University of Toronto Mississauga
PA-10: Sustainable Investment

We cannot provide exposures for the categories defined above as we either do not have fund investments that specifically meet the category descriptions (e.g., “Socially responsible mutual funds”) or we do not have the analytical tools to assess whether individual securities held by our managers meet the descriptions (e.g., “renewable energy or sustainable forestry”, “Community development financial institutions”).

However, the Endowment portfolio’s exposure to sustainable and low carbon investment funds on December 31, 2022, was 4.1%. Write-ups of some of the strategies/managers within this category are Generation Investment Management (see write-up in our 2022 Annual Report: https://www.utam.utoronto.ca/wp-content/uploads/2023/05/UTAM-Annual-Report-2022.pdf and Impax Asset Management (see write-up in 2020 RI Report: https://www.utam.utoronto.ca/wp-content/uploads/2022/01/UTAM-Responsible-Investing-Report-2020-v2.pdf.

Our commitment to responsible investing at UTAM:

“We integrate environmental, social and governance (ESG) factors into our investment and risk management processes, including decision-making, stewardship activities (through engagement, proxy voting and advocacy), and reporting and disclosure. Our Responsible Investing Committee and all investment, operational due diligence and risk management staff routinely consider ESG risks and opportunities. We apply ESG considerations particularly in our selection of investment managers, and we continually engage with our managers on their responsible investing programs after investment. In our public equity portfolios, we cast proxy votes where possible, using an ESG-focused policy. We encourage investment managers to adopt similarly focused policies (to the extent that they haven't already done so). And through various collaborative initiatives, we’ve actively engaged with corporate issuers, using an ESG-focused policy that promotes accountability in addressing, managing, disclosing and reporting ESG-related risks. We report our responsible investing activities on a regular basis.”

UTAM employs a highly analytical approach to assessing and selecting our external investment managers. Over the years, we’ve defined a series of clear steps for identifying strong candidates, vetting their investment practices and monitoring long-term performance.

One of the areas we assess is the integration of ESG (Environmental, Social, and Governance) factors into the external manager selection process. We evaluate the ESG-related characteristics, carbon footprint, and material ESG risks of the manager’s investment portfolio. We summarize our findings in a proprietary ESG integration rating for each manager and investment strategy that we invest in.

As an institutional investor, we expect a great deal of transparency from potential and current managers – far more than a typical individual investor would receive. This level of transparency is necessary for UTAM’s team to effectively evaluate active managers. For example, in reviewing public equity strategies, managers typically provide historical month-end holdings, which UTAM runs through sophisticated analytical tools to produce reports that include performance and risk attribution; factor exposures (e.g., value, growth and momentum); risk exposures; ESG scores, including carbon footprints; sector and country exposures; the trading history of each position; and more. This information helps us better understand the manager’s investment process and allows us to ask more targeted questions when interviewing the manager’s investment team about their strategies.

Once there is a reasonable probability that the Investment team will recommend investing with a particular manager, we conduct a similarly rigorous review of the firm’s business operations, focusing on people and processes, including corporate practices such as equity, diversity and inclusion policies. We must be confident that a manager not only offers a promising investment opportunity but also operates a sound, well-run business.

Source: https://www.utam.utoronto.ca/investing/selecting-investment-managers/

As a responsible investor and PRI signatory, UTAM has adopted the Institutional Shareholder Services (ISS) Sustainability Proxy Voting Guidelines, and we apply these guidelines wherever possible.

The ISS Sustainability Proxy Voting Guidelines are consistent with the objectives of investors who take an integration approach to responsible investing. Investment managers have traditionally analyzed topics such as board accountability and executive compensation to mitigate risk; incorporating ESG performance into investment decisions provides a more comprehensive understanding of the overall risk profile of investees. On ESG-related matters, ISS sustainability policies promote recognized global governing bodies that encourage sustainable business practices advocating for environmental stewardship, fair labour practices, non-discrimination, and human rights protections. On matters of corporate governance, executive compensation and corporate structure, these policies aim to create and preserve economic value and to advance principles of good corporate governance.

Our Proxy Voting Record:

In 2022, UTAM and its investment managers of funds in which the Endowment was invested cast proxy votes at over 6,400 meetings, representing over 88,000 proposals and agenda items put forward by either management or shareholders. Of these votes, over 8,000 were cast against management’s recommendations.

These proxy voting statistics are for public equity mandates where either the ISS Sustainability Proxy Voting Guidelines were applied in 2022 or, in the majority of cases, where our third-party investment managers provided proxy voting information for the pooled funds in which Endowment assets were invested.

Source: https://www.utam.utoronto.ca/stewardship/proxy-voting/

UTAM believes that one of the pillars of a best-in-class active ownership approach is engagement with the management and boards of companies on ESG considerations. We believe that engagement influences corporate management teams to more effectively manage ESG risks and opportunities, which is essential for long-term outperformance.

Given our size and our practice of investing through third-party investment managers, we more often participate in collaborative engagement groups and initiatives. We believe that the collective influence of like-minded investors with substantial combined holdings will typically lead to better outcomes than we could achieve on our own.

We augment these efforts with the services of specialized engagement service providers. By adding these services to our multi-pronged engagement approach, we leverage the influence of a larger asset base and extend the reach of engagement to represent our ESG concerns to issuers globally. Below we discuss our approach to collaborative engagement in more detail.

UTAM works with EOS at Federated Hermes, a leading stewardship service provider whose engagement activities enable long-term institutional investors such as UTAM to be more active owners of the assets they own or manage, through dialogue with public companies on ESG issues. EOS takes a collaborative approach, seeking client input in setting priorities and providing opportunities to participate in select engagements and learn from their experienced engagement professionals.

