House of Commons Hansard #17 of the 37th Parliament, 3rd Session. (The original version is on Parliament's site.) The word of the day was ethical.

Topics

Petitions
Routine Proceedings

10:15 a.m.

Canadian Alliance

Grant McNally Dewdney—Alouette, BC

Mr. Speaker, I have two petitions to table on behalf of my constituents.

One has to do with child pornography and is signed by 135 members of my community who are opposed to child pornography and ask the House to take all necessary steps to put an end to child pornography in our country.

Petitions
Routine Proceedings

10:20 a.m.

Canadian Alliance

Grant McNally Dewdney—Alouette, BC

Mr. Speaker, the second petition has to do with stem cell research. The petitioners call on this place to put in place stem cell research which is ethical. They support the idea of adult stem cell research to find the cures and therapies necessary to treat the illnesses and diseases of suffering Canadians.

Questions on the Order Paper
Routine Proceedings

10:20 a.m.

Sarnia—Lambton
Ontario

Liberal

Roger Gallaway Parliamentary Secretary to the Leader of the Government in the House of Commons

Mr. Speaker, I ask that all questions be allowed to stand.

Questions on the Order Paper
Routine Proceedings

10:20 a.m.

The Deputy Speaker

Is that agreed?

Questions on the Order Paper
Routine Proceedings

10:20 a.m.

Some hon. members

Agreed.

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Government Orders

February 24th, 2004 / 10:20 a.m.

NDP

Pat Martin Winnipeg Centre, MB

moved:

That, in the opinion of this House, the Canada Pension Plan Investment Review Board should be guided by ethical investment policies which would ensure that our pension investments are socially responsible and do not support companies or enterprises that manufacture or trade in military arms and weapons, have records of poor labour practices, contribute to environmental degradation, or whose conduct, practices or activities are similarly contrary to Canadian values.

Mr. Speaker, I thank the House for the opportunity to raise what my party believes to be a pressing national issue, an issue that is very much top of the mind with many Canadians, especially at this time of year when they are making their choices about where to invest their RRSPs.

I believe that many Canadians take the time to ensure that the money they put away for their retirement is used ethically, through investments, for instance, that do not harm people or the environment. However, the Canadian government has no such scruples.

This year, $2.5 billion in Canada pension plan funds were invested in corporations that manufacture the world's deadliest weapons, including missile launchers, incendiary bombs, battle tanks, high tech fighter aircraft, anti-personnel cluster munitions, warships, and even landmines. Many of these were used in the U.S.-led war in Iraq. The Canadian government has conscripted us into war profiteering whether we like it or not by investing in what we call the merchants of death.

In order for this to change, the mandate of the Canada Pension Plan Investment Board must also change. Profit is currently the sole criteria for determining investments. It is our goal as the NDP caucus to inject an ethical screen and socially responsible requirements into that pattern.

I should point out by way of introduction what the current policy is for the Canada Pension Plan Investment Board. It speaks specifically to the call for ethical investments. The board's website states:

Our legislation specifically prohibits us from engaging in any investment activities other than maximizing investment returns without undue risk of loss.

This policy--and I should point out that it is a policy rather than legislation--further states that the board, and I quote:

will not accept or reject investments based on non-investment criteria.

I will go through the point that we are raising, which is that we do not have to sacrifice profitability to introduce ethics into our investment strategy. The empirical evidence is clear that having an ethical investment screen on our investment strategy does not in and of itself compromise profitability. In fact, I will point out examples where ethical investment plans and funds outperform conventional free and open indexes on the open equities stock market.

Let us talk about what we mean by ethical investment, because I believe there is a great deal of misunderstanding about this. What we are talking about is socially responsible investing. Ethical investment funds can be implemented using either positive or negative screens. A positive screen would seek out companies that fulfill certain environmental, ethical or social objectives. A negative screen would exclude companies that violate these same standards. Some common negative screens that are mentioned in many of the ethical investment plans include barring the purchase of shares involving tobacco, the creation of pornography, which I feel particularly strongly about, and military production.

Some of the negative screens we are asking to have introduced would prohibit investment in tobacco, military production, any activities which violate human rights, or those that involve environmental degradation.

Key and paramount among what we believe to be these practices that Canadians would object to our investing in is the production of pornography. There is no limit or restriction on the current Canada pension plan investing in the legal creation of adult pornography even though most Canadians would not want their Canada pension plan money invested in this, no matter how profitable it may be.

