Today, University Pension Plan Ontario (UPP) launched its formal commitment and action plan to achieve net-zero portfolio emissions by 2040 or sooner, with an emphasis on decarbonizing the real economy.
Released in conjunction with UPP’s inaugural Annual Report, UPP’s Climate Action Plan focuses on driving down greenhouse gas emissions in the real economy while hitting portfolio emission reduction milestones for 2025 and 2030 on the path to a net zero portfolio by 2040 or sooner.
“This Climate Action Plan speaks to two deeply connected objectives,” explains Barbara Zvan, President and CEO of UPP. “The first is to grow a strong, resilient fund that secures retirement benefits for our members today and far into the future. The second is to invest in a stable, healthy world for our members to retire into”, Zvan says.
The release of the plan follows dedicated engagement efforts centered on understanding UPP members’ responsible investing values and priorities. “It was important to us to hear directly from our members about their priorities, and it became clear that climate action was at the top of that list, as both a financial and social imperative” says Brian Minns, UPP’s Managing Director of Responsible Investing. “While we have a diverse membership with broad views, we’re hearing a clear call for UPP to address climate-related risks and opportunities not only through our investments, but in how we influence public policy and market systems more broadly.”
UPP’s Climate Action Plan outlines four strategic pillars for action: evaluate, invest, engage, advocate. Commitments under these pillars include:
- Reducing the carbon footprint of UPP’s portfolio by 16.5% by 2025 and 60% by 2030 from a 2021 baseline.
- Implementing a Climate Transition Investment Framework and investing only in new mandates and assets that align with a net zero transition and reduce the emissions intensity of UPP’s assets.
- Developing processes and tools to evaluate climate-related investment risks, opportunities, and impacts across the portfolio
• Engaging (at a minimum) with the 20 top-emitting companies in its portfolio to encourage a swift transition to a net-zero, climate-resilient future and strong climate-related disclosures.- Joining the UN-Convened Net Zero Asset Owner Alliance, which includes a commitment to annual, public disclosures on portfolio emissions profile and reductions against interim targets. UPP will be one of only four Canadian organizations and two pension funds to join the Alliance.
“This is a legitimate and very impressive net zero commitment by UPP,” says Dr. Sean Cleary, Chair of the Institute for Sustainable Finance based at Smith School of Business at Queen’s University. “It is ambitious in setting a 2040 net zero target and pragmatic in recognizing that true impact lies in reducing emissions not just in the fund’s portfolio but in the real world. It demonstrates both strategy and substance—setting interim targets and establishing focused engagement efforts. It’s clear how UPP will move forward and how members and other stakeholders can hold them accountable. These are central components that are critical in a net zero commitment.”
It is no coincidence that UPP is releasing its Climate Action Plan alongside its first Annual Report, says Zvan. “Impact is one of our core values, which we define as fostering a financially, socially, and environmentally resilient future for members in all we do. This value is embedded in our core investment beliefs and approach, as a means for fulfilling our pension promise well into the future. Delivering this Climate Action Plan is a concrete expression of what we have been working toward since day one. More importantly, it is a commitment to how we will grow and make an impact going forward—for our members and the community we all share.”
UPP’s inaugural Annual Report, Building a Bright Future, provides detailed reporting on the Plan’s first six operating months from July 1 to December 31, 2021. Highlights include UPP’s 111% funded status, growing list of participating employers, and six-month return of 5.7%, bringing the Plan’s net assets to $11.8 billion at December 31, 2021.
For further details on UPP’s Climate Action Plan and Annual Report, visit: MyUPP.ca
About UPP
University Pension Plan Ontario (UPP) is a new jointly sponsored pension plan created by and for Ontario’s university sector. UPP currently has 16 participating organizations, over 37,000 members, and more than $11 billion in assets under management.
For more information, visit MyUPP.ca and follow us on LinkedIn.
Earlier this week, I had a chance to talk to Barb Zvan, UPP's President and CEO, and Brian Minns, UPP’s Managing Director of Responsible Investing.
