Alberta Teachers’ Association set to legally challenge pension order

The Alberta Investment Management Corp. is revealing details of how environmental, social and governance factors are used alongside traditional financial analysis in its investment strategy.

According to its first standalone report on ESG integration, the AIMCo first screens potential investments against exclusion guidelines set forth by each of its clients, a group that includes nine defined benefit pension plans. Then, it uses the Sustainability Accounting Standards Board’s framework to uncover material ESG issues.

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In each deal, the investment organization uses bespoke due diligence questionnaires based on the best practices of the United Nations’ principles of responsible investment and the Institutional Limited Partners Association. These questionnaires, which ask for more than 30 responses, are meant to establish whether any ESG issues could have a direct or indirect effect on an investment’s performance that haven’t been priced in.

Last year, the AIMCo also began screening all private, direct equity and debt investments in commercial real estate markets for physical risks related to climate change during the pre-investment due diligence stage. To do this, it uses MSCI Inc.’s climate value-at-risk product, which provides a forward-looking, return-based valuation of climate risks and opportunities at the portfolio level. The AIMCo quantifies these risks using hazard models developed by the insurance sector, said the report.

After an investment is made, the AIMCo’s investors continue to monitor any ESG issues raised in the due diligence process. Their work is supported by the responsible investment team, which monitors ESG management and performance on an ongoing basis. In public markets, the investment organization said it favours stewardship strategies, including proxy voting and engagement with boards and management teams.

In 2022, the AIMCo applied its ESG due diligence process in 88 potential deals with a value of $15 billion. In six cases, the investment committee declined to pursue deals due to issues raised during the due diligence process.

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