Working with the Board, OPB’s leadership team and its investment manager, the Investment Management Corporation of Ontario (IMCO), Chris leads the oversight of OPB’s investment strategies and their implementation and performance.
OPB’s Investment Performance in 2021
Investment markets are an imperfect mirror of larger world events. They always reflect what is happening, but perhaps not always in the way you might expect. The hope for 2021 was that it was going to be a year of reset and recovery, and there would be less volatility than in 2020. However, markets were still significantly affected by volatility driven by ongoing pandemic conditions and the emergence of new COVID variants, global supply chain disruptions and the rise of inflation.
Against this background, OPB still delivered strong results. The Plan’s one-year net return in 2021 (net of fees and expenses) was 9.4%. These solid results were largely driven by Canadian equities, global equities and private equities. While our results for 2021 were generally favourable, the nature of pension investing and evaluating a portfolio like OPB’s require taking a long-term view. Performance over a single year is important, but the real story is in how the assets perform over a longer timeline of five years, 10 years or more. By definition, pension plans invest for the long run, and that focus is reflected in our portfolio and our strategy.
How We Managed Our Investment Strategy in 2021
One of our most significant achievements for the year was completing a new asset/liability (A/L) study, which included receiving Board approval for implementing the plan over the next four years. We also finalized a new Strategic Asset Allocation (SAA) plan that went into effect on December 31, 2021. The A/L study and SAA were developed with input from IMCO, and together they will set out how and what we invest in over the next four years. They will determine what asset classes we invest in and to what degree, and the portfolio weightings of each class. We also introduced two new elements to our investment approach: public market alternatives and leverage. Both of these strategies add diversity while helping to improve the risk and return characteristics of our investment portfolio.
IMCO Delivers Value for PSPP Members
Guided by our SAA, IMCO manages investments for OPB. OPB has several ways to oversee and evaluate cost, performance and value in relation to IMCO, and we take that role very seriously. IMCO was established, in part, to become a global investment organization, able to compete effectively for opportunity and talent against leading private sector firms. Working on behalf of Ontario’s public sector, IMCO continues to actively grow and evolve toward that goal, with several clients and over $70 billion in client assets under management. IMCO’s increasing scale and expanding capacity enable it to eliminate duplications, introduce operational efficiencies, and develop relationships and expertise that will deliver long-term value for all its stakeholders.
Making Progress on Investment and ESG
In 2021, we created and adopted an environmental, social and governance (ESG) investing policy for OPB. While it aligns with many of the choices we were already making, this was a milestone achievement because it concretely articulated our objectives and expectations. Further, the policy provides structure around our own governance and indicates our direction to IMCO. It also reaffirms the Board’s support for an engagement-centred approach to ESG issues. At the same time, our policy makes it clear that if engagement does not deliver the desired results, then divestment is an option.
OPB also hired its own ESG advisor in 2021 and made ESG issues a standing item in every Investment Committee meeting. We also rejoined the United Nations-supported Principles for Responsible Investment (PRI), but now as an asset owner, while previously we had been an asset manager. Membership commits us to supporting and implementing the Principles and to submitting annual reports to PRI on our ESG activities.
In addition to creating our own ESG policies approaches, we supported IMCO in developing their Responsible Investing (RI) approach. IMCO is committed to becoming a leader in RI.
Climate change is another issue at the forefront for both OPB and IMCO. As part of its larger Responsible Investing Policy, IMCO has developed a climate change strategy and Climate Action Plan. In November, IMCO also joined the Paris Aligned Investment Initiative on climate action and committed to achieve net-zero alignment by 2050 or sooner.
How OPB and IMCO are Managing Climate Risk
OPB and IMCO understand the importance and urgency of climate change and are founding signatories of the Canadian Investor Statement on Climate Change. As owners, investors and organizations with our own carbon footprints, we are committed to making significant and meaningful progress in the climate change challenge. Our ESG Policy clearly outlines how OPB addresses ESG issues, including climate risk. The policy also clarifies expectations around IMCO’s progress toward net-zero GHG emissions and comprehensive reporting that aligns with the requirements of the Task Force on Climate-related Financial Disclosures (TCFD).
To help reach its goal of net-zero GHG emissions by 2050 or sooner, IMCO has a robust climate change strategy and Climate Action Plan, and, on behalf of its clients, including OPB, is currently establishing its emissions baseline, which it expects to publish this year.