An ethical investment plan rewards companies that operate in a certain way and provides a carrot to firms that do not meet these criteria and urges them to improve their behaviour to the highest standard.

As a result, society benefits from firms acting, for example, in an environmentally friendly way. We would not advocate that our investment strategy avoids industry sectors all together, such as logging, on the basis that it may not be environmentally friendly. We would argue that we should selectively invest in companies that have environmental practices so that we invest in those companies that have the best practices in that sector and therefore urge other companies to also adopt that high standard of ethical and environmental accountability.

In comparing rates of return, the most common and frequently used argument when we raise this issue is that we will be sacrificing rate of return and therefore somehow compromising the retirement security of pensioners.

There is no clear cut evidence that funds invested ethically always perform better or worse than funds invested according to normal market principles. The results depend on the index or the fund that is being looked at and the time period in question.

I have examples both ways that I would like to go through. One example in the United States is the Domini 400 Social Index which was created in 1989. It has qualitative screens on the Standard & Poor's 500 index of companies and then added certain other companies.

Since 1989 the Domini 400 ethical investment fund has generally outperformed the Standard and Poor's 500 by a small margin. In recent years it has lagged slightly in back of the Standard and Poor's index, but over a 10 year study it has in fact ended up 1.1% higher in performance than an index that has no other governing objectives in its investment strategy.

A similar trend can be seen in a like-minded Canadian index, the Jantzi Social Index. This index invokes different screens than the Domini index and uses as its starting point the Standard & Poor's TSE 60. Using recent data the Jantzi outperformed throughout the mid and late 1990s and since June 2001 it has generally under performed the wider market. However, on a 10 year average it ends up approximately 1% higher than the other indexes.

What seems clear from these two examples is that ethical funds do not chronically underperform more market oriented funds. In fact, we can have our cake and eat it too. We can invest ethically in a way that does not compromise the values of Canadians and does not offend Canadians, and still receive a good rate of return to our investment.

The current record has not been all that sterling with the Canada Pension Plan Investment Board since it was created in 1997. It hemorrhaged money. Even with its generous guidelines that have no limits on it whatsoever, it lost billions of dollars. We could have done better by playing pin the tail on the donkey in choosing stocks to invest our hard earned pension money. It rolled the dice and gambled, and it did it badly.

I do not think we should hear too much high flown talk about the downfall of ethical investment when the experience without any ethical guidelines has been abysmal, frankly. We said “Here's $20 billion. Don't lose it”, and it went out and lost about $4 billion. We would have been better off digging a hole and putting that money in the ground. At least we would still have the principal. We would not have lost it.

Our arguments for ethical investment could not have done worse than the current experience with the 12 person Canada Pension Plan Investment Board.

Let us talk about the fiduciary obligations of trustees of any pension plan. I was a trustee of a union health and welfare benefit plan. I know the limitations. However, we could craft the trust document to allow as many ethical investment funds and allow for other considerations to be factored into the investment strategy other than simply maximizing the rate of return.

If we only wanted the maximum possible profit, we could be making porn movies because one can make a 60% and 70% profit making pornography. We could be selling landmines more than any other activity because landmines and armaments are very profitable. We argue that there are better things that can be done with our money.

We believe that the fiduciary obligations, as contemplated in the trust document of the Canada Pension Plan Investment Board, could be amended or modified to allow that an investment in a positive rate of return does not have to compete with the best rate of return. In other words, an adequate or reasonable rate of return should be the language that we should be using in order to take into consideration other issues.

The Ontario public service employees union, OPSEU, pension trust fund is a large jointly trusteed pension plan. It stipulates that a reasonable rate of return is the target. That gives it the latitude in its plan to either achieve other secondary goals for which it may wish to use some of its investment strategy or to ensure that it is investing in a selective way that does not offend the sensibilities or the values of the participants in its plan.

Another major investment house dealing with pension plans is the hospitals of Ontario pension plan, HOOPP, which has invested according to four major ethical screens. The president of that plan, Mr. Ed Baker, noted that in order to meet the actuarial assumptions, the plan did not need the biggest returns. He stated that what was needed was a return that was reasonable and invested in a socially responsible manner. Socially responsible are the operative words here.

There is little support for the theory that ethical investments necessarily yield a lower rate of return. I have a list of some 120 ethical investment funds that I can cite that are outperforming on the open market other plans that have no such ethical guidelines attached to them.