Before I get to our conversation, please take the time to review UPP’s inaugural Annual Report and Climate Action Plan which sets a clear target of reducing the carbon footprint of its portfolio by 16.5% by 2025 and 60% by 2030 from a 2021 baseline.
I posted the key highlights at the top of this post and think it's worth going over some key messages.
First, take the time to read the message from UPP's Chair, Gale Rubenstein:
I note:
"The Board is grateful to Barbara Zvan for her inspiring leadership, dedication to excellence, and vision to establish UPP as a world-class pension plan. The achievements of the past year are a testament to the extraordinary team she has built who - with passion, commitment, and skill - have laid the foundations of a modern, agile and scalable organization, and embody UPP’s values of integrity, inclusivity, ingenuity and impact. We are profoundly proud of their achievements and look confidently to the future."
And this:
"With a strong groundwork laid, we will continually adapt and innovate in service of our members and the promise of a bright new future under UPP. That promise extends to our broader impact on the world, as we take proactive steps to position the Plan for sustainable long-term growth. In this report, we introduce the Plan’s commitment to achieving net-zero greenhouse gas emissions in our portfolio by 2040 or sooner, supported by a comprehensive multi-year climate action plan. This target is ambitious for a new organization, yet essential to our ability to deliver a sustainable pension promise to generations of members to come."
Next, take the time to read President & CEO Barb Zvan's message:
I note:
"Central to UPP, and to any defined benefit pension plan, is the promise for every member to receive a secure and predictable retirement benefit for the rest of their life. To deliver a sustainable pension promise now and for generations to come, the plan must be well funded and built to withstand any environment. I’m pleased to share that UPP is starting from a solid financial position - fully funded with a surplus, and clear goals for performance and growth. As of December 31, 2021, we managed over $11.8 billion in net assets on behalf of 37,000+ members."
She notes that in 2022 they welcomed new participants to the Plan, bringing them to four universities and 12 other affiliated organizations - "with many more expressing interest in our custom-built, sector-specific retirement solution."
She also highlights the importance of engagement with Plan members, stating its an integral part of their growth and success on their behalf.
On sustainability, she is very clear:
A key tenet at UPP is sustainability – both in how we invest and how we operate as an organization. With the deep practical experience in responsible investing and sustainable finance on our leadership team and Board of Trustees, we realize the value of integrating environmental, social and governance (ESG) factors into the DNA of our organization.
It is particularly relevant to a pension fund with generational responsibilities – our ability to deliver sustainable value to current and future members relies on a healthy, functioning market, society, and environment. Our choice to establish distinctive capabilities in ESG and responsible investing not only reflects our fiduciary duty to deliver long-term pension security, but also our value to members. As we build out our investment approach, we commit to doing the hard work to ensure our goals are backed by clear and transparent plans, timelines, and measurable targets that demonstrate a path to success. To that end, our recently released Climate Action Plan provides a tangible example of our commitments in action.
Lastly, I noted this on culture:
Shaping UPP’s culture is something we have approached with early and deep intention, and the strongly held belief that diverse teams, perspectives, and lived experiences contribute to better decisions and a better workplace. Our people are the difference-maker in our ability to execute our strategy, build trusted relationships, and provide the service and investment results underpinning the pension promise.
At the core of our intentional culture is a commitment to Equity, Diversity, Inclusion, and Reconciliation (EDIR). We take our EDIR values seriously and have taken steps to embed them throughout the organization. While I’m proud of the progress we’ve made to date, it is imperative that we continue to make progress engaging and educating our employees, utilizing metrics to track progress, and diversifying our talent pools.
Keep in mind, UPP is very much still in its ramp-up phase but when you read the messages from its Chair and CEO, you see the organization has already set key objectives and strong foundations governing everything from engagement, to sustainable investing to Equity, Diversity, Inclusion, and Reconciliation (EDIR).
Why is this important? Because Barb Zvan is setting a course for this organization and she has hired a very strong team which shares her vision and dedication. She also has the full backing of the Board which recognizes her hard work and that of everyone else at UPP and embraces her vision.
