Item - 2018.EX35.16

Tracking Status

  • City Council adopted this item on June 26, 2018 with amendments.
  • This item was considered by the Executive Committee on June 19, 2018 and adopted without amendment. It will be considered by City Council on June 26, 2018.
  • See also By-law 826-2018

EX35.16 - City of Toronto Investment Report for 2017 and the First Quarter of 2018 and Policy Update

Decision Type:
ACTION
Status:
Amended
Wards:
All

City Council Decision

City Council on June 26, 27, 28 and 29, 2018, adopted the following:

 

1.  City Council approve the following amendments to the City Council-approved Investment Policy (Policy) and adopt the amended Policy set out in Attachment 2 to the report (June 5, 2018) from the Interim Chief Financial Officer:
 

a.  the Asset Mix for Equities for Long Term Fund and Sinking Fund be adjusted by combining all four equity categories into one category called "Global Equity" with a Targeted Asset Mix of 20-percent with a range from a Minimum of 0-percent to a Maximum of 30-percent;

 

b.  the MSCI All-Country World Index be included as a benchmark to measure the performance of the equity portfolio in its entirety for the Long Term Fund and Sinking Fund;

 

c.  the benchmark for the Fixed Income component of the Sinking Fund be changed to "Customized" based on the "Liability Driven Investments" approach;   

 

d.  the average credit rating of the fixed income portfolio for the Long Term Fund and Sinking Fund be lowered from "A" to "A-" (or equivalent) to be equal to the fixed income benchmark (Financial Times Securities Exchange (FTSE) TMX Universe Canada Bond Index);

 

e.  the Asset Mix for the Trust Fund be adjusted by increasing the Maximum weight of Schedule 1 Bank from 50 percent to 100 percent which aligns with the current limit in the Investment Policy for the City's Short Term Fund; and

 

f.  the minimum credit rating requirements of the Schedule 1 Banks for the Trust Funds be lowered from "AA-" to "A" (or equivalent) to be the same as the requirements for the City's Short Term Fund.

 

2.  City Council establish a corporate reserve account named the Investment Stabilization Reserve in Schedule 3 - Stabilization Reserves of City of Toronto Municipal Code Chapter 227, Reserves and Reserve Funds ("Chapter 227"), the purpose of which is to stabilize investment income contributions to the operating budget by minimizing in-year variances through receiving funds in years when investment income is in excess of the amount expected in the operating budget and withdrawing funds in years when investment income is below budget, with criteria as set out in Attachment 5 to the report (June 5, 2018) from the Interim Chief Financial Officer.

 

3.  City Council request the Executive Director, Corporate Finance to report to the Executive Committee in the first quarter of 2019, in consultation with the Toronto Investment Board, the Chief Executive Officer and Board of The Atmospheric Fund, the C40 Cities Climate Change Leadership Group and relevant industry stakeholders, on possible amendments to the Statement of Investment Policy and Procedures that would:

 

a. improve Section 6.6 Environment, Social and Governance Factors to reflect current responsible investment best practices, excluding fossil fuels from the portfolio, and actively investing in clean energy and climate solutions;

 

b. enhance Section 2.2 Investment Beliefs including recognition of Environment, Social and Governance factors as material to risk/return outcomes; and

 

c. add an asset class for Direct Investment with a focus on investments that would benefit and enhance  the local economy in Toronto.

 

4. City Council further advise the Toronto Investment Board of the request in Part 3 above and of Council's intent to review the investment policy as it relates to fossil fuel investments, climate risk and climate solutions.

Background Information (Committee)

(June 5, 2018) Report and Attachments 1, 3, 4, 5 from the Interim Chief Financial Officer on City of Toronto Investment Report for 2017 and the First Quarter of 2018 and Policy Update
https://www.toronto.ca/legdocs/mmis/2018/ex/bgrd/backgroundfile-116241.pdf
Attachment 2 - Statement of Investment Policy and Procedures
https://www.toronto.ca/legdocs/mmis/2018/ex/bgrd/backgroundfile-116242.pdf

Motions (City Council)

1 - Motion to Amend Item (Additional) moved by Councillor Mary-Margaret McMahon (Carried)

That:

 

1.  City Council request the Executive Director, Corporate Finance to report to Executive Committee in the first quarter of 2019, in consultation with the Toronto Investment Board, the Chief Executive Officer and Board of The Atmospheric Fund, the C40 Cities Climate Change Leadership Group and relevant industry stakeholders, on possible amendments to the Statement of Investment Policy and Procedures that would:

 

a. improve Section 6.6 Environment, Social and Governance Factors to reflect current responsible investment best practices, excluding fossil fuels from the portfolio, and actively investing in clean energy and climate solutions;

 

b. enhance Section 2.2 Investment Beliefs including recognition of Environment, Social and Governance factors as material to risk/return outcomes; and

 

c. adding an asset class for Direct Investment with a focus on investments that would benefit and enhance  the local economy in Toronto.

 

2. City Council further advise the Toronto Investment Board of the above request and of Council's intent to review the investment policy as it relates to fossil fuel investments, climate risk and climate solutions.