In Canada the only evidence about social investment and the rate of return is anecdotal at best. In the United States there is some systematic research related to social investment strategies. In a comprehensive review of the U.S. literature on pension fund activism, there is no substantial effect to having ethical guidelines or ethical screens compared to having none at all.

In Canada the anecdotal evidence states that ethical investments are above average performers compared to mutual funds. For example, the social investment organization has reported that the ethical growth fund with a screened portfolio has performed as well or better than non-screened mutual funds, with an average annual compounded rate of return over 10 years of 12.5%. Over the same period, the ethical growth fund outstripped the TSE 300 by 1.1%. However, given the interest in the issue, there is little systematic research. Much of this is anecdotal.

The issue has been treated completely unfairly by the media of late. There have been two editorials, one in the Ottawa Citizen and one in the Vancouver Province , that hastily did away with any idea that we should have any ethical guidelines involved in our investment strategy at all. They were not only badly researched, but they were out and out rude toward those who felt strongly about this issue, calling people who believed in ethical investment silly socialists.

I represent a large group of Mennonites in my riding. They feel strongly about the fact that they do not like to have part of their income tax used to invest in the military. Some of them withhold a certain percentage of their income taxes per year, about 2%, because they believe 2% of the GDP or tax revenue goes toward the military. That is how strongly they feel about it. For these newspaper articles to accuse those well-meaning Christians of being silly socialists because they do not want their investment dollars being spent on landmines is ignorant on the part of the newspapers. They would not even entertain the general argument in any realistic way.

We should look at other ethical investment funds for direction because many are doing it very well. The Caisse de dépôt et placement du Québec invests over $120 billion for a number of Quebec pension plans and the Quebec pension plan. It uses its investments for other strategic secondary goals other than simply the maximum rate of return. Again, a reasonable and acceptable rate of return is language that is used in many of these plans, but they are not bound by a trust document that so clearly limits the use of this massive fund.

People would question whether we should be investing our Canada pension plan in the equities market at all. We now have $30.6 billion in equities and real estate and about $34 billion invested in bonds and other secure investments.

Should we be rolling the dice with our pension plan? We believe that there are other secondary goals for which we could use this pot of money. For instance, lending money to municipalities for infrastructure programs or rapid transit at a stable but lower rate of return would achieve other secondary goals with our investment strategy.

The parliamentary leader for the NDP wrote a letter to the Minister of Finance on December 15 of last year, just three days after he was sworn in, to raise this very issue with him. He wrote that Lockheed Martin, along with Raytheon, General Electric, General Dynamic, Carlisle and two other American corporations that benefit from significant Canada pension plan investments were all complicit in the production of anti-personnel landmines for the U.S. military.

He said that Canada pension plan investments in these corporations contravened the convention on the prohibition of use, stockpiling, transfer and production of anti-personnel landmines and section 1 of that convention, which was ratified by Canada. It started here with the then Minister of Foreign Affairs, Lloyd Axworthy, and others on the Liberal benches who initiated this laudable international goal to eradicate the world from landmines.

Our leader further stated that subsection 1(c) of article 1 of this treaty signed by Canada in Ottawa on December 3, 1997, the very same year that the Canada Pension Plan Investment Board started investing in landmines, stated that, “each state party undertakes never under any circumstances to assist, encourage or induce in any way anyone to engage in any activity prohibited to a state party under this convention”.

This is strong language. No wiggle room whatsoever; it was ratified by Canada on December 3, 1997, the very same year that the Canada Pension Plan Investment Board began investing in these obnoxious anti-personnel landmines. He went on:

He went on to say that they were not allowed to develop, produce or otherwise acquire anti-personnel landmines. The Canada pension plan investments, our parliamentary leader argued, were therefore made in companies engaged in business that was unlawful in this country and these contraventions were unacceptable. He therefore urged the Minister of Finance to halt the investment of CPP funds in any corporations that developed or produced anti-personnel landmines.

My motion today goes farther than that. Obviously, this turns heads because it is so reprehensible to even think it. The motion that I introduced today on behalf of the New Democratic Party goes further than just barring investment in merchants of death. It states that:

...the Canada Pension Plan Investment Review Board should be guided by ethical investment policies which would ensure that our pension investments are socially responsible and do not support companies or enterprises that manufacture or trade in military arms and weapons, have records of poor labour practices, contribute to environmental degradation, or whose conduct, practices or activities are similarly contrary to Canadian values.

I believe there is broad cross-party support and national support for such ethical guidelines for our Canada pension plan.

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Government Orders

10:40 a.m.

