OTPP's Jo Taylor on Achieving Their New North Star
The Ontario Teachers’ Pension Plan plans to invest $5-billion in some of the world’s biggest greenhouse gas emitters as part of a strategy to boost returns while tackling climate change.
Teachers launched a “high carbon transition” initiative this month that will see one of the country’s largest fund managers, with $242-billion in assets, take significant stakes in businesses with outsized GHG emissions, then back strategies to reduce their carbon output.
“We believe the best way to accelerate the energy transition is by engaging with high emitters rather than passively divesting,” said Ontario Teachers’ chief executive officer Jo Taylor in a speech Thursday to the Canadian Club in Toronto.
Mr. Taylor said Ontario Teachers’ expects to take significant positions in four or five companies that generate up to 10 times the GHG emissions of the pension plan’s typical portfolio company. Over time, the fund manager expects that working with these businesses to lower GHG emissions will significantly improve their valuations and earn benchmark-beating returns for the fund, which is responsible for the retirement savings of 333,000 teachers.
“There is a now-accepted urgency to tackle climate change. This puts pressure on investors to act now to reduce their carbon footprint and that of their investment portfolios,” said Mr. Taylor. “The more progressive investors have taken up the challenge to proactively finance emission reductions at carbon-intensive assets.”
Sectors with outsized GHG emissions include transportation, electricity production, heavy industry and agriculture, and Ontario Teachers’ has three decades of experience as an investor in all of these areas.
The high carbon transition initiative is part of OTPP’s broad climate strategy that also includes helping existing portfolio companies decrease emissions, investing in green assets and issuing green bonds.
Mr. Taylor, who was named CEO in January, 2020, said the fund manager’s environmental, social and governance strategy is also meant to showcase Teachers’ “distinct brand” as an investor on the global stage, “where we are often seen as one of the Canadian pension plans. While we are in good company under that characterization, it does not help us be the first choice with investment partners and to secure and retain the best talent.”
In addition to making direct investments in high carbon emitting companies, OTPP is a founding investor in Brookfield Asset Management Inc.’s initial global transition fund, which closed in June with US$15-billion of committed capital. The Brookfield fund, run by vice-chair and former Bank of Canada governor Mark Carney and Brookfield Renewable executive Connor Teskey, focuses on investments to accelerate the transition to a net-zero economy while delivering strong risk-adjusted returns.
Last month, OTPP reported it has turned in positive performance during the first half of the year, at a time when equity markets sold-off and many asset managers had negative returns. Teachers returned 1.2 per cent in the six months by the end of June 30 and 8.3 per cent over the past 12 months.
OTPP's CEO Jo Taylor spoke at the Canadian Club Toronto yesterday and delivered a great speech on "Investing in Innovation, International Markets and Impact."
OTPP released this statement today:
On September 8, 2022, our CEO Jo Taylor had the honour of speaking to the Canadian Club of Toronto about Ontario Teachers’ Pension Plan’s goal of reaching $300 billion in net assets by 2030 to continue to deliver retirement security to its members.
In a speech that touched on his personal experience in leading the Plan through an especially challenging business environment, Jo spoke about setting a new North Star for the Plan and building a followership. He also outlined the Plan’s approach to investing in key international markets, innovation and impact.
After the speech, Jo sat down with Globe and Mail business columnist Andrew Willis to discuss a range of issues, including balancing risk with returns, investing in venture-growth companies, and Ontario Teachers’ approach to decarbonizing high emitters.
I embedded Jo's speech below along with the discussion with Andrew Willis where he went into more detail on some topics.
I also embedded an interview with BNN Bloomberg where he discusses their strategy for reaching $300 billion in assets by 2030, how inflation has changed their investing strategy and on their priorities in helping high-emitting businesses transition to green.
Jo is an exceptional leader who covers a lot here which is why it's worth watching both clips.
While it is impossible to cover everything in a blog post, I will mention that apart from his terrific speech, I really liked his response around minute 32 when Willis asked him about the ESG backlash taking place in the US and how they reconcile ESG investing with their mandate:
A couple of comments. I think within the ESG discussion is a question of trust. Trust is very hard to gain and really easy to lose. And when we talk about climate and impact, we have to make sure that we are walking the talk every time in what we invest that is consistent with what we say which is a core component of our brand.
He then states "the execution of ESG is not easy" and explains why they prefer engagement to help companies in fossil fuels decarbonize. "Our view is those companies are more likely to decarbonize with our ownership than if we hand it over to someone else, but it's not easy to do. We have to make sure we have the skills, the money and time to allow those businesses to do the transition."
On climate change, he is very clear:
“There is a now-accepted urgency to tackle climate change. This puts pressure on investors to act now to reduce their carbon footprint and that of their investment portfolios. The more progressive investors have taken up the challenge to proactively finance emission reductions at carbon-intensive assets.”
And the more progressive investors are targeting high emitters to reduce their carbon footprint and they're looking to realize great returns in the process.
Take the time to read OTPP's Annual Responsible Investing and Climate Strategy Report which I covered here last week as well as as how it is investing to leave an impact.
Along with its large Canadian peers, Teachers' is an internationally recognized leader in responsible investing and that is part of building its "distinct brand" on a global stage.
Lastly, Teachers' released a statement on the passing of Her Majesty Queen Elizabeth II:
We are deeply saddened by the passing of Her Majesty Queen Elizabeth II. As Head of State for the United Kingdom and Canada, Her Majesty has overseen immeasurable change over the past 70 years. Our condolences to the Royal Family and the millions worldwide who will mourn her loss.
I join Teachers' and others in offering my condolences to the Royal Family and the millions worldwide who will mourn her loss. It is hard imagining a world without the Queen, she was a remarkable monarch.
Below, take the time to view both clips featuring OTPP's CEO Jo Taylor. If you want to understand why Teachers' is a great organization, listen carefully to its leader and where they are heading.