KPMG Canada has seen firsthand the benefits that environmental, social and governance investing can have on employees’ retirement savings and the wider world.
It recently introduced an environmental leaders fund into its defined contribution pension plan lineup. In the month it was launched, contributions into the fund from the organization and its employees played a part in the treatment and saving of 40 million gallons of water and the generation of renewable electricity equal to the annual consumption of 30 households.
“It’s a pretty big impact,” said Christine McCloskey-Bruno (pictured left), the organization’s senior total rewards manager, during a panel session at Benefits Canada’s 2022 Defined Contribution Investment Forum in January.
KPMG Canada’s decision to make ESG investing a part of its DC plan came from listening to employees, but also felt like a natural extension of the company’s beliefs, she said. “I think there’s a general acknowledgment from KPMG that ESG really is going to affect everything we do, both globally and here in Canada. That includes not only our business services lines, but also our pension investment options.”
Also speaking during the panel, Daniel Simard (pictured right), strategic advisor at Bâtirente, a Quebec DC plan for 25,000 workers in 300 labour unions, shared how the organization has taken a different approach to ESG investing. Its managers across all asset categories are signatories to the United Nations’ principles for responsible investing and it monitors them on their ESG and general performance. The fund also has a goal to reduce its exposure to climate risk by 50 per cent by 2025 and to double its capital allocation to impact investments in that time.
“When we decided that we would go on that journey, we decided that it would be across the board,” said Simard. “In our case, it’s not about offering an option.”
The Quebec pension plan sponsor has also hired an external firm to engage with its portfolio companies, he said. “We are firm believers in the fact that we can generate impact through engagement with invested companies.”
Western University’s pension plan, one of Canada’s oldest and largest DC plans with around $1.3 billion in assets under management and around 7,000 members, formally introduced ESG into its investment policy in 2007 and began offering a stand-alone socially responsible investing global equity fund in 2008. The fund represents about 1.7 per cent of the plan’s AUM, said Tom Keenleyside (pictured centre), associate director of investments.
The university has evolved its approach in the years since. It incorporated ESG into manager reviews in 2014 to favour those that are signatories to the PRI and have strong ESG integration. It developed a more comprehensive ESG questionnaire last year. This year, it plans to focus on communications, incorporating ESG information into fund fact sheets, plan member sites and communications, education sessions and annual meetings.
Plan sponsors looking to dip their toes into ESG investing will have different considerations depending on which path they take, according to the panellists. Perhaps the largest challenge is determining how to implement policies and monitoring processes, said Simard. “It’s a very important challenge to gather that information and learn to go beyond the commercial discussion that asset managers offer.”
Finding the right ESG strategy can be a struggle, he noted, because there isn’t yet an abundance in the market. “When you want to raise the level of assets that are impact-seeking, that is a challenge as well.”
When considering additions to the investment lineup, McCloskey-Bruno said KPMG Canada focuses on whether it reflects the organization’s philosophy and values, has a proven track record of long-term performance and a consistent management approach. While the firm also looks for funds with the lowest fees possible, she acknowledged that some ESG funds may justify an increased fee structure.
Keenleyside said Western University has grappled with how to satisfy the “unique ESG preferences” of plan members. While some have called on the plan to exclude certain companies, he said the organization doesn’t believe that’s the best option and leaves those decisions to its investment managers.
He also pointed out that ESG issues can involve an increased workload for pension staff given the learning curve required to understand the landscape and the need to engage in monitoring activities and to educate and address questions from plan members. He also cited the inconsistent methodologies for ESG metrics such as carbon emissions.
Ultimately, while starting an ESG journey can seem daunting, responsible investing is about risk management, said Simard, citing the example of climate change, which will affect many portfolio companies and pension plans’ ability to deliver retirement security to members.
“It’s our members that bear the financial risk of their pension plan. It’s very important for us to really tackle and pay great attention to these risks that we face.”
Read more coverage from the 2022 Defined Contribution Investment Forum.