CPP Investment Board's Approach to Responsible Investing:
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  • The CPP was established in 1966 to provide working Canadians with a foundation on which to build their retirement income. It was a joint creation of the federal government and the nine provinces who participate in the Plan. By 1996, it was clear the CPP was unsustainable. For example, in that year $11 billion in contributions came in, but $17 billion in benefits were paid out. As well, demographic projections indicated that there would be far fewer workers whose contributions would be supporting retirees in the coming decades. Federal and provincial finance ministers, who act as stewards of the CPP, took bold action to deal with this problem and put the CPP back on the path to sustainability. Following extensive federal/provincial consultation and discussions with Canadians in all participating provinces, a solution was agreed upon. The reforms included: First, CPP contribution rates were to be raised in stages, reaching 9.9 per cent in 2003. Second, and as a result of these higher rates and other measures, a large pool of assets would be built to help partially pre-fund the plan, and Third, CPP Investment Board was created as a Crown corporation operating at arm’s length from governments to manage and invest the CPP fund to help ensure the long-term sustainability of the Plan.
  • So let’s now look at how this balance between our independence to make investment decisions and our accountability to those responsible for overseeing the Canada Pension Plan works and is maintained.
  • How are we independent? Oversight is provided by an independent board of directors. This board, not governments, approves investment policies and makes critical operational decisions, such as the hiring of the chief executive officer and the setting of executive compensation. To change our legislation requires the cooperation of the stewards. This process mirrors the constitutional amending formula and requires agreement among the federal government and two-thirds of the provinces representing two-thirds of the population.
  • While we operate at arm’s length from governments, we are subject to very rigorous accountability requirements. This is deeply ingrained in our legislation, our governance model and in the policies and practices of the board, officers and employees. Specific examples of our accountability include the following: We have annual audits by an independent external audit firm Every three years, the federal and provincial finance ministers meet to review the CPP Every six years, the federal finance minister, following consultation with the provinces, authorizes a special examination of our records, systems and practices. This is a requirement for all Crown corporations. If deemed necessary, the finance minister also has the power to appoint a firm of accountants to conduct an audit at any time Public meetings are held in all participating provinces every two years We provide regular and timely information on our website so that interested Canadians can monitor the activities and investment performance of the CPP Investment Board. And our annual report is tabled in Parliament by the federal minister of finance
  • The Principle Underlying the Policy As I mentioned before, the CPP Investment Board is a long-term investor consistent with the long-term needs of the CPP. As an owner, we are committed to encouraging companies to adopt polices and practices that enhance long-term corporate financial performance. We began formalizing our commitment to responsible investing long before we adopted the PRI. The first stage of our activities in this area focused on two critical areas: disclosure and corporate governance. Given our belief that disclosure is the key to building confidence and allowing investors to better understand, evaluate, and assess investment risk and return, the PRI reflects the next step in the continuing evolution of our commitment to disclosure: expanding the disclosure focus to include information on ESG factors.

CPP Investment Board's Approach to Responsible Investing: CPP Investment Board's Approach to Responsible Investing: Presentation Transcript

  • CPP Investment Board’s Approach to Responsible Investing: ESG Matters! Babak Abbaszadeh Director, Stakeholder Relations June 26, 2007 – Charlottetown, PEI 2007 CAUBO CONFERENCE
    • Who we are
      • Arm’s length Crown corporation created by federal and provincial governments as joint stewards of the CPP in 1997.
      • Accountable to federal and provincial Ministers of Finance and to Parliament through the federal Minister of Finance
      • A professional investment management organization operating in the private sector with public sector accountability
      • We manage the assets of the Canada Pension Plan not needed to pay current pension benefits
    • Our Mandate
    • Under the Canada Pension Plan Investment Board Act, the objects of the CPP Investment Board are:
      • To assist the CPP in meeting its obligations to contributors & beneficiaries under the Canada Pension Plan
      • To manage the assets transferred to it in the best interests of CPP contributors and beneficiaries
      • To invest its assets with a view to making a maximum rate of return without undue risk of loss , having regard to factors that may affect the funding of the Canada Pension Plan and its ability to meet its financial obligations on any given business day
    • Our History – CPP Reforms
    Federal & Provincial Finance Ministers took Bold Action Crisis
      • $11 billion in and $17 billion out
      • Demographics: fewer workers to support pensioners
      • CPP was unsustainable
    1996 Solution
      • Contribution rates were increased
      • Net cash inflows
      • CPP Investment Board formed to invest assets
    • Our Governance Framework
    Independence Accountability
    • Our Governance Framework (con’t)
    • Independence
      • Board selects CEO and management compensation
      • Investment decisions made by investment professionals
      • CPP Investment Board Act requires federal and provincial governments to amend
    • Our Governance Framework (con’t)
      • Accountability
      • Quarterly Financial Statements
      • Annual Report
      • Public meetings
      • Triennial review of CPP/CPPIB
      • Special exam every 6 years
      • Special audit provision
      • Extensive disclosure
  • Financial Performance
    • Asset Mix
    • Financial Information – continued
    • About the CPP Fund
    • Financial Information - con’t
    13.1 13.1 6.3 10.3 -1.1 2.3 3.0 1.1 Investment Income ($ billions) 5.5 3.6 4.5 4.6 3.1 2.6 1.2 -1.3 CPP Contributions ($ billions) 15.5 35.0 16.7 98.0 2006 8.5 21.9 10.8 81.3 2005 17.6 15.6 14.9 70.5 2004 -1.5 5.3 2.0 55.6 2003 4.0 6.4 4.9 53.6 2002 7.0 4.1 4.2 48.7 2001 3.2 1.1 -0.2 44.5 2000 12.9 Rate of Return (annualized) (%) 48.1 Cumulative Investment Income ($ billion) 18.6 Asset Growth ($ billions) 116.6 Total Assets ($billions) 2007 CPP Fund (As at March 31)
    • Fund Growth Since 2000
    • Projected Assets
    The Chief Actuary of Canada, in the 21 st Actuarial Report on the Canada Pension Plan , has projected that the CPP contributions will exceed annual benefits paid through 2021 providing 15 years in which excess CPP contributions will be available for investment.