What strikes me reading through UPP's inaugural Annual Report and Climate Action Plan is a deep respect for its members, informing and engaging with them throughout this journey:
This engagement is critical and vital to UPP's success, which is something Barb stressed to me and in her message.
I also note that just like the annual report, UPP's Climate Action Plan is superb, highly informative and very well written, outlining a clear direction for the organization in terms of sustainable investing.
The key targets and commitments are the following but I urge you to read the entire report:
It is worth noting UPP is taking sustainable finance very seriously right from the get-go, which is in and of itself is very impressive given it's only been operational for a year now. This demonstrates the conviction of its leaders and Board on sustainable finance and the importance of laying the right foundations as soon as possible.
Conversation with Barb Zvan and Brians Minns
Alright, let me get to my conversation with Barb Zvan and Brian Minns.
You can read more about them here as well as the bios of other senior leaders.
I want to begin by thanking both of them for taking the time to talk to me earlier this week and also thank Zandra Alexander, Director of Strategic Communications, for arranging the Teams meeting and providing me material ahead of time on an embargoed basis.
Barb began by telling me they are going to try to move up the date of the release of the annual report next year but since it was their first one, they needed a bit more time this year to cover everything.
UPP’s inaugural Annual Report covers the period of July 1st to December 31, 2022.
She also told me they will have progress reports on the Climate Action Plan throughout the year.
As far as key messages, Barb started by stating this:
"We are really proud of how much a foundation we've laid over the last year. We are aiming to build a world-class pension plan. We know our size but we aiming to build a world-class pension plan for our members in the university sector. We also know pension plans do not get built overnight, there's still a lot more to get done but 2021 when you really look at it, it was a build year. We had to do the seamless transition for the 37,000 members, We had to work with four universities and twelve sector organizations to bring them in, so you can imagine the coordination, thoughtfulness, collaboration and knowledge transfer that had to happen in the middle of Covid. So, we are really pleased about how much of tremendous strides we made but going forward, we are focused on making this a world-class pension plan built for scale, built for the universities by the universities."
We then went over some performance highlights for the period covered in the annual report. I noted most of the assets are still managed externally (73%) and that inflation-sensitive assets are minimal compared to peers. Barb replied:
"We have done work on our initial asset-liability study and are looking at bringing that capability in-house. We have identified key changes we want to put in place. You pointed to one of them, we are very low on inflation-sensitive assets. If you go to our website, you'll see we already brought in a Head of Private Markets, Peter Martin Larsen, and he's building a team and the first priority for him is real estate and infrastructure. When we brought the portfolio together, you see what we received, it's a very low amount and the funds are in the decreasing phase of where they are at. A key priority for us, a lot of what we are building is the capability of when that network of interesting partners that are aligned with our investment beliefs and responsible investments, building capabilities to do that due diligence, building capabilities to do co-investments because we can at this size. This is a key priority area for investments."'
She added:
"There's work to do, this is a pension plan serving members for the long term, so looking through what is the interest rate sensitivity mismatch, and how we think about that going forward especially as rates move up. Also, when you bring the three organizations together, we spent a lot of time last year reviewing every manager from an investment due diligence point of view, RI perspective and operations due diligence including tax to give us an informed assessment of what we want to do going forward. But you are correct, right now it's significant external managers and then the rest is total return swaps which you'll see in the financial statement."
I remarked that they already have a team to bring these assets internally but right now, it's still a new plan in a build out phase:
"You're right and this transition will take years. Private assets, there is a liquidity profile associated with them we have inherited. It's no different than other pension plans, when they first started, we at year 1 of that journey."
I asked her about their key focus areas right now:
"It's really across the board. For investments, we have the overall strategy for the organization but bringing forward these strategies within each asset class to the investment committee and board. Teams are making new relationships as well as bolstering the ones we received through managers. When you look at the pension administration side, right now a large part of that is operating through agency agreements. So, the universities provide us with continued support of doing pension administration but we a very focused on getting that capability internally because that's a key enabler. Not every university will want to keep doing their pension administration, so we need to get that sorted and that means we need to start working on cyber, data, all those things that facilitate that. Building relationships with the universities is another key area of focus. We are all knew to this sector, we are very focused on building relationships with the universities, faculty associations, the union groups and the administrations.We recently brought in a new Chief Engagement & Strategy Officer and a Senior Director (Kathy Johnson and Andrew Naples) to help us with engagement with a very complicated stakeholder map. It will really take years to form all those relationships."
