Shift Toward Inflation-Resistant and Climate-Focused Assets Discussed by Barbara Zvan of UPP
The University of Pennsylvania Pension (UPP), a Canadian pension plan launched in 2021, has shown a measured commitment to both inflation-sensitive assets and climate solutions. With over 40,000 members across five Ontario universities and 14 sector organizations, UPP has made significant strides in its investment strategy.
UPP's focus on inflation-sensitive assets is evident in its allocation to Treasury Inflation-Protected Securities (TIPS), with about 2.5% of assets invested in TIPS as of the end of 2024. This strategic move aims to protect against inflation erosion and mitigate inflation risk within the pension portfolio.
In terms of climate solutions, while direct references to a specific policy or ESG integration in UPP investments may not be explicitly detailed, the pension plan likely embeds climate risk considerations within its overall fiduciary and investment governance framework. This is mediated by dedicated legal and strategic investment leadership, such as Herbie Bohnet, Associate General Counsel for the University of Pennsylvania’s Office of Investments.
UPP has also prioritized assets that offer inflation protection. As of 2024, UPP is fully funded and has reported an annual net return of 10.3%. The funding ratio improvement has led to a focus on income generation, with bonds helping to stabilize returns and reduce volatility in UPP's portfolio, while infrastructure offers steady, long-term cash flows with inflation protection.
UPP's climate considerations are a core criterion in its selection process for external managers. The pension plan has pledged C$1.2bn for climate solutions by 2030, with more than half already committed. UPP has made co-investments in infrastructure with Arjun Infrastructure Partners and with Copenhagen Infrastructure Partners.
In private markets, UPP has allocated private credit to Arrow Global Group and private equity to Kohlberg & Company. UPP also invests in public markets with managers such as Impactive Capital, Whitebox, Ashmere, and Episteme Capital Partners.
Barbara Zvan, UPP's president and CEO, brings over 25 years of experience from Ontario Teachers' Pension Plan to her role. Under her leadership, UPP ranks comparatively high on Shift's Annual Scorecard, measuring climate commitments of Canadian pension funds.
UPP's portfolio is divided into three categories: return-enhancing (equities and private markets), inflation-sensitive (infrastructure and real estate), and interest rate-sensitive (fixed income). Climate considerations have been integrated into UPP's investment decisions from the start, with most of the progress in reducing emissions having been in listed equities.
In private markets, however, reducing emissions presents greater challenges. UPP continues to work towards solutions in this area, recognising the importance of addressing climate risk in its investment strategy.
References: [1] University of Pennsylvania Pension (UPP) Investment Strategy. (n.d.). Retrieved from https://www.upp.ca/wp-content/uploads/2022/03/UPP-Investment-Strategy-2022-03-01.pdf [2] Shift's Annual Scorecard. (n.d.). Retrieved from https://www.weareshift.org/scorecard/ [3] Best Practices for Pension Fund Governance. (n.d.). Retrieved from https://www.investmentcounsellors.org/best-practices-pension-fund-governance/ [4] Climate Risk in Pension Investments. (n.d.). Retrieved from https://www.cdp.net/en/resources/insight/climate-risk-pension-investments
- The University of Pennsylvania Pension (UPP)'s investment strategy, although not explicitly detailing ESG integration, embeds climate risk considerations in its overall fiduciary and investment governance framework, as demonstrated by its pledge of C$1.2bn for climate solutions by 2030.
- UPP's environmental-science investments beyond listed equities pose greater challenges in reducing emissions, but the pension plan continues to work towards solutions in this area, understanding the significance of addressing climate risk in its investment strategy.
