Report highlights sustainability as a business imperative for investors and companies alike
TORONTO, Sept. 29, 2020 /CNW/ – Canada Pension Plan Investment Board (CPP Investments) has published its annual Report on Sustainable Investing, which outlines the organization’s approach to environmental, social and governance (ESG) factors. It includes:
- New data showing investments in global renewable energy companies more than doubled to
$6.6 billion in the year to June 30, 2020. Partners include Alberta’s Enbridge Inc. and Brazil’s Votorantim Energia;
- A new section which formally sets out for the first time CPP Investments’ expectations of our portfolio companies;
- Increased detail on how our investment teams assess the potential impact of climate change on our portfolio and new investment opportunities; and
- The latest work of our Climate Change Opportunities strategy.
“This new century has fundamentally changed the nature of business, with the heightened expectations of stakeholders helping to bring ESG issues to the forefront. We believe that by fully considering ESG risks and opportunities, we become better investors and are able to enhance returns and reduce risk for the Fund’s more than 20 million contributors and beneficiaries,” said Mark Machin, President & CEO, CPP Investments. “Addressing sustainability is not just pressing for society and the planet – it is a business imperative.”
In the report, CPP Investments articulates its support of companies aligning reporting with the recommendations of the Sustainability Accounting Standards Board (SASB) and the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
“We require that companies we invest in demonstrate that they have, or are working towards, effective and diverse boards of directors, have incentives aligned to long-term performance, effective disclosure of material climate change impacts and that they clearly articulate how integration of ESG factors has informed strategy and enhanced returns or reduced risk in the business,” said Richard Manley, Managing Director, Head of Sustainable Investing, CPP Investments. “Companies should also have a culture that proactively identifies emerging risks and opportunities and seeks solutions to reduce or capture their potential.”
Some other key highlights of the 2020 report include:
- Climate Change: we provide greater clarity regarding our views on the energy industry’s evolution in the context of climate change, including our support of and partnership with companies in the development of solutions and strategies as we move to a lower-carbon world.
- Engagement: we highlight the importance we place as an active manager on engagement with businesses on focus areas including climate change, water, human rights, executive compensation and board effectiveness. We believe engagement gives us a powerful influence with the Canadian and global companies in which we invest. Active ownership through constructive engagement can significantly reduce investment risks and enhance and sustain returns over time.
- Partnerships: CPP Investments continues to leverage partnerships and collaborations globally to help improve transparency and standards on ESG, promoting governance best practices and advocating for long-term thinking in the investment and corporate worlds.
Produced during the COVID-19 pandemic, the report also cites how the pandemic has reaffirmed the organization’s belief in the importance of having a resilient long-term strategy and incorporating ESG issues into the investment process.
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that invests around the world in the best interests of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments in public equities, private equities, real estate, infrastructure and fixed income instruments are made by CPP Investments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. As of June 30, 2020, the Fund totalled C$434.4 billion. For more information about CPP Investments, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.
SOURCE Canada Pension Plan Investment Board
For further information: Darryl Konynenbelt, Director, Media Relations, CPP Investments, +1 416 972 8389, [email protected]; Steve McCool, Director, Corporate Communications, CPP Investments, +44 7780 224 245, [email protected]
Citigroup Beefs Up China Expansion With Investment Bank Plan – BNN
(Bloomberg) — Citigroup Inc. is planning to include an investment banking unit in China to take advantage of an expected steady stream of big stock deals as the nation opens up and liberalizes its financial markets, a person familiar said.
In intensifying discussions in recent months, the bank’s senior executives in Asia have been lobbying the bank’s top brass in New York to revive an application as part of a plan to form a China securities business, the person said, asking not to be identified before a final decision is made.
Its local executives last year considered opting out of establishing an investment bank, balking at the costs of hiring at least 35 people as regulations require, people familiar said at the time. The U.S. bank initially planned to focus only on building its brokerage and futures trading business and expanding its custodian services.
The strategy shift, which will require more capital, comes after the introduction of a new technology board in Shanghai, as well as eased rules for selling shares to the public, which is expected to generate lucrative fees on a slew of new economy IPOs over the next few years.
The bank will now need to play catch up with rivals including JPMorgan Chase & Co. and Goldman Sachs Group Inc. who have already won approval to take control of Chinese securities operations after the country this year opened fully to foreign banks.
Citigroup has tread carefully in China amid increased political tension between the two powers as well as regulatory pressure in the U.S.