I noted that UPP takes engagement very seriously and it comes out in the annual report. Barb added:
"We are going to continue member engagement and inspiration comes from members. Brian can talk about the RI survey. We did a a survey on types of member services, on what's important to them, including selecting vendors. It came out really clear that they want clear communications. They want information and tools and time to make their own decisions. So how do we help them with that. And then there is a lot of work on building the resilience of our infrastructure. It takes a while to bring in all the systems you become depended on (risk system, AL system, etc.). And culture and hiring, we need people to do this, we are meeting people to hire talent. And on the climate side, a lot of work went into the Climate Action Plan to bring it together, to get buy-in, get everybody behind it, and then working externally because part of it is engagement with companies and advocacy and making sure we have the capabilities to do all that."
I shifted my attention there to Brian Minns who gave me some background on the Climate Action Plan:
"Where we landed form a climate action plan perspective reflects our stakeholder interest but also our understanding of the challenges we face in the future. We are very focused on getting toward net zero and stabilizing the climate, recognizing our role as an investor in part to make sure we are paying attention to these issues and that we are investing in a prudent manner but also in that we are catalyzing this transition towards net zero and stabilizing the climate because we need that stable climate to continue generating those returns over the long term. That's very much our dual focus, manage the risk on our portfolio but also catalyze this transition over time. This came through as one of the key priorities from our members. We heard a lot from our members, a lot of them are quite informed and we are happy to take back recommendations, feedback and input to help inform us on where we should focus in terms of our climate plan."
Indeed, many of UPP's members are experts in sustainable finance and other climate areas so I'm certain their input is very valuable to Brian and his team.
As far as the key points of the Climate Action Plan, Brian stated this:
"We have four main pillars in our plan. The first one Evaluate is about understanding what we are investing in and the risks of those investments. I think we are going to put together a climate transition investment framework which is going to help us classify every investment or mandate as either a climate solution or transitioning towards net zero or committed to transitioning toward net zero. This will help us grapple with individual investments and how they fit on that spectrum and making sure all the tools we have around assets and liabilities have climate inputs as well be it scenario analysis or bottom up climate risk exposure. The second pillar is around Invest. We have a net zero target for 2040 for the overall portfolio, we have 2025 and 2030 targets as well but we also want to set a target for investing in climate solution. Once we are done our climate transition framework, we will set a target for climate solution. The next piece is around Engagement, we are very focused on that real world emissions. The best outcome for us is our portfolio emissions are going down because emissions of the world are going down. To achieve that we know we have to engage with companies in our portfolio and with our external managers. And the last piece is we need the conditions for success, so we need public policy advocacy both at the sector level where there are big emissions happening from companies we own but also at the whole financial level and how do we all work together to help drive emissions down."
All great points. I asked Barb about the engagement of asset owners since I see heightened awareness however there are still a lot of challenges out there:
"Absolutely, that's why a few years ago I agreed to do the Expert Panel on Sustainable Finance. Still very active in the Sustainable Finance Action Council which the government set up as one of our recommendations and there they are dealing with data disclosure and taxonomy which are all areas which an individual investor can't solve. And then you see things from ISSB, I was one of the few people who cheered when that announcement came out because fast forward 5 to 7 years and you will have the whole accounting profession behind sustainability and climate data. I think that will bring significant change and improvement for investors. That's over 140 jurisdictions. The US will follow as they want capital and the SEC is already looking into this (not finalized yet but moving in right direction). In Canada, I am really impressed by the Bank of Canada and OSFI playing a much more active role than three years ago. Still challenges, absolutely, but can we wait, no. Can we start moving in the right direction with what we have, absolutely. Do we have to be part of these things so we make sure the solutions are pragmatic for investors, absolutely, yes we do."
