESG data program to enhance tracking and understanding of RI performance across the total fund.
  • Signed the 2021 Global Investor Statement to Governments on the Climate Crisis, supported by 733 investors managing over US$52 trillion in assets.
  • Engaged 410 companies on key ESG issues and voted at 1,744 company meetings in 51 countries.
  • Advanced work on climate strategy renewal for release in the fall of 2022.

"Our RI program was first established 15 years ago and has become integral to our ability to provide sustainable pension security for our members," said Peter Lindley, President and Chief Executive Officer at OPTrust. "As the world grapples with a highly complex transition to net zero, addressing plan sustainability requires addressing climate sustainability among other ESG concerns. Our ambition is to fully embed climate considerations into the way we do business across all functions."

In 2021, OPTrust formed a cross-organizational Climate Response Working Group (CRWG) to develop an enhanced, comprehensive strategy to address climate change. Work on the renewed strategy includes identifying climate risks and mitigation plans across asset classes, as well as conducting top-down climate scenario analysis to identify potential impacts on OPTrust's funded status.

"The CRWG's work will result in an actionable strategy with implementation already underway," said Alison Loat, Managing Director of Sustainable Investing and Innovation. “Our focus right now is laying the foundation, including building the systems, processes and data-sets that will guide our portfolio's path through a global transition toward alignment with net zero."

OPTrust's 2021 Responsible Investing Report can be found here. OPTrust has also released its reporting on progress against the Taskforce for Climate-related Financial Disclosure framework, which can be found here.


With net assets of over $25 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 100,000 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 download OPTrust's 2021 Responsible Investing Report as well as the Taskforce for Climate-related Financial Disclosure framework. Both documents are available here.

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

Before I get to my discussion with Alison, let's go over key messages and some highlights from the report:

And some highlights:

Now, the report is available here, it's not too long and well written, so I want to share more with my readers.

First, on governance:

The Responsible Investing Committee (RIC) is chaired and vice-chaired by the Chief Investment Officer (CIO) and the Managing Director, Sustainable Investing and Innovation (SII), respectively, and is comprised of the Investment Division’s Managing Directors who also report to the CIO. 

The Climate Response Working Group (CRWG) is comprised of professionals from across the organization focused on advancing numerous work streams that strengthen OPTrust’s readiness in the face of climate change. The CRWG provided input into OPTrust’s climate strategy renewal and leads its implementation (see page 16 for more detail). 

The Responsible Investing Leaders Group (RLG) is chaired by the Managing Director of SII and, together with the SII team, oversees the execution of RI plans and programs. With representatives from the Investment Division and other functional areas in the organization, the RLG facilitates ESG reporting and data collection, communicates RI activities and builds organizational RI knowledge.

In addition, they form other working groups from time-to-time as needed, such as the 2020- 21 group that developed and led the initial roll-out of our Responsible Investing Partner Evaluation framework, described on page 10 of the report. 

Discussion With Alison Loat, Managing Director of Sustainable Investing and Innovation 

This afternoon, I got a chance to speak with Alison Loat, Managing Director of Sustainable Investing and Innovation at OPTrust.

I want to thank her for taking some time to speak with me and also thank Sheila Matthen, Senior Public Affairs Advisor, for sending me the material beforehand and setting up this Teams meeting.

Alison started off by making a couple of main points:

First, and you see this in my notes of appreciation, I think what is exciting for me is to see the growth of our program across the organization. When I first started this job in January 2020, when we first started speaking, I didn't think ESG would become a much more important part of investing. I didn't anticipate the pace. expectations and seriousness that these not being financial issues would evolve. It's really been an honor to be part of the OPTrust experience and getting to work across the breadth of the portfolio we have at OPTrust. We have a really excellent team of investors and just helping advance that program, the understanding. Again, it's moving a lot faster than any of us thought and it's really been exciting being part of this journey.

In terms of some of the highlights, broadly what we are trying to do is just increase the tools and ability of our investment teams to integrate material of ESG considerations at the point of asset allocation, doing it in a more systematic way enabling us to better capture data and information across our portfolio so we can compare and contrast not only within teams but also across teams. It also allows us to be on the leading edge on ESG metrics, how those are collected, defined and used. Some of those is what we are trying to do and build with the program. These are some of the highlights that capture what we tried to put in practice over the last year.

