• Pension plan has invested $2.62 billion in renewables
  • Risk of stranded assets makes oil investment less desirable

Ontario Teachers’ Pension Plan, Canada’s third-largest pension fund, is moving into renewable energy as pressure to combat global warming raises the risk of stranded assets in fossil-fuel investments.

The fund has increased its holdings in wind, solar and hydro power to about C$3.5 billion ($2.62 billion) over the past three years from about nil, said Ontario Teachers’ Chief Executive Officer Ron Mock after an interview with Bloomberg TV Canada’s Pamela Ritchie. The pension plan has C$154.5 billion in assets under management as of March 31.

"If we’re going to invest in something, if we got a choice between a Hummer and a Prius, we’re going to take the Prius every time," he said, in reference to Toyota Motor Corp.’s hybrid car.

Ontario Teachers’ doesn’t want to find itself stuck with stranded energy assets, Mock said Wednesday. The Toronto-based fund prefers to invest in natural gas, and oil will become a smaller part of the portfolio over the next decade as it increases its position in renewables. The fund just appointed a vice president in charge of renewables globally, he said.

"If we have to pay pensions, we’re not going to shy away from" energy companies, he said. "This highly increased level of scrutiny around this risk component is starting to affect what we’ll invest in, who we’ll invest in, or whether we’ll walk away."

At Table

Mock doesn’t see a risk of stranded assets in oil-producing Alberta "anytime soon." Each investment is scrutinized for environmental risk before being presented to the pension board.

Ontario Teachers’ isn’t rushing to divest from conventional energy holdings, which include Calgary-based producers such as Encana Corp., Suncor Energy Inc. and Canadian Natural Resources Ltd. The fund sees an opportunity to have a conversation about responsible corporate environmental stewardship, he said.

"I’d rather have a seat at the table and have a lot of influence and be able to push, than divesting and walking away because the truth of the matter is, they will find a replacement for our capital if we leave the table," he said.

The door "doesn’t get slammed in our face" when Ontario Teachers’ speaks to industry and he said the fund has been gaining some momentum. They have met with about 35 companies to discuss their disclose of carbon footprints, Mock said.

Alberta’s recent moves to increase its environmental regulations, like Ontario, Quebec and California before it, gave investors needed clarity. Mock said he is optimistic about what may transpire from the UN climate talks in Paris and wants to see the federal and provincial governments offer clear environmental guidelines.

"Put something in place that from our perspective, allows us to properly assess the risk, assuming that you’ve got reasonable targets that can be hit over the next decade or decade and a half,” he said. “Then we’ll be able to make an assessment of whether or not this particular investment is high risk or is a low risk."

Mock has led the fund since last year. Ontario Teachers’ manages pensions for teachers in Canada’s most-populous province.

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