She added that international collaboration through things like GFANZ, Net Zero Asset Owner Alliance and Paris Aligned Initiative are critical, including being part of collective engagements like Climate Action 100+ but also Climate Engagement Canada:
"From resources point of view, it makes a lot of sense for a pension plan but it also makes a lot of sense of bringing your voices together and having a stronger collective voice and so there are ways for investors of working together, all those are great examples."
In terms of blanket divestment, Brian said they are very much focused on engagement in terms of driving down emissions and the only exclusion they have now is thermal coal because they identified it as a problem area and discuss this in the Climate Action Plan.
Barb added that they don't believe in blanket divestment but for companies that don't have credible transition plans where there's material risk and engagement is not likely, they've put the framework in place:
"With oil & gas, some investors have chosen to divest, some haven't, it's really complicated. Last week, someone posed the question where you need natural gas to make blue hydrogen. I think we are not ready for blanket divestment but we have put the framework to selectively divest and we have made the commitment to engage with companies and through that process, if they don't have a credible strategy, ultimately they will not meet the criteria and that's the way we like to approach it."
Barb added they did ask their members and "more than half" preferred a more pragmatic approach to these issues. It is on their website.
I will wrap it up there but I must say, I was really impressed talking with Barb and Brian, they're really smart and really nice as well.
Barb did come back to me after our interview with a few more details regarding the annual report highlights and topics we discussed:
- In the 6 months since launch - the plan earned a 5.7% return, increasing assets under management by $600 million, to $11.8 billion.
- We are 111% funded with a surplus.
- We welcomed 4 new participating organizations on Jan 1, 2022, our doors open to all Ontario universities, lots of exciting interest and discussion
- 2021 was a build year. That meant prioritizing a seamless transition for our 37 thousand members, while investing in a resilient, high-performing plan and fund.
- Bringing together the assets of four universities and 12 sector-affiliated organizations under one plan requires a thoughtful and truly collaborative process.
- We are proud to have laid the foundations for a modern, agile, world-class pension plan that will serve our members and Ontario’s university sector for generations to come.
- While a new pension plan isn’t built overnight, the opportunity to design an organization tailored to our members and their needs is profound.
- In our first 12 months, we directly consulted members through dozens of listening sessions, discussion forums, surveys and news updates.
- The ideas, perspectives and feedback we’ve received are essential inputs in shaping our path forward.
- We have made tremendous strides in a short time—all of which reflect our values and deep commitment to sustainability.
- These include: setting a principled investment strategy and developing our asset sub-strategies, launching our Climate Action Plan and net zero commitment, fostering a purpose-driven culture, and attracting the talent necessary to deliver best-in-class services to our members.
As for the Responsible Investing survey results that Barb and Brian referenced, here are some of the stats:
- 60% of respondents expressed the view that ESG factors should be prioritized by UPP, while 29% noted that ESG factors should be considered, but only second to financial returns
- 62% of respondents prefer UPP to be flexible on investing in companies with net-zero commitments
- 51% feel that a mix of setting hard lines and engaging for change makes the most sense
- 54% prefer UPP to invest in companies that are leaders on ESG issues
- 46% want to see UPP set firm expectations for companies to address ESG issues promptly, and help those companies evolve
Again, I thank her for sharing these points with me.
One final note, UPP is a pension plan aggregator, looking to provide a full suite of pension solutions to its members, managing assets and liabilities and taking care of administration.
Given the importance of its members for the betterment of our country, I join many others in wishing this organization tremendous long-term success.
They truly have a great leader at the helm backed by an experienced senior team and great Board and they are laying the foundations to be a world-class pension plan.
There is a lot I couldn't cover so please take the time to review UPP’s inaugural Annual Report and Climate Action Plan to really appreciate the incredible foundations they are setting.
Below, I embedded a UPP Town Hall Meeting where Joanna Lohrenz, UPP’s Chief Pension Services Officer (CPSO) and Nancy Schryburt, Senior Director Member Services, have a conversation and answer members' questions. This is all part of their commitment to engagement.