NDP

Bev Desjarlais Churchill, MB

Mr. Speaker, I want to thank my colleague for bringing forth a number of issues. I know he could have used a lot more time to discuss the issue of ethical investments with Canada pension funds.

He touched on the landmine issue. I think every person in the House should take a good look at themselves and really think about what has been mentioned. Canada had a foreign affairs minister who thought it was important enough to partake in a worldwide effort to have a treaty in place to ban the use of landmines. Why ban the use of landmines? Without question, most of people who have suffered from the use of landmines are innocent civilians who have not taken part in the war effort. Children and people who walk the streets after a war is done suffer the most from landmines. Because of the way landmines are made, their limbs are torn off. It is a huge issue throughout the world.

We are a great, wonderful nation and we make the statement that Canada will not partake in this. As a nation, how do we justify that we are not part of this when we have taken our pension funds and invested in companies that make the landmines?

I will put this into a context that maybe people will understand. As far as I am concerned, this is like taking our pension funds and investing in al-Qaeda or any other group that is out there to destroy humankind. It is not acceptable. Either we are principled and have some values or we do not. Let us not try to pretend anymore. As Canadians we take a stand and say that we believe in ethical funds and that we should not support those issues, or we let the world know that it is really all just for show.

The same issue would apply to investing in tobacco companies. We realize the serious risk of tobacco smoking, the effects it has on our health care system and the costs. Therefore, why would we use our pension funds to invest in tobacco companies, even though we put rules in place, such as if someone is under a certain age, they should not be smoking and vendors cannot sell to people under a certain age? We have huge taxes on it. What are we doing? We are investing in tobacco companies so they can sell to other countries. That is not acceptable.

I would like to think that everyone of us has more principles than that, that we will not use the rest of the world as our ground to make a few bucks off someone else's poverty and misfortune.

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Government Orders

10:40 a.m.

NDP

Pat Martin Winnipeg Centre, MB

Mr. Speaker, I thank my colleague, the member for Churchill, for raising that very valid point. She may be interested, as others may be, that it is not just landmines. Canada pension plan investments are currently supporting these following weapons that are in use in the Iraq war: the AC-130H Spectre aircraft, the F-14 Tomcat fighter jet, the Nighthawk stealth jet, the BGM-109 Tomahawk missile, the M109A6 Paladin tank, the Dragonlady aircraft and the list goes on. Therefore, even though we are technically not in the war in Iraq, we are inadvertently active in the war in Iraq by investing in these specific products. Some of these weapons are in use that war.

Canada officially stayed out of the war for reasons that most Canadians understood, but not our pension premiums. The fact is that Canada is very much present on the bloody battlefields of Iraq and it still is. Our Canada pension plan investment policies have made warmongers of us all.

At the very least, even those who disagree with me, it is entirely appropriate to ask whether we want one instrument of government actively undermining the work of another instrument of government. Do we want, in the case of landmines for instance, to be financing weapons that Canada is committed to eliminating from the face of the earth? Aside from the obvious hypocrisy, it is inefficient. It is a stupid thing for government to be doing; for the right hand not to know what the left hand is doing, and to be contradicting ourselves.

For all the moral and ethical arguments I can muster, I urge anybody who cares about these issues to support this motion and send a clear, specific direction to the Canada Pension Plan Investment Review Board to introduce ethical guidelines so that our investments are socially responsible.

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Government Orders

10:45 a.m.

Canadian Alliance

Howard Hilstrom Selkirk—Interlake, MB

Mr. Speaker, I am also against people being killed in wars and disputes. I am against crime on the streets where people get killed. Landmines of course are meant to kill people, so I am against them too.

However, let us take the case of Afghanistan. There was a regime in Afghanistan which was killing people and putting women and female children in the position of being unable to get an education. Firms built the necessary weaponry to liberate the women and children of Afghanistan. Those weapons, not landmines, had to be used. Right now the Canadian armed forces are over in Afghanistan carrying on with the effort made there through the use of these weapons.

I ask the member if in fact there is not a place in the world, seeing as how mankind has not risen to the ideal heights of not hurting each other, where it is necessary to use weaponry for the ultimate good of the people of that country.

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10:45 a.m.

NDP

Pat Martin Winnipeg Centre, MB

Mr. Speaker, one could argue that our Canadian military uses bullets, tanks and guns. Be that as it may, we have made investments in Raytheon, General Dynamics, General Electric and other, what I call, merchants of death. They are not just selling these products to the Canadian military. They are involved in the international armament trade. I believe we should let somebody else be involved in that business. Canadian people do not want their pension fund involved.

