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CPPIB Copyright © 2018. Canada Pension Plan Investment Board. All rights reserved. CPPIB and Sustainable Investing January 2019 Presentation at: Institute for the Study of Corporate Social Responsibility at Ryerson University

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Page 1: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

CPPIBandSustainableInvestingJanuary2019Presentationat:InstitutefortheStudyofCorporateSocialResponsibilityatRyersonUniversity

Page 2: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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1.  OriginofCPPIB

2.  EvolutionofCPPIB’sSustainableInvestingapproach

3.  ReportonSustainableInvesting

2

OVERVIEW

Page 3: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

FinancialStabilityforRetiredCanadians

Multi-SourceRetirementIncomeSystem

Definedbenefitordefinedcontributionpensions;GroupRRSPs;PRPPs

WorkplaceSavings

Fundingsource

Employees&SomeEmployers

Taxassistedinvestmentvehicles(RRSPs,TFSAs)

PrivateSavings

Individuals

Meanstestedprograms

OAS&GIS

TaxRevenue

Compulsorycontributionsbyemployersandemployees

CPP

Employees&Employers

3

CPP-AkeypillaroftheCanadianretirementsystem

Page 4: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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AbriefhistoryoftheCPP

CPPcreatedJanuary1966

4

196019701980199020002010

DemographicChallenges

1969-BirthControlpilllegalizedinCanada CPPReform

Debate

1995-ChiefActuaryReportonCPPfinances

2015–YearCPPwouldhavebeendepleted

withoutreform

CPPIBcreatedApril1998

CPPbenefitscontinuallyincreased,withnocorrespondingincreaseincontributions

CPPbenefitsandcontributionsstable

CPPreformagreement1997

EconomicandFiscalChallenges

Contributionsincreased

Page 5: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

DemographicchallengesfacingCPP

5

Retirees Workers

1965

2005

2025

2055

Reasonsfordrasticchangeinratio

Lowerbirthrates

Increasedlifeexpectancy

Insufficientimmigration

Page 6: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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CPPreformdebate

6

ChiefActuaryreportedthatiftheFundcontinuedtofunctionatsamelevel,itwouldbedepletedby2015.Contributionswouldautomaticallyincreaseto13.9%by2030.

Catalyst:1995ChiefActuaryReport

Response:CPPReformdebate

Politiciansofallpoliticalstripesandlevelsofgovernmentcametogethertoreachanagreementandovercomethesechallenges,avertingtheCPPFundfrominevitabledisaster.

Page 7: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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•  TodayCPPIBmanagesmorethan$368billion•  Morethan1,400employees•  OfficesincludeToronto,London,HongKong,NewYorkandMumbai•  Assetsrangefromstocksandbondstorealestateandinfrastructure•  Rankedasworld’s8thlargestpensionfund•  11.6%NetAnnualReturninFiscal2018

Page 8: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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ScaleandCertaintyofAssets

8

•  Ourscaleallowsustoshapeinvestments,notjustrespondtothem

•  Thecertaintyofourassetsandcashinflowsmeansthatwecanbepatientandflexibleinvestors

C$368.3BILLIONTOTALCPPFUND

9.1%10-yearannualizedreturnNetnominal

Page 9: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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Longer-termreturns

NetReturnAnnualized

RealReturnAnnualized

12.1% 9.1%

5-Year 10-Year

10.2% 7.5%

5

Page 10: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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GlobalOrientationandAssetDistribution

10

Page 11: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

FinancialSustainability

•  Everythreeyears,theOfficeoftheChiefActuaryindependentlyreviewsthefinancialstateoftheCPP

•  Lifeexpectancy,risingnumberofpensionersandtheinvestmentreturnsoftheCPPFundarealltakenintoaccount

•  TheChiefActuary’slatestreportconfirmstheCPPisfinanciallysustainableforthenext75years

11

75+DURATIONOFCPPSUSTAINABLITY

YEARS

Page 12: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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Aprofessionalinvestmentmanagementorganization

12

Arm’s-lengthgovernancestructure

Segregatedassets

Highly-qualifiedboardofdirectors

Investment-onlymandate

Transparency&accountability

Professionalinvestmentteam

Page 13: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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Governance

13

CPPIB’sgovernancestructureisgloballyrecognizedasabestpracticefornationalpensionplans.Weoperateatarm’slengthfromgovernmentandourmanagementteamreportstoanindependent,professionalboardofdirectors.OurmandateistoinvesttheassetsoftheCPPFundtoachieveamaximumrateofreturnwithoutundueriskofloss.Inachievingthis,CPPIBisrequiredtotakeintoaccountthefactorsthatmightaffectthefundingoftheCanadaPensionPlan,andtomanagetheFundinthebestinterestsofcontributorsandbeneficiaries.

AAARating“…Welldevelopedcorporategovernanceandriskmanagementframeworks;andanexperiencedmanagementteam.”

-Standard&Poor’s

InternationalRecognitionforGovernance

Page 14: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

SustainableInvestingatCPPIB:SelectMilestones

2006CPPIBdecidestoadoptanactivemanagementapproachtoimprovereturns20081stResponsibleInvestingReport:highlightsClimateChange,ExecutiveCompensationandExtractiveIndustriesfocusareas2012CPPIBappointsHeadofResponsibleInvestingtohelpexpandESGactivities2014ResponsibleInvestinggrouprenamedSustainableInvesting,reflectingviewESGfactorsfundamentaltoenhancelong-termreturns

 “WebelievethatproperlyconsideringESGfactorsininvestment  decisionscanleadtobetterlong-termperformanceacrossthe  Fund.”

