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.
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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.
Michel Leduc is senior managing director and global head of public affairs and communications for Canada Pension Plan Investment Board.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
