Environmental, Social and Governance (“ESG”) Investing
Concern for our physical world, social justice and the responsible management of organizations have, for a long time, had a significant influence on humankind. While consideration of environmental, social and governance factors in investing is not new, the emphasis and importance of ESG in institutional investing has become much more prevalent over the past number of years.
While complicated in many regards, the idea of ESG investing is simple at its core. For companies to remain competitive and sustainable, they should run their businesses in a way that aligns with helping manage the environmental, social and governance issues related to their specific organizations and the broader economy. Exceling in ESG areas is expected to contribute positively to an organization’s ability to excel overall.
ESG factors cover a broad array of areas which influence different organizations in different ways. The following table lists some of the more commonly considered ESG factors:
Table provided by Quinn & Partners
The HRM Pension Plan believes that analyzing ESG factors is complementary to more traditionally thought of investment analysis and is likely to;
- Produce beneficial long-term investment returns;
- Provide downside protection in the event of adverse conditions;
- Support the Plan’s fiduciary responsibility to Members as well as provide benefits to a broader group of stakeholders that may be impacted by the Plan’s investments.
Based on these beliefs, the Plan has started down the path of formalizing and enhancing our existing commitment to Environmental, Social and Governance investing. To assist the Pension Office in advancing our ESG investing approach, the Plan has retained Quinn and Partners, a leading management consultancy that specializes in sustainable finance and responsible investment practices. Quinn and Partners has provided the Pension Office Team and Committee with training and resources on the ever-expanding ESG landscape, including some of the challenges industry participants face when implementing responsible investment processes. They have also assisted the Pension Office in developing a formal Responsible Investing Policy that details the Plan’s beliefs and desired ESG investment approaches as well as a two-year road map of action items and themes to explore. We expect the Responsible Investment Policy to be finalized in the Fall and made available to our Members and the general public on our website soon after.
While we already incorporate ESG factors into many of our investment selection and monitoring activities, we understand there is always room for improvement. While maintaining focus on our primary investment goal of maximizing returns for Members, over the next couple of years, the Plan will be:
- Formalizing the ESG criteria used in investment monitoring and due diligence
- Reviewing our proxy voting monitoring and analysis
- Communicating our practices to Members
- Developing minimum expectations of investment manager engagement
- Becoming involved in industry ESG organizations and initiatives
- And much more…
We are excited about the future of investing and excited about the positive impact we believe progressing our focus on ESG will have on our Plan.
Some HRM Pension Plan ESG Facts
- We actively monitor developments in the ESG field.
- We incorporate ESG criteria into our investment manager searches.
- ESG forms a part of our annual monitoring of investment managers.
- All of our public managers are signatories of the United Nations Principles for Responsible Investing (UNPRI).
- In 2021, we expanded our Statement of Investment Policies and Procedures to include ESG as an investment belief.
The HRM Pension Plan putting ESG in Action:
In July 2019, HRM co-invested alongside Asterion in the acquisition of Nabiax, a platform of 11 data centers in Spain, the US and Latin America.
At the time of acquisition, there was no ESG strategy in place at Nabiax. Since then, Asterion has focused on developing a comprehensive ESG strategy for the company which included the following actions:
- A focus on energy, water consumption and waste management identified by tracking power consumption, % of green energy used, water consumption and waste recycled.
- Securing the first green financing transaction in the data center space globally. Pricing for the financing is linked directly to carbon emissions, water use and gender diversity.
- Developing initiatives such as movement detection lighting and recycling initiatives to transition to more sustainable offices.
- Starting measurement and reporting of carbon Scope 1 and 2 emissions on the path to Net Zero.
- A focus on diversity with efforts being made to measure and improve (i) diversity of age, through the creation of an internship program, (ii) diversity of gender, through equal recruiting processes on a no-name basis and (iii) the number of women in management positions.
- Developing initiatives to promote employee satisfaction as well as a healthy environment.
- Developing an initiative with several non-profit organizations in Chile, with the aim of supporting young people in disadvantaged situations and guiding them towards their integration into the labor market.
- Creation of an ESG Committee that meets on a bi-weekly basis and tracks progress on all key initiatives.
- Producing its first ESG report for internal purposes only. A priority for 2022 is to enhance the report and share it with external parties.
Asterion’s work in the ESG space is just one great example of how the Plan’s investment managers and partners are working to incorporate ESG into its investments.