Finance Committee on June 9th, 2022

[Michel Leduc, Senior Managing Director and Global Head of Public Affairs and Communications, Canada Pension Plan Investment Board]

It’s closer to $5.9 billion.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

This obviously makes for an acceptable ratio.

Let’s talk about changes in the geographic distribution of your investments. For example, in 2006, almost two thirds of your investments were in the Canadian economy. Currently, as you said earlier, 36% of your investments are in the U.S.; 16% in Europe; 26% in Asia Pacific; 6% in Latin America; and 16% in Canada.

What accounts for your choice to invest less in the Canadian economy?

[John Graham]

I wouldn't describe it as investing less in Canada. As the portfolio has grown to $539 billion, we have continued to grow our investments in Canada. I said we have 16% of the portfolio with exposure to Canadian assets, which, at $539 billion, would correspond to $80 billion to $90 billion in assets. Canada continues to be an important market for us and continues to be a market in which we look for opportunities, but we are a global investor.

We are an investor that looks for opportunities all over the world. As we think about investing at CPP Investments and we think about maximizing return without undue risk of loss, taking into account the factors that impact the funding of the plan, we also believe, as I mentioned in my opening remarks, that it's important for us to diversify away in some ways. One hundred per cent of the contributions come from the Canadian economy. These assets are solely for the beneficiaries, and diversifying the assets to the global economy is in the best interest of the contributors and beneficiaries.

We still, as I mentioned, have 16% invested in Canada, which is a material portfolio. If we look at other funds around the world.... For instance, in the Norwegian fund, they will completely diversify away from Norway to ensure that 100% of the assets are invested outside of Norway to provide that diversification, but we still view Canada as an important investing market for us.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

The objective of the Canada Pension Plan Investment Board is really to maximize returns, and international investments help ensure that while minimizing risk. As I understand it, your organization is different from the Caisse de dépôt et placement du Québec, whose concurrent objective is to develop Quebec’s economy.

Thank you.

When we look at your rates of return, which are excellent overall, we see that, in 2016, returns were lower than expected.

What accounts for this anomaly and what are you doing differently this year? Is it different from other boards or other investment funds?

[John Graham]

I don't have that answer offhand. We can come back with respect to 2016.

As we think about today and we think about going forward, the 10-year returns for the organization have been 10.8%. That stacks up incredibly well against, really, any global institutional investor.

We sit here today and look forward to the global markets, and I would say we're cautious. We've already talked a little about inflation. With inflation where it is within many countries around the world, with rates expected to rise and growth expected to slow, I think we're cautious and we're cautious about the headwinds going forward.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

That’s a credit to you and I thank you for it.

We’re hearing a lot about cryptocurrencies right now.

Has the Board made what I would call “speculative” investments in cryptocurrencies? If so, what is your exposure and what is your view on that?

[John Graham]

We have not invested in crypto.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Why didn’t you do it?

[John Graham]

We have spent quite a bit of time—it's a growing market; it's a trillion-dollar plus market—trying to study blockchain, digital currencies and crypto, but as things sit right now and as we think about investing, we have not invested in crypto.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

We are now going to hear questions from the NDP and MP Blaikie for six minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Thank you for being here today to answer questions. It's very much appreciated.

I read with interest the section of your report about investing in the path to net zero. I wanted to know what kind of public reporting you do on your progress to date. Do you have an annual report on that? How do you report out on that?

[John Graham]

In February of this year, we made a net-zero commitment. As part of that, we also published our principles for the net-zero commitment and around investing in the entire economy transition, not going down a path of blanket divestment and looking to double our investment in green and transition assets. We've also been very actively engaged in measurement and reporting. This is an area that, as we think about the path forward, work needs to be continued.

With respect to how we report, we have an annual report, called our annual “Report on Sustainable Investing”. Within that, it is more than just climate. We provide disclosures on our portfolio and disclosures on our own emissions.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

I believe it's maybe going back five or six, or maybe a few more years now, when there was a task force on climate-related financial disclosure. I'm wondering if you guys have adopted some of the reporting requirements from that.

What work are you doing to ensure that when you report out on climate-related investment goals, folks are able to compare, apples to apples, the work that you're doing with other countries or other blocs, like the European Union?

How do your metrics compare? Are they publicly available?

[John Graham]

I'll ask my colleague Michel Leduc, who's involved with the TCFD's work.

I'll quickly say that, for us, this is something that's very important. It's something that, as an organization, we have been historically.... We're one of two pension plans that was at the table for TCFD, and it's something that we continue to be actively engaged in with different standards bodies around the world to ensure that there is comparability across geographies. As we think about that as a global investor, it's important.

Michel, maybe you want to share a bit on the history.

[Michel Leduc]

Yes, I'll reinforce that we were very honoured, as one of only two pension plans that were invited to join the task force and be an architect of these disclosures.

The rationale for us wanting to be heavily engaged in being an architect is that the best interests of the contributors and beneficiaries are very well served by companies being increasingly more transparent. It's very difficult for us to undertake due diligence on the potential for 10,000 securities globally. Of course, we can do a lot of that hard work when we're making a direct investment and we're a significant investor in a company. Going into the due diligence process, we've developed a specialized tool kit for us to better understand the strategy of those companies and how they're moving forward to abate and decarbonize their operations.

If a significant component of the portfolio continues to be widely held across thousands of securities, we're dependent on disclosure and on that transparency, so it's an area where we've been actively involved. It's an area where we're continuing to be a thought leader and to push other organizations, particularly in areas that haven't necessarily been considered in the past.

We could talk about that a little later, if that question comes up around abatement. That means, basically, what the companies are doing that is very hard to decarbonize. There's cement and steel, for example. It's not just the quick wins. It's also those things that will be heavily dependent on innovation and technology.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

What's the process for establishing a taxonomy of investments that will count for you as green investments? Where is that publicly available? If it's not currently, when do you anticipate its being publicly available?

[John Graham]

For green and transition assets, there is a technical definition. It's in our annual report and in our “Report on Sustainable Investing”.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Does that include carbon capture and storage technology? If so, who's making that decision and where are the opportunities for input into what is a proper technology or venture that's going to reduce emissions?

We know that, in the market, there are a lot of things that claim to be green and aren't, so what kind of process do you have to make changes to that taxonomy as time goes on? Where are the opportunities for public input on that?

[Michel Leduc]

First, I would say that looking for consistency is probably the single biggest challenge for a lot of these issues, particularly carbon capture or other areas.

One area we've been working in is the international standards board. They've been making considerable progress, though perhaps not as quickly as we would like as an investor. Canada has been a very active participant in that process. Part of the international standards board offices will be in Canada. This will allow us to have more direct access, particularly around these new technologies and how they're classified and measured. Carbon capture, as you mentioned, will be very important.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

When you say that Canada is involved, is that the CPPIB or the Canadian government?

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie. That's the time.

[Michel Leduc]

It's the Canadian standards offices, as a member of. The international standards board will have an office, partly, in Montreal.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you.

We are moving to our second round, members. We have the Conservatives up first.

MP Lawrence, you have five minutes.