The Canadian Source Of Employee Pension Fund Investment And Benefits Plan Management

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September 2007

CPPIB: A Global Leader For SRI

By: David McCann

More and more, investors are looking at the motivations behind their investment strategies. Increasingly, environmental, social, and governance (ESG) issues are playing a factor in those decisions. But motivations can vary depending on the mandate of the institution in question. As an investment manager with a distinct structure, the Canada Pension Plan Investment Board (CPPIB) has been and continues to look at ESG factors as part of its investment strategy. Within its mandate to maximize returns without undue risk of loss, the CPPIB believes that responsible corporate behaviour, with respect to ESG factors, can generally have a positive influence on long-term financial performance.

Framework

In order to understand why we think and invest the way we do, it is best to get a complete picture of the CPPIB. Its governance model is unique in that it competes within a private sector framework of investment management, but, at the same time, is a crown corporation accountable to one federal and nine provincial finance ministers. Operating at arm’s length from governments, it maintains a strong private sector governance model in which the officers report to an independent, qualified board of business experts.

CPPIB global leader

This puts the CPPIB, which manages the $120 billion CPP fund on behalf of 16 million Canadians, in a very unique position, different from other investment management organizations. First, the CPPIB has an ‘investment-only’ mandate whose sole purpose is to maximize returns on behalf of the contributors and beneficiaries that are part of the plan. Second, the CPPIB is a long-term investor. It is within this framework, mandate, and time horizon that the CPPIB has developed and conducts its Policy on Responsible Investing (PRI).

Policy On Responsible Investing

The PRI was first published almost two years ago in October 2005. It commits the CPPIB to encouraging companies to adopt policies and practices that enhance long-term corporate financial performance. Therefore, it looks at ESG factors only as they affect the potential risk and return of investments in accordance with its mandate of maximizing investment returns.

It also works with other investors to advance fiduciary frameworks for responsible investing. An example of that would be its involvement in developing and signing the United Nations’ Principles of Responsible Investing launched in April 2006.

The CPPIB, within its PRI, is guided by three core elements. The first element is engagement with companies in the CPP fund portfolio through proxy voting, working with investor coalitions, and direct communications with managements and boards. Second, it helps to fund and conduct research into the longterm materiality of ESG factors. Finally, it integrates ESG factors into its investment processes.

Engagement

As a large institutional investor with a longterm investment horizon, the CPPIB can use engagement to encourage improved performance on, and disclosure of, ESG issues. CPPIBIt believes that when investors speak out, corporations take note and can be encouraged to take action.

It engages directly with companies and through coalitions of like-minded investors. Generally, it seeks dialogue with senior executives, investor relations, and/ or the sustainability managers at the firm in question.

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