14

Page 15: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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SustainableInvestingGroup ���

15

SustainableInvestingGroupOverview•  9investmentprofessionalsbasedinTorontoand3inLondon•  Workscloselywithteamsinbothpublicandprivatemarketstoimprovelongtermrisk-adjustedreturns•  Teamcomposedofenvironmental,socialandgovernancespecialists,andprofessionalswithextensive

experienceinmainstreaminvesting

Corefunctions:EngagementandIntegration•  Integration:ProvideESGguidanceanddomainexpertisewithintheinvestmentprocessacrossall

departmentsfocusedonsingle-nameinvesting:ActiveEquities,PrivateEquity,RealAssetsandCreditInvestments(combinedAUM~$238B)

•  Engagement:InteractextensivelywithseniormanagementanddirectorsofcompanieswithinCPPIB’sportfoliotopromoteimproveddisclosureandmanagementofESGfactors

Selectedmemberships•  UNPRI-Foundingsignatory•  SASB-Alliancemember•  FCLTGlobal–Foundingmember

Investmentteams Members Globaloffices

Page 16: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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ApproachtoSustainableInvesting���

16

 CPPIB’sApproach•  Investmentbeliefthatorganizationsthatmanageenvironmental,socialandgovernance(ESG)factors

effectivelyaremorelikelytocreatevalueoverthelongterm•  ConsiderESGfactorsastheyaffecttheriskandreturnofinvestments,andwithinourmandateto

maximizereturnswithoutundueriskofloss

16Investmentteams Members Globaloffices

Page 17: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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BoardEffectiveness

•  Boarddiversityisacriticalcomponentofboardeffectiveness•  Ourexpectationisthatboardsshouldbediverse,includingwithrespecttogender.•  Webelievecompanieswithdiverseboardsaremorelikelytoachievesuperiorfinancialperformance.

17

Page 18: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

BoardEffectiveness

18

•  In2017,wevotedatshareholdermeetingsfor45Canadiancompanieswithnofemaledirectors

•  Wewerepleasedtoseethat47%,thatis,21ofthose45companies,haveaddedafemaledirector

•  InDecember,CPPIBannouncedthispracticewillbeextendedtoallglobalcompanies(2,851companies)

Page 19: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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Water

•  In2018,CPPIBjoinedtheUnitedNationssupportedPrinciplesforResponsibleInvestmentscollaborativeengagementonwaterrisksinagriculturalsupplychains

•  Activeroleinthiseffort,alongsideover35globalinvestors,leadinganengagementwithoneofthemorethan15targetedcompanies

19

Page 20: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

HumanRights

•  Since2016,wehaveparticipatedinacollaborativeengagementwithover20globalinvestorsrelatedtochildlabourandotherhumanrightsconcernsinthecobaltminingindustryinDRC

•  PositivedevelopmentsincludemappingofsupplychainsdowntotheminelevelandpartnershipswithrelevantNGOs

20

Page 21: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

ExecutiveCompensation

•  Wefocusnotonlyonhowmuchexecutivesarepaid,but,moreimportantly,onhowacompensationplanalignstheinterestsofmanagementwiththoseoflong-terminvestors

•  CPPIBengagedwithmorethan35companiesonexecutivecompensationissuesduringthereportingperiod

•  WecontinuedourcollaborationwithotherCanadianinstitutionalinvestorstoadvocateformandatoryannualSayonPayvotesinCanada.

21

Page 22: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

ClimateChange:RiskManagement

•  TopDownAssessment–assessclimateriskexposureatthetotalportfoliolevel;scenarioanalysis

•  EnergyOutlook-dynamicglobalenergyoutlooktoserveasareferencepointforinvestmentreviewsandportfolio

•  CarbonFootprintingTool-in-housetechnologytooltomeasuregreenhousegasemissionsfromourpublicequities

•  ClimateChangeToolkit-helpinvestmentteamsbetterassessandunderstandimpactofclimatechangeonexistingportfolioandpotentialinvestments

22

Page 23: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

ClimateChange:Investmentinrenewables

•  Stand-alonePower&Renewablesgroupcreatedinlate2017•  SincethenCPPIBhasinvestedmorethanC$3billioninsolarandwindcompanies•  InvestmentsinBrazil,India,Canada,GermanyandtheUnitedStates

23

Page 24: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

ClimateChange:GreenBond

•  InJune2018,CPPIBcompleteditsinauguralissuanceof$1.5blnofgreenbonds•  Firstpensionfundintheworldtoissuegreenbonds•  Saleincreasesourcapacitytoinvestinrenewableenergyassets

24

Page 25: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

ClimateChange:Engagement

•  CPPIBhasbeensupportingshareholderproposalsthatencouragecompaniestoimproveclimate-changedisclosureforoveradecade

•  In2018proxyseason,CPPIBsupportedmorethan20climatechange-relatedshareholderresolutions

•  We’vesupportedassessmentsoflong-termimpactsofclimatechangepoliciesaimedatreachingtwodegreesCelsiustarget;improvedreportingonmethaneemissionsmanagement

•  CPPIBisontheAdvisoryCommitteeoftheUN-supportedPrinciplesforResponsibleInvestmentscollaborativeengagementonmethanerisks

25

Page 26: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

CPPIBCopyright©2018.CanadaPensionPlanInvestmentBoard.Allrightsreserved.

ClimateChange:TaskForceonClimate-relatedFinancialDisclosures

•  FinancialStabilityBoard(FSB)aninternationalbodycreatedinthewakeofthe2008financialcrisis

•  FSBestablishedTCFDin2015todeveloprecommendationsformoreefficientandeffectivedisclosures

•  CPPIB’sheadofSustainableInvestingisontheTCFD;CPPIBisworkingtoencourageadoption

26

Page 27: CPPIB and Sustainable Investing - ryerson.ca · national pension plans. We operate at arm’s length from government and our management team reports to an independent, professional

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