I then asked Alison about the governance and the role of the Climate Response Working Group (CRWG) and the Responsible Investing Leaders Group (RLG):

As you know, OPTrust has over 15 years of commitment into integrating ESG considerations into investing, so I am picking up where my predecessor left off. One of the things we have tried to do given the interest in ESG, both internally and externally, is to bring more opportunities for our investment professionals to be part of developing our approaches and our toolkit. So, there are a couple of changes we made really at the end of 2021 you saw in the report, although in some cases they were implemented over the course of last year. The first is that we reconstituted our responsible investment committee, so it's now comprised of our managing directors and chaired by our CIO (she said that group already evolved, it was just formalized on paper). The second thing is we created the Responsible Investing Leaders Group made up of people in each investment team as well as some of our communications professionals, risk professionals and legal team that are really responsible for what's called the day-today innovation around the program. And the third group is that Climate Response Working Group which we set up in 2020. That is now a 30-person strong cross-organizational team that is working on renewing our 2018 climate strategy. Again, I think the spirit and philosophy underlying all of this is that it's really important that our approaches as we innovate are close to the so to speak front lines, they're close to the teams that need to be a part of the work and that we develop our approaches collaboratively. From a governance perspective, we try to reflect that.

We also recognize that for investment professionals like the ones at OPTrust, they're ambitious, they want to stay close to emerging issues in their field and ESG is a huge one. So we wanted to accommodate the interest we were getting particularly from some of our younger investment professionals to get more directly involved. We have been using our committees to facilitate that. So that's the principle that underlies it and why we created those different teams.

She then gave me some examples of what the Responsible Investing Leaders Group (RLG) is doing:

You will see in the report we implemented the RIPE framework (Responsible Investing Partner Evaluation). That's a tool we use when we are making an investment with an external partner. About half of OPTrust's assets are manged externally and half are internally managed. Across all of our teams, we do use external managers and have in some cases longstanding relationships with those funds or managers. So this is a tool to help us better understand what our managers are doing and how they are integrating responsible investing or ESG considerations into their processes. So not only does that give us a much healthier picture of the innovation happening at our partners themselves, but it also gives the opportunity for our teams to ask more systematically different questions to our partners so we can become better investors as well. 

The other interesting thing as we sort of been through this for a year is we can actually is we can compare good practices across our funds as well as see where there are gaps that our partners are consistently identifying that they need to spend more time on. I'll give you one example on inclusion, diversity, and equity (IDE). One of the initiatives we created this year is to create a toolkit to help us work with our partners to helps us improve IDE considerations. 

Another initiative we implemented hinted in the RI report is called the data project, our Compass program, and that's trying to collect systematically information about our ESG program, again across our entire portfolio, both as we as investment professionals are integrating these considerations as well as collecting external data over time as more and more investment companies are disclosing ESG information allowing us to capture it in a more systematic way. Those are a couple of the initiatives we led with the RLG over the past year. 

I then asked Alison if the Sustainable Investing and Innovation Group (SII) she leads has to validate every investment made at OPTrust to make sure it takes all these ESG considerations into account:

We take a slightly different philosophical approach at OPTrust. Our Statement of Responsible Investing Principles makes it very clear that the integration of ESG considerations is the job of the investment team. So the SII team is there to facilitate some of the tools, to provide examples of best practices and how to build the program out but it's really the investment professionals themselves that do the integration and analysis. We are there to provide support but it's really important that this analysis takes place at the deal team level, not from a different team that's not as close to the deal. You are correct, it is a critical part of our decision making and asset management.

We then talked about the SII team she leads and how it is evolving:

The team was created in December 2019 by James Davis (CIO of OPTrust) and with the departure of my predecessor, it was an opportunity for him to restructure the responsible investment function and to focus as much on the opportunities as the risk side of ESG.

Our team has three essential roles at OPTrust. The first is the oversight of the RI program, putting in pace the processes, the discipline as well as the data collection and doing that alongside our investment team, so that's really a partnership. The second is we are responsible for the renewal of the climate change strategy. That is broader than the investment division, that encompasses almost every department at OPTrust. And the third one is we have a capital allocation mandate to invest at the intersection of sustainability and innovation. James set this up expressly to make sure we were also looking at the opportunity side of ESG and sustainability, putting capital to work in some of the innovations that result from that

So our team is looking at growth equity late venture focused n the climate thematic, investing through funds in businesses looking to be part of the solution or looking at the opportunity side as climate considerations become more material. 

Obviously, that's a complement to other climate-themed investing you'll see in other parts of our portfolio in Private Markets where we do invest thematically in climate solutions. We focus more on the innovation stage.

I asked her if her team has made any investments:

We have. We probably surveyed well over 100 managers and obviously learned a lot about climate opportunity. We have made to date two investments. One in a sustainable real assets fund, looking at agriculture, transportation and energy transition sectors. The second one is in the circular economy which is really about more efficient resource usage. Those are the two areas we are looking to make additional allocations this year and we have a couple more pretty active in the pipeline.

I asked her how she juggles the investment side with other aspects of her mandate:

I think that's what makes the role so rich. There are many inter-dependencies between and among those functions. It allows you to bring the best of each of them to bear. I'll give a concrete example. As we are building out our Compass program (ESG data project), we are seeing what managers are looking at and a core part of their value proposition is management of ESG considerations. In many instances they are quite evolved in their internal reporting or how they are reporting. Bringing some of that to bear in other parts of our portfolio is really helpful. We are also looking at energy transition and we have an excellent infrastructure team in our Private Markets. There is lots of idea sharing. There are lots of circular benefits that exist for the three functions of our team. That also well complemented by our governance where we have not defined our team to be a silo. it is well integrated with lots of other functions in and outside the investment division. Obviously to do our job well, we need to work closely with our colleagues in Legal, Risk, Finance, HR and other departments.

