By Michel Leduc
At the Canada Pension Plan Investment Board (CPPIB), we invest the money not currently needed to pay CPP beneficiaries, so we are asked this question a lot. We’ve polled Canadians and found that year after year, most don’t know or don’t believe CPP will be there for them.
This uncertainty has historical roots. In the mid-1990s, Canada’s finance ministers were warned by the country’s Chief Actuary that the CPP fund would run out of money within two decades barring changes.
This was a challenge of immense proportions. One of the actions that ministers took to overcome that crisis was the creation of CPPIB, an independent professional investment manager with a clear and focused job: to invest CPP money in capital markets to achieve growth sufficient to give Canadians the benefits they were promised. Until then, fixed income assets backing pension obligations were not enough. Put simply, the only way to earn higher returns is to expose the fund to greater risk. Our sole investment focus has made a significant contribution to help ensure the sustainability of Canada’s pension program. So far so good. Yet, even as the fund is much more stable today, the work is never done, and our focus relentless.
Environmental, social and governance (ESG) issues loom heavily on how we carry out our work whether it is a specific investment or managing the total portfolio of diverse assets. We believe that organizations that address these issues effectively are more likely to endure and create value over the long term.
CPPIB has its own in-house Sustainable Investing group that helps factor ESG considerations into investment decisions. They also engage with the companies we are invested in, encouraging businesses to manage these issues better.
If you search “CPPIB” and “Sustainable Investing” online, you’ll learn about the range of this work. It includes specific initiatives like addressing human rights in the cobalt industry and promoting more diverse boards. Many would argue these are simply the right things to do. We believe they are also expectations that deliver better returns over time.
You’ll also see our approach to climate change. We are working to be a leader in understanding the investment risks and opportunities of this global challenge. This work includes understanding the shift to lower-carbon energy markets. In the past two years, we’ve announced plans to invest more than $3 billion in renewable energy and became the world’s first pension fund to issue a green bond.
As our ESG work evolved, the clarity of our objectives ensured we never lost sight of our responsibility to help keep CPP sustainable.
We will never be done, which is why CPPIB was set up to be an enduring institution with a view to a very long investment horizon. We know Canadians are counting on us.
Michel Leduc is the senior managing director, Global Head of Public Affairs & Communications, Canada Pension Plan Investment Board.