In 2022, through EOS, UTAM engaged with 1,139 companies in our long-term portfolios on 4,250 environmental, social, governance, strategy, risk and communication issues and objectives. Of these, 2,617 were linked to one or more of the UN Sustainable Development Goals (SDGs). The SDGs were adopted in 2015 as a global call to end poverty, protect the planet and ensure that everyone enjoys peace and prosperity by 2030. From time to time, we will join EOS in collaborative engagements with corporations on a variety of issues, including sustainability.

In 2022, EOS identified four priority themes:

Climate change action: Many of the world’s largest emitters have made net-zero commitments but don’t have short- and medium-term emissions targets or targets aligned with the Paris Agreement goals. EOS emphasized matching long-term commitments with a Paris-aligned strategy and targets.

Human and labour rights: COVID-19 has exacerbated social inequalities, increasing the risk of modern slavery and limiting access to food and medicines. EOS also focused on indigenous and community rights, and high-risk regions such as disputed territories or conflict areas.

Human capital: EOS pressed companies to provide fair wages and benefits, and emphasized the importance of diversity, equity, inclusion and representation.

Board effectiveness and ethical culture: EOS pressed boards to make improvements to ethnic diversity in line with recent progress on gender diversity. Boards should aim to achieve representation that is reflective of the diversity of the stakeholders they serve.

Source: https://www.utam.utoronto.ca/stewardship/engagement/

Additionally, UTAM collaborates with other institutional investors through various responsible investing organizations and initiatives. Examples of such affiliations and collaborative engagement partnerships include Climate Action 100+, Climate Engagement Canada, 30% Club Canada, and the Canadian Coalition for Good Governance. See here for a full list: https://www.utam.utoronto.ca/stewardship/collaboration-affiliations/.

For a subset of the collaborative corporate engagements, we participate directly with the lead engagers in agenda setting and participate in corporate engagement meetings with corporate management teams.

Moreover, we also collaborated on advocacy initiatives and policy-related discussions in Canada and around the world. Through these collaborations, we share insights and experiences that we feel will benefit other investors while evolving our own policies and processes. We also encourage better responsible investing practices among the companies we invest in and the managers we work with. And by forging productive alliances with like-minded institutional investors, we magnify our collective impact.

Finally, we also engage with our third-party investment managers to encourage them to continually enhance their approaches to ESG integration and engage with the corporate management teams of the companies they own in their portfolios on ESG risks and issues.

Source: https://www.utam.utoronto.ca/wp-content/uploads/2023/05/UTAM-Annual-Report-2022.pdf

In October 2021, the President of the University announced three new sustainability commitments for the Endowment portfolio, intended to further the University’s fight against climate change. One of the commitments was divestment, as outlined below:

UTAM will divest the Endowment portfolio from all direct investments in fossil fuel companies within 12 months of the announcement. This was achieved as UTAM eliminated all direct exposure to fossil fuel companies in the Endowment within the 12-month timelines established by President Gertler (UTAM Annual Report 2022).

For investments in fossil fuel companies made indirectly, typically through pooled and commingled vehicles managed by third-party fund managers, UTAM will divest by no later than 2030, and sooner if possible. UTAM will also allocate 10 per cent of its endowment portfolio to sustainable and low-carbon investments by 2025, representing an initial commitment of $400 million, and is committing to achieve net zero carbon emissions associated with U of T’s endowment by no later than 2050.

Source: https://www.utoronto.ca/news/u-t-divest-fossil-fuel-investments-create-climate-positive-campus

Responsible Investing Affiliations:

We believe that our impact is magnified when we join forces with like-minded investors. UTAM collaborates with other institutional investors through various responsible investing organizations and initiatives, taking a leadership role in establishing best practices in Canada and worldwide. This link: https://www.utam.utoronto.ca/stewardship/collaboration-affiliations/ shows the external organizations supporting advocacy and collaboration to which we currently belong.

UTAM collaborates with other institutional investors through various responsible investing organizations and initiatives, taking a leadership role in establishing best practices in Canada and worldwide. We take on a wide range of board and committee roles with respected organizations in this area, helping to develop and evolve best practices. In 2022, we once again made presentations at industry events and contributed our perspective on investing responsibly to forums of leading institutional investors. We also collaborated on advocacy initiatives and policy-related discussions in Canada and around the world. Through these collaborations, we share insights and experiences that we feel will benefit other investors while evolving our own policies and processes. We also encourage better responsible investing practices among the companies we invest in and the managers we work with. And by forging productive alliances with like-minded institutional investors, we magnify our collective impact.

Examples of our affiliations and partnerships include Climate Action 100+, Climate Engagement Canada, 30% Club Canada, and the Canadian Coalition for Good Governance. See here for a full list Collaboration & Affiliations -
https://www.utam.utoronto.ca/stewardship/collaboration-affiliations/

Source: https://www.utam.utoronto.ca/wp-content/uploads/2023/05/UTAM-Annual-Report-2022.pdf

Advocacy, for UTAM, refers to our interactions with law makers, regulators, and governments with respect to responsible investing considerations.

As part of our advocacy efforts, we encourage policy makers to enhance corporate governance and shareholder accountability. We have also written letters to the Government of Canada asking that it update and strengthen our national commitments to the emissions reduction goal of the Paris Agreement, and that it take immediate and effective measures to eliminate child labour by 2025, as well as forced labour, human trafficking and all forms of modern slavery.

Such advocacy is consistent with our PRI commitment and our ESG-integration approach to responsible investing.

Source: https://www.utam.utoronto.ca/stewardship/#advocacy