OPTrust launches sustainable investing, innovation team with capital allocation mandate

While the OPSEU Pension Trust has been focused on responsible investing for some time, it’s bringing its sustainability activities to the next level with the introduction of a sustainable investing and innovation team.

Launched in late 2019, the team’s responsibilities will include continuing to strengthen the organization’s traditional responsible investing activities. It will also have the mandate of developing and executing a new capital allocation function.

The team is headed by a new hire, Alison Loat, who joined the OPTrust as a managing director from FCLTGlobal.

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She says the capital allocation strategy will focus on some of the longer-term risks and opportunities that could affect the sustainability of the plan that its current investment teams aren’t looking at for different reasons. “We’re just in the process now of determining that strategy and starting to socialize it.”

Climate change will likely be the first area of focus for the investment strategy, adds Loat.

The specific amount of the pool of capital to be allocated to the team is yet to be determined, but it will come from the OPTrust’s incubation portfolio — a pre-existing pool of assets equal to 1.5 per cent of the pension fund’s total assets that’s available to the various investment teams to incubate new ideas.

“I think the main thing for us at this time is to really look at areas that we can be complimentary to our existing teams,” says Loat. “So we might be able to look at things that other teams can’t or won’t or don’t, for the reasons that they’ve got certain expectations around . . . risk bands and so some things naturally fall out of that.”

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While still early days, a hypothetical example is that the real estate team might find an interesting service that makes buildings more sustainable. “Now they don’t invest in that, but that might make sense for us to invest in.”

Although the term impact investing is used broadly in the industry, Loat doesn’t call the capital allocation strategy an impact investing strategy. The team will focus on sustainability, but the strategy is returns-focused first, given the fiduciary duty of the OPTrust as a pension plan. “But obviously, we are very mindful that it is really important that what we invest [in] does contribute positively to the world we live in.”

Also, the team isn’t restricted to a specific asset class, but Loat highlights it will aim to complement, instead of duplicate, existing activities. “So we wouldn’t be purchasing real estate assets, for example, because we have a team that does that.”

The team is currently comprised of four people: Loat, a portfolio manager, an analyst and an operations manager. It will also be hiring an associate portfolio manager and another analyst.

This article originally appeared on Benefits Canada‘s companion publication, the Canadian Investment Review.