The bank has been dogged by issues of risk controls, having fines imposed on it by U.S. regulators. Some executives have expressed concerns it may not receive the blessing by the U.S. Federal Reserve for its China expansion, the person said. The lender was this month assessed a $400 million penalty by the Office of the Comptroller of the Currency, which also demanded the bank seek its approval before “significant new acquisitions” and advance approval for anything beyond “hedging, market making and securitization transactions.”
A Citigroup spokesman declined to comment.
Citigroup is one of four sponsors arranging a massive initial public offering from billionaire Jack Ma’s Ant Group, which is said to seek to raise about $35 billion with dual listings in Shanghai and Hong Kong. Share sales on the mainland have jumped 63% this year, partly driven by the emergence of the country’s new Nasdaq-style STAR board which opened last year, according to data compiled by Bloomberg.
The U.S. bank generates more than $1 billion of revenue a year from its China-based clients — a tenfold increase from a decade ago. Its locally incorporated bank currently has outlets in 12 Chinese cities and held 178 billion yuan ($27 billion) of assets by the end of last year, according to its annual report. It also operates four small lending entities in China, according to its website.
©2020 Bloomberg L.P.
Analysis: U.S. investment bankers' new pitch – Biden's tax hike – The Journal Pioneer
By Joshua Franklin and Chibuike Oguh
(Reuters) – Investment bankers keen to win lucrative assignments have a new pitch for U.S. corporate owners: hire us to sell your company now or pay at least twice as much in taxes if Democratic presidential candidate Joe Biden has his way.
Biden has proposed raising the capital gains tax rate from 20% to 39.6% for those making over $1 million. He would also increase the corporate income tax rate from 21% to 28%.
Biden would have to win the presidency and his Democratic Party would have to gain control of the Senate and keep control of the House of Representatives in the Nov. 3 election for his tax proposals to become law. While far from certain, this prospect has been seized on by bankers hungry for new business.
“We urge all of our current and potential clients to take note of the potential forthcoming changes, along with their associated consequences, as they consider an exit strategy for their business in the near future,” Houlihan Lokey Inc bankers wrote in a note earlier this month.
The Biden campaign did not immediately respond to a request for comment.
The investment bankers’ pitch is geared toward individuals and families, as well as private equity firms, who control companies and can decide when to sell them. It also targets company founders, who may only sell one business in their lifetime, making it the most important transaction of their lives.
The strategy appears to be working. Sales of privately held U.S. companies totaled a record $253 billion in the third quarter, up fivefold from the second quarter and up 51% from the third quarter of 2019, according to financial data provider Dealogic. This is despite the COVID-19 pandemic suppressing corporate valuations in some sectors.
“Since the summer we have seen a lot of dialogue from family offices about exploring a sale of some assets. Many of these investors are sophisticated about how they handle their affairs from a tax perspective,” said David Perdue, a partner in investment bank PJT Partners Inc’s strategic advisory group.
One of the U.S. companies pursuing a deal because of tax considerations is Asplundh Tree Expert LLC, a family-controlled tree-trimming firm, according to people familiar with the deliberations.
The family that has owned Asplundh since 1928 has been keen to hold onto the company and resisted overtures to sell to private equity firms hungry for a quick flip. When one of these firms, CVC Capital Partners Ltd, convinced the Asplundh family to sell it a minority stake in 2017, it had to use a buyout fund it manages that is dedicated to retaining holdings for a decade or more, rather than cashing out after a few years.
Now the Asplundh family is working with investment bankers to cash out on part of its stake, partly because of its concerns about upcoming changes in the tax system, one of the sources said. It is seeking a valuation for Asplundh of as much as $10 billion, according to the sources. Asplundh did not respond to a request for comment.
Even if Biden wins and implements his tax plan, corporate owners may still have time to cash out. Most of President Donald Trump’s corporate tax cuts, which were enacted into law in 2017, became effective in 2018, a year after he came into office.
Still, the big uptick in the divestitures of privately owned companies shows how some of their owners view Biden’s election victory, and subsequent tax changes, as likely.
BEST PRICE VERSUS TAX SAVINGS
Goldman Sachs Group Inc advised on more sales of privately held U.S. companies year-to-date than any other, followed by Morgan Stanley , JPMorgan Chase & Co and Bank of America Corp , according to Dealogic.
To be sure, getting the best price is still the overriding consideration for corporate sellers, rather than saving on taxes, investment bankers said. Private equity firms, in particular, are wary of being criticized by investors if they think they sold a company for the tax benefit of buyout fund managers, rather than getting the best price.
