Investment Pool
McMaster invests funds in Investment Manager products. In order to reduce performance risk a number of investment manager products are used to achieve diversity across investment style and geography. The selection of investment managers incorporates traditional performance and governance considerations with additional environment, social, and governance (“ESG”) considerations associated with the United Nations 17 sustainable development goals. All of McMaster’s Investment Managers are signatories to the UN Principles for Responsible Investment (“PRI”). All Investment Managers use an ESG-Integrated approach, aligned with the CFA Institute’s current guidance, as part of the manager’s overall company selection process.
McMaster University is a UN PRI signatory and has adopted the Task force Recommendations for Climate-related Financial Disclosures (“TCFD”), which recommends tracking weighted average carbon intensity across portfolio assets and targeting reduction over time. In addition, McMaster is tracking the portfolio’s investments in clean technology solutions and its decreasing exposure to fossil fuel reserves targeting divestment. McMaster’s TCFD transparency disclosures related to governance, strategy, risk, metrics and targets are included in the Annual Financial Report.
Investment Managers
Investment managers are monitored quarterly by the Investment Pool Committee in accordance with the policies and procedures approved annually by the Board of Governors. With McMaster’s adoption of TCFD, a historical record of past investment managers is captured in each Annual Financial Report.
The Investment Pool uses pooled products to access large portfolio products it would not be able to access directly using a segregated account. McMaster does not have any discretionary direction on pooled accounts over the companies selected by the Investment Manager. Segregated or discretionary funds can be directed by the Investment Pool Committee, however if asset classes are removed from a product the performance benchmark used to evaluate the investment manager may need to be changed at the same time.
The current investment managers and products used are listed below with links to the company’s website for further information.
Weighted Average Carbon Intensity
The weighted average carbon intensity measures the Investment Pool’s exposure to potential carbon-intensive companies, expressed in tons green house gas converted to carbon dioxide emissions using the green house gas protocol per million sales, written as tCO2e/$Sales. This metric is recommended by TCFD after global consultations involving over 1,100 organizations.
The weighted average carbon intensity for the Investment Pool as at April 30, 2020 is 197.4tCO2e/$MSales based on 78.6% data availability, as measured by MSCI. Where data is not available, Scope 1 and 2 carbon emissions are estimated using MSCI’s proprietary carbon estimation model. The weighted average carbon intensity for the public equity and public infrastructure is 198.1/tCO2e/$Sales based on 95.1% data availability.
McMaster adopted a decarbonization strategy in 2018 and began measuring carbon exposure to track progress. Since 2018, the Investment Pool has reduced carbon exposure by 33% and within the public equity and public infrastructure by 29%. McMaster’s goal is to reduce carbon exposure by 45% by 2030 and be net zero by 2050.
Source: MSCI Investment Pool and MSCI Public Equity & Public Infrastructure Reports: 2018, 2019, 2020
Clean Technology Solutions
The Investment Pool includes a number of clean technology solutions. MSCI measures the weight of these solutions based on sales across the following categories: alternative energy, energy efficiency, green building, pollution prevention, and sustainable water. The Investment Pool weight of companies offering clean technology solutions is 24%, and across pubic equity and public infrastructure holdings the weight is 33%.
The Investment Pool weights by category are shown in the chart below:
Source: MSCI Investment Pool Reports: 2018, 2019, 2020
Fossil Fuel Reserves
The Investment Pool initiated a decarbonization strategy in 2018. Certain fuels such as coal, oil sands, shale oil and shale gas are arguably more exposed to stranded asset risk. Coal is by far the most intensive fuel emitting twice the emissions per kilowatt hour than natural gas. Stranded asset risk has focused on thermal coal, which is mainly used in power generation. While both thermal and metallurgical coal have a high carbon content, metallurgical, or coking coal is used in steel making and has few substitutes, so many investment managers believe thermal coal is particularly vulnerable to stranding whereas there will still be a future for metallurgical coal.
The Investment Pool has a 3% weight of holdings owning these high impact fossil fuel reserves representing a decrease of 52% since 2018.
Source: MSCI Investment Pool Reports: 2018, 2019, 2020