I asked Alison to take a step back from her role at OPTrust and as an expert, what does she think are some of the key challenges she sees in the responsible investing field that all asset allocators are confronting:

I'll start with data because you brought it up. Again, the nature of that challenge varies by portfolio. As investors, we all know financial statements only tell you a certain story, only so much about a company. Understanding the full scope of risks and opportunities and ESG considerations is part of every investor's job. As you know, there is a very serious effort underway to try to bring some standardization of ESG in ways that can be fit into a spreadsheet and analyzed and compared across companies and over time. We are still in such early innings there notwithstanding the fantastic work by SASB and of course as the ISSB's work carries on, I anticipate we will see much clearer requirements for disclosures. So we are in the mushy middle where we have some information, not much, it's not consistently collected, it's not uniformly disclosed and that's very challenging for investors. It's challenging for us to integrate that information, to know whether we can rely on it. So that's a significant issue we continue to grapple with.

Alison gave me the example of human capital and looking at turnover at a company to gauge how it treats employees. She said "there's no standard definition of turnover" across companies so it is challenging to use this information properly to gauge how employees are being treated.

She added:

A second challenge in the importance of natural capital to the sustainability of our pension plans and our broader financial system. I think we are in very early innings there too and it's a very complex interdependent area which every single investor I've met over the last two years to is trying to understand and it requires all of us to integrate those considerations when information is incomplete.

A third risk is ESG is not being well defined and well understood and as a result we are seeing a lot greenwashing, a lot of variety of quality of how ESG is bring applied in market and increasingly a lot of politicization around that term. I also think it's really important for us as asset owners to stick with principles around these issues, to make sure we continue to be rigorous but not overstate what we can do with the information we have. It's something I am watching very closely in the news and obviously at OPTrust we want to make sure we are speaking honestly and in a forthcoming way of what we are able to do and what frankly is harder to do

While there are challenges, Alison also was optimistic, stating "there's an incredibly collaborative global community of people across asset owners working on these issues.”

She added: "Everyone is extremely aware of where the proverbial puck is headed. Do we know the exact trajectory? Absolutely not but our job is to keep the focus on the long-term and be adaptable as conditions change."

I also commended OPTrust for disclosing their TCFD framework here

Alison shared this:

OPTrust endorsed TCFD in 2017 when it first came out. We were an early mover. What we did a little differently in 2021 is we took a whole organization approach to the disclosure. So it is quite comprehensive as we worked very closely with our colleagues in Finance, Risk and across all of our investment teams to use it as an opportunity to reflect on what we are doing from a bottom-up perspective as well as a top-down perspective on climate and what we have accomplished over the last year and have an honest conversation on where some of those gaps are. So while we have disclosed at a high level in the past, this is a much more comprehensive approach which involved many more people.

Alison ended by making two quick comments:

  •  On climate, in addition to the TCFD report, they are in the process of renewing their 2018 climate strategy and this report will be released publicly in the fall. 
  • Second, she wanted to underscore her appreciation and gratitude to her colleagues at the SII team and across the investment division. "Even though I am the point person, it's really been a privilege to work with my colleagues on this."

I didn't ask her specific questions on climate because I want to chat with her when the renewed climate strategy comes out this fall. But she told me they did some climate scenarios to understand what the risks are to the sustainability of the plan and she told me there is more information on page 16 (see above) and on the website.

Alright, let me wrap it up there and remind my readers that a lot of work and effort goes into these comments and I appreciate those of you who appreciate the work and support this blog.

Let me once again thank Alison Loat for another stimulating discussion. I just wish I had an app that transcribes everything properly to save me a lot of time and effort. 

Anyway, please take the time to download OPTrust's 2021 Responsible Investing Report as well as the Taskforce for Climate-related Financial Disclosure framework. Both documents are available here.

I like the way the report ends with personal perspectives from employees who took part in shaping it:

Below, The International Sustainability Standards Board (ISSB) launched a consultation on its first two proposed standards. One sets out general sustainability-related disclosure requirements and the other specifies climate-related disclosure requirements. The proposals―exposure drafts—build upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements derived from SASB Standards.

Next, an older clip (2016) where SASB issues standards that help corporate issuers disclose ESG issues in SEC filings to investors in an industry-specific, comparable, and decision-useful way.

Also, Joanna Reiss, Apollo Global Management's co-lead of impact investing, discusses the firm's board diversity and approach to ESG investing. She speaks with Bloomberg's Caroline Hyde and Romaine Bostick at the Milken Institute's 2021 Global Conference in Beverly Hills, California.