  • Policy on Responsible Investing
    • Our Policy on Responsible Investing
    • Our approach
      • Consistent with our investment only mandate:
        • We look at environmental, social and governance (ESG) factors only as they affect the potential risk and return of investments
      • We believe ESG factors can generally have a positive influence on long-term shareholder value
    • Core elements
      • Engagement
      • Research on ESG factors
      • Integration into investment management
    • Our Policy on Responsible Investing
    • The Principle Underlying the Policy:
      • As an owner, we are committed to encouraging companies to adopt policies and practices that enhance long-term corporate financial performance.
        • Extensive review of emerging trends, standards, and initiatives on responsible investing led to adoption of the Policy on Responsible Investing in Oct. 2005.
        • We participated in the development of and were among the first group of signatories to the UN Principles for Responsible Investing established in 2006.
    • Implementing the Policy
    • Direct engagement
      • We seek dialogue with senior executives, board members, investor relations, and/or the sustainability manager
      • Focused on:
        • transparency on relevant ESG factors
        • assurance that the company has a plan to manage ESG issues in the short and long term
    • Implementing the Policy
    • Collaborative engagement
        • UN Principles for Responsible Investment
        • Carbon Disclosure Project
        • Enhanced Analytics Initiative
        • Extractive Industries Transparency Initiative
        • Canadian Coalition for Good Governance
    • Implementing the Policy
    • Engagement strategy
      • Dialogue with public companies to encourage improved performance on and disclosure of ESG factors
      • Own on average 2-3% of shares outstanding of Canadian companies (0.05% for international)
    • How we approach engagement
      • Identify focus areas for engagement
      • Use both direct and collaborative approaches
      • Importance of proxy voting
    • Implementing the Policy
    • Our engagement focus areas
      • Key goal of engagement is transparency
      • Our engagement activities currently focus on key ESG issues in the public equity portfolio
      • Our current areas of focus:
        • climate change
        • extractive industries
        • executive compensation
    • Implementing the Policy
    • Proxy voting
      • Review and vote on proxies for all public equity holdings (over 2000 companies)
      • In the 12 months ended June 30, 2006, we voted at 2,366 meetings on 12,393 agenda items
    • – 17.5% of votes were not in support of management’s recommendation
    • Implementing the Policy
    • Proxy voting - examples
    Blockbuster (first to receive majority support) , Verizon Communications, Occidental Petroleum, Coca-Cola, Yum! Brands, Time Warner Say on Pay Ford Motor Company, General Motors, Exxon Mobil, Wells Fargo & Company, Allegheny Energy, Dominion Resources Report/Adopt Greenhouse Gas Emissions Goals Wal-Mart, Wendy's Int’l, Kellogg Co., Allegheny Technologies, Amgen, CVS/Caremark, Comerica, Safeway, Dillard’s, Comcast, R. R. Donnelley & Sons, Loblaws Prepare a Sustainability Report
    • Implementing the Policy
    • Integration of ESG factors
      • Passive equity: Review the portfolio and consider materiality to identify engagement focus areas
      • Active equity: Integration of ESG factors into quantitative and fundamental research
      • Private Market Investments (incl. infrastructure & real estate): Address ESG factors in due diligence
        • For example, climate change considerations with AWG plc, a UK water utilities company
    • Summarizing Key PRI Activities in 2006-2007
      • Completed the first UN PRI benchmarking survey
      • Joined Extractive Industries Transparency Initiative
      • Announced engagement focus areas
      • Met with several Canadian mining companies regarding human rights concerns abroad
      • Sponsored the Carbon Disclosure Project in Canada
      • Recognized by the Social Investment Organization
      • Review of public equity portfolio with regard to Sudan
      • Letter to tobacco companies regarding WHO Convention on Tobacco Control
    • Conclusion
    • How we define success?
      • We believe active ownership through engagement and integration leads to lower risk and/or higher returns over the long-term
      • Short-term milestones include:
        • increased research on ESG factors raising understanding of risks and opportunities
        • increased company transparency on ESG factors
        • adoption of standards and practices by companies likely to lead to improved performance
    • Conclusion
    • Future direction of responsible investing
      • Collaborative initiatives facilitate institutional investor action
      • Transparency on ESG factors, such as climate change risk, will lead to improved analysis and integration into investment management
      • For our part, we have a commitment to engagement to encourage leading companies and work with laggards to improve performance