Vote (Amend Item (Additional)) Jun-26-2018 6:42 PM

Result: Carried Majority Required - EX35.16 - McMahon - motion 1
Total members that voted Yes: 28 Members that voted Yes are Paul Ainslie, Maria Augimeri, Ana Bail„o, Jon Burnside, John Campbell, Christin Carmichael Greb, Gary Crawford, Janet Davis, Glenn De Baeremaeker, Justin J. Di Ciano, Frank Di Giorgio, Sarah Doucette, Michael Ford, Mark Grimes, Jim Hart, Norman Kelly, Mike Layton, Josh Matlow, Mary-Margaret McMahon, Miganoush Megardichian, Frances Nunziata (Chair), James Pasternak, Gord Perks, Jaye Robinson, Michael Thompson, John Tory, Lucy Troisi, Jonathan Tsao
Total members that voted No: 2 Members that voted No are Stephen Holyday, Giorgio Mammoliti
Total members that were Absent: 15 Members that were absent are Josh Colle, Joe Cressy, Vincent Crisanti, John Filion, Paula Fletcher, Mary Fragedakis, Michelle Holland, Jim Karygiannis, Joe Mihevc, Denzil Minnan-Wong, Cesar Palacio, Anthony Perruzza, Neethan Shan, David Shiner, Kristyn Wong-Tam

Motion to Adopt Item as Amended (Carried)

EX35.16 - City of Toronto Investment Report for 2017 and the First Quarter of 2018 and Policy Update

Decision Type:
ACTION
Status:
Adopted
Wards:
All

Committee Recommendations

The Executive Committee recommends that:  

 

1.  City Council approve the following amendments to the City Council-approved Investment Policy (Policy) and adopt the amended Policy as set out in Attachment 2 to the report (June 5, 2018) from the Interim Chief Financial Officer:
 

a.  the Asset Mix for Equities for Long Term Fund and Sinking Fund be adjusted by combining all four equity categories into one category called "Global Equity" with a Targeted Asset Mix of 20-percent with a range from a Minimum of 0-percent to a Maximum of 30-percent;

 

b.  the MSCI All-Country World Index (MSCI ACWI) be included as a benchmark to measure the performance of the equity portfolio in its entirety for the Long Term Fund and Sinking Fund;

 

c.  the benchmark for the Fixed Income component of the Sinking Fund be changed to "Customized" based on the "Liability Driven Investments" approach;   

 

d.  the average credit rating of the fixed income portfolio for the Long Term Fund and Sinking Fund be lowered from "A" to "A-" (or equivalent) to be equal to the fixed income benchmark (Financial Times Securities Exchange (FTSE) TMX Universe Canada Bond Index);

 

e.  the Asset Mix for the Trust Fund be adjusted by increasing the Maximum weight of Schedule 1 Bank from 50 percent to 100 percent which aligns with the current limit in the Investment Policy for the City's Short Term Fund;

 

f.  the minimum credit rating requirements of the Schedule 1 Banks for the Trust Funds be lowered from "AA-" to "A" (or equivalent) to be the same as the requirements for the City's Short Term Fund.

 

2.  City Council approve the establishment of a corporate reserve account named the Investment Stabilization Reserve in Schedule 3 - Stabilization Reserves of City of Toronto Municipal Code Chapter 227, Reserves and Reserve Funds ("Chapter 227"), the purpose of which is to stabilize investment income contributions to the operating budget by minimizing in-year variances through receiving funds in years when investment income is in excess of the amount expected in the operating budget and withdrawing funds in years when investment income is below budget, with criteria as set out in Attachment 5 to the report (June 5, 2018) from the Interim Chief Financial Officer.

Origin

(June 5, 2018) Report from the Interim Chief Financial Officer

Summary

This report was written to comply with the Council-approved Investment Policy and provides the following information:

 

1.  Performance of the Funds – for the year of 2017 and for the first quarter of 2018

2.  General Market Update and Benchmark Performance

3.  Recommendations for Investment Policy Changes

 

During 2017, the City's investment portfolio that holds the City's working capital and the amounts designated for the City's reserves and reserve funds earned $130.9 million in 2017 and $36.5 million in the first quarter of 2018 (2.6 percent and 3.2 percent annualized respectively). 

 

The City's sinking funds portfolio that holds funds for future debt repayments earned $59.7 million in 2017 and $13.5 million in the first quarter of 2018 (3.8 percent and 3.2 percent annualized respectively).  

 

Effective January 1, 2018, the City's investments are now managed under a new City Council adopted Investment Policy which is based on the prudent investor standard. Minor changes to the Investment Policy are recommended in order to improve the efficiency and effectiveness of the Toronto Investment Board's (the Board) Investment Plan. 

 

This report also responds to City Council direction to report on the selected investment manager's Environmental, Social and Governance (ESG) polices, and other developments related to Environmental Social and Governance factors. Environmental Social and Governance policies are an important part of the investment manager selection process currently underway. The City will recommend only those prospective fund managers who are United Nations Principles of Responsible Investing signatories, or equivalent, and use these principles in their investment decision process.

Background Information

(June 5, 2018) Report and Attachments 1, 3, 4, 5 from the Interim Chief Financial Officer on City of Toronto Investment Report for 2017 and the First Quarter of 2018 and Policy Update
https://www.toronto.ca/legdocs/mmis/2018/ex/bgrd/backgroundfile-116241.pdf
Attachment 2 - Statement of Investment Policy and Procedures
https://www.toronto.ca/legdocs/mmis/2018/ex/bgrd/backgroundfile-116242.pdf

Motions

1 - Motion to Adopt Item moved by Councillor Paul Ainslie (Carried)
Source: Toronto City Clerk at www.toronto.ca/council