“There is a tax consideration and there is a more strategic consideration. The tax consideration only applies if you are ready to sell and could attain attractive valuation multiples that could lead to a successful sale,” said Solon Kentas, co-head of M&A for the Americas at UBS Group AG
(Reporting by Joshua Franklin and Chibuike Oguh in New York; Editing by Greg Roumeliotis and Lisa Shumaker)
The CPP fund aligns the pursuit of a cleaner planetwith its investment goals – WellandTribune.ca
As CPP Investments winds down its 2020 public meetings in each province, we welcome perspectives on one of society’s greatest challenge — climate change. This universal threat is real, serious and happening now. All of us should be asking ourselves whether we are acting responsibly in the face of it.
Multiple dimensions define our approach. Our exposure to conventional energy as a percentage of our overall investment portfolio has dropped precipitously to 2.6 per cent today from 4.6 per cent three years ago. Over this same period, our investments in renewable energy have increased exponentially by nearly 10,000 per cent to $6.6 billion.
We might be urged to abandon our own investment thesis and engagement work and simply divest from conventional energy according to a specific target linked to policies of government, from which we must always remain independent. Such a target, by definition, is a matter of wider public policy, not an investment decision, in stark contrast to clear objectives enshrined in our enabling legislation. Importantly, we are equally accountable to 10 governments so that would involve administering diverse policies with varied interests and approaches to the energy evolution.
If not politics, what drives our investment thesis? Insights from real-time analysis of powerful climate-related trends in household and corporate consumption, technology and innovation, and global regulatory developments orient our compass and momentum. The question is whether our approach is in the best interests of contributors and beneficiaries.
This question was foremost in the minds of federal and provincial governments in 1997. The clarity of the CPPIB Act they promulgated is rooted in the looming crisis the legislation sought to avert. Simply put, the Canada Pension Plan was running out of money.
The CPP Fund was exclusively composed of low-yield government bonds at the time. Exposing it to global capital markets was viewed as part of the solution and so an independent organization of investment professionals was established to manage the fund to achieve a maximum rate of return without taking excessive risk, recognizing that having a multitude of objectives would hamstring the fund. The Right Honourable Paul Martin, Canada’s finance minister at the time, emphasized the wisdom of clarity:
“By placing the focus on maximizing returns, all other potential distractions are eliminated. Markets don’t need to fret that investments are being guided by political considerations. Managers are liberated to pursue the best possible financial strategies. And pensioners can be reassured by the fact that the CPP will be used to benefit retirees — and only retirees.”
Consequently, the CPPIB Act sets no ancillary policy requirements. Invoking some amorphous duty — removed from clear investment parameters — simply contradicts our mandate.
From our perspective, climate change is not only an existential threat, but is also a long-term investment risk. It impacts our analysis and actions on virtually every sector of the global economy — beyond fossil fuels. Our approach is well-documented in our “Report on Sustainable Investing” published in September.
Since inception 21 years ago, our investment strategy has evolved considerably to reflect global best practices, emerging risks and opportunities, and trends described above. Governments, investors and other organizations around the world uphold our framework as the gold standard for pension funds. Our financial performance — 10-year annualized rate of return of 10.7 per cent — is the fruit of a framework determined by Canada’s policy-makers who collectively understood the severity of the challenges associated with sustaining a national fund over many generations.
Sustainability unquestionably involves addressing climate risk. But that is only part of the definition.
Sustainability also applies to the solvency of a fund that promises to provide benefits to workers whose financial future is undeniably more challenging than it is for baby boomers. Young Canadians today will retire into an economy with far fewer workers contributing to the CPP. In 2006, there were more than five Canadians aged 15 to 64 years for each person aged 65 and older. By 2056, there will be an estimated 2.2 working-age persons for each person aged 65 years and older.
Maintaining a solvent national fund is a perpetually difficult challenge and one that requires laser focus, without interference. Politicians make policy, we make investments, and 20 million Canadians sleep more soundly knowing their financial security in retirement is our purpose.
Shackling our progress to non-investment targets, perhaps imposed by external pressure, is precisely what the CPPIB Act sought to avoid. Meanwhile, we firmly believe there is a way to align the pursuit of a cleaner planet and meet our investment goals. Divestment, external pressure and arbitrary targets are excluded from our investment process. They simply do not work.
Divestment is attractively simple. But it also means walking away from the opportunity to bring about change. Engaging with, and demanding greater transparency by, investees on the measurable progress of their climate strategies is constructive. Working with energy companies to accelerate the transition to cleaner energy sources is productive. Divesting from companies that are making a real difference in how we generate energy is counterproductive, akin to betting against human ingenuity and innovation.
We do not downplay the severity of climate change by any means. It is among the most significant challenges of our time, and the actions we are taking today to address both the risks and the opportunities are in the best interests of contributors and beneficiaries.
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