Item - 2020.IB9.5

The Toronto Investment Board:

1.  Authorized the Director, Capital Markets to initiate a Request for Proposal (RFP) for a third-party information provider that could provide metrics in the area of assessing Environmental, Social, and Governance (ESG) performance which would facilitate a response to the City Council request to the Toronto Investment Board and the Chief Financial Officer and Treasurer to develop a process to monitor and report on whether or not external investment firms hired by the City are compliant with the terms of the Investment Policy with respect to ESG factors.

2.  Be provided with the results of the  Request for Proposal (RFP) and a recommendation for contract award to the successful third-party Environmental, Social, and Governance (ESG) information provider.

3.  Directed that Confidential Attachment 1 to the report (September 23, 2020) from the Director, Capital Markets remain confidential in its entirety, as it contains information that involves the security of property belonging to the City or one of its agencies or corporations.

This report provides initial Environmental, Social, and Governance (ESG) scoring information from Bloomberg for current portfolios as previously requested by the Toronto Investment Board ("Board"). Initial interviews with all of the investment management firms were also completed to discuss their ESG process and the various tools and resources used.

The report points out some of the issues surrounding ESG scoring.  One complicating factor is the information provided on Bloomberg has no ESG scores for government bonds which is an issue given the holdings of the City's portfolios.  Several of the investment management firms also pointed out the shortfalls of using ESG ratings from a single third party provider. Most investment managers preferred to examine source data and other qualitative factors to produce an overall assessment. 

Although there are shortfalls in the information, it is recommended that a process to procure the services of a third-party ESG information provider that will adequately cover the holdings of the City's portfolios.  This information should not only include overall scores or ratings for ESG, but should also include detailed information with regard to climate change (e.g. carbon metrics) along with additional metrics on social and governance issues.

In addition, the report reviews the United Nations Principles for Responsible Investment (UNPRI) assessment completed on each investment manager contracted by the Board.