Takeaways from OTPP’s 2023 impact ‘experiment’

Viewing investments through an impact lens provides a unique insight into the business’s value creation potential, according to Robert Sturgeon, managing director at Ontario Teachers’ Pension Plan.

OTPP is one of the world’s largest public pension funds with assets totalling more than C$250 billion (€174 billion; $182 billion). Last year, it established a C$5 billion climate impact pool to decarbonise heavy-emitting sectors such as power generation, heavy industry, mining and transportation. Its impact allocations so far include commitments to Brookfield’s Global Transition Fund and TPG’s Rise Climate strategy.

Speaking on stage the Global Impact Investing Network Impact Forum in Copenhagen, Sturgeon explained that the fund began to develop its impact strategy 18 months ago, and has since settled on a number of key parts of the framework, such as aligning with GIIN’s definition of impact and seeking market rate returns. However, the fund decided to delay finalising its approach until it had developed more hands-on experience.

“We were close to formalising that framework last November when we went to our board, but we found ourselves in a room talking about lots of concepts and lots of different ways that we can hard code a strategy. And we took a step back and said ’you know, we understand this conceptually, we talked a lot of smart people but we haven’t done it’,” Sturgeon said.

As a result, OTPP has taken “2023 to experiment, and to learn more about impact investing empirically”. This has involved selecting nine of its existing investments and subjecting them to a number of impact measurement and assessment processes from multiple providers.

“We learned tonnes through that process,” Sturgeon said. One lesson was that potential investments were “very rarely black and white” when it came to whether or not they were positive or negative from an impact perspective. Instead, investments opportunities “tended to be on some sort of spectrum in the middle”.

Another lesson learned was the role impact can play in value creation. Sturgeon said: “Actually assessing the impact of the product or service of a particular company allows you to actually put yourself in the shoes of your customer or your patient.

“So there wasn’t only a lens to view ‘does this company improve people’s lives?’… but also just seeing that as a real lever for value creation. The more you’re improving your customers lives, the more sticky that businesses are, the more sustainable over the long term.”

The process also highlighted the importance of collecting reliable data on impact performance as a way to fight back against the “politicisation” of impact investing.

“Instead of making claims that say, ‘look at this company, isn’t it virtuous’, by actually having substantiated measure impact you can sort of cut that debate short,” Sturgeon explained.

Going forward, OTPP plans to integrate impact investing “across all of our people [but] not necessarily all of our assets”, meaning that all 450 of its investment professionals will have the opportunity to engage with the impact scene should they wish. Professionals will have the opportunity to look across all asset classes and all regions to find the right investments.