As I have said, keeping in mind that the Canada pension plan must remain actuarially sound, who says that we may not use our resources to further other important secondary policy goals? Who says that we might not want to fund social housing and collect our return through mortgages, or lend money to municipalities for public transit or other green infrastructure or fund energy retrofits of government buildings and recoup our investment through the energy saving? As long as the plan remains actuarially sound and we get the pensions we were promised, why do we not use our money to best advantage Canadians, not to blow the legs off children in some far off land?

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Government Orders

10:45 a.m.

Canadian Alliance

Maurice Vellacott Saskatoon—Wanuskewin, SK

Mr. Speaker, I do not recall the member making reference to the situation in Sudan. We had a situation where a large major Calgary oil company, Talisman by name, was in Sudan for too long. Finally it has backed out of that situation The profits went into the war. Oil revenues were used to the hurt of the southerners in that country. The Khartoum government was using it in a very bloody, brutal and awful way in genocide of the people of the south.

For a long time I had great concern and consternation because of the fact that our pension funds were actually invested with Talisman, which in turn was then used to fuel this genocidal war in Sudan.

I would appreciate the member's comments with respect to that.

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Government Orders

10:45 a.m.

NDP

Pat Martin Winnipeg Centre, MB

Mr. Speaker, the hon. member raised a recent and graphic demonstration of exactly the point I have been trying to make.

In my view what we consider bad behaviour on the part of a corporation should not be rewarded by investments from our Canada pension plan. This is the type of thing, were an ethical screen put in place, that the investment probably would have been screened out. Again, we would not screen out every oil company on the basis of that bad actor.

We would have what we call the best of sector strategy. We would look at the oil and gas sector, an area in which we may want to invest and should perhaps as the Canada pension plan, and invest only in the actors in that sector that were practising best practices, the highest ethical standard possible in that sector.

Hopefully this would be the carrot approach that other industry players would seek to elevate their standards so they could also attract the massive investment. We are talking about $100 billion in the near future. The only people to gain so far have been the stockbrokers who have yielded $500 million worth of brokerage fees for moving our money around.

I thank the member for his question. It is a legitimate recent example that I believe helps to make our case that we can and should be more selective and more careful in our strategy. I hope I have demonstrated by example that we do not have to compromise profitability in doing so. The empirical evidence is to the contrary. We can match or even in many cases surpass standard indexes through ethical investment strategies.

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Government Orders

10:50 a.m.

Brome—Missisquoi
Québec

Liberal

Denis Paradis Minister of State (Financial Institutions)

Mr. Speaker, it is my pleasure today to speak to a motion introduced by the hon. member for Winnipeg Centre, which deals with the investment policies of the Canada Pension Plan Investment Board.

First, I would like to provide all hon. members with some background on the Canada Pension Plan Investment Board and explain some of the measures it has taken to protect the sustainability of our pension system while promoting the values of Canadians.

The Canada Pension Plan Investment Board is the product of the need to ensure that the Canada pension plan will continue to provide the vital benefits that allow our seniors to enjoy a comfortable, indemnified retirement.

The Canada pension plan was created in 1966. The then government realized that Canadians needed a public pension plan that could be carried from job to job, and from province to province.

The answer was the Canada pension plan, a compulsory earnings based national plan set up jointly by the federal and provincial governments to which nearly all working Canadians contribute.

The CPP provides all wage earners who paid into the plan with retirement income. It also provides financial assistance to their families in the event of death or disability. The Canada pension plan was designed to complement, not replace, personal savings and employment pension plans.

The Chief Actuary of Canada predicted that the assets of the Canada pension plan, the equivalent of two years of benefits at the time, would be depleted by 2015 and contribution rates would have to be increased to more than 14% by 2030, for the plan to remain viable.

The federal and provincial governments subsequently released a discussion paper and held Canada-wide consultations on the CPP in the mid-1990s.

In joint public hearings from coast to coast, Canadians sent governments a clear message. They wanted them to preserve the Canada pension plan by strengthening its financing, improving its investment practices and moderating the growth costs of benefits.

Canadians expressed their desire to see the necessary changes made to the Canada pension plan. During these hearings, governments heard not only from one or two interest groups, but from Canadians who truly represented the public. They heard from seniors, young people, social planning groups, pension experts, actuaries, chambers of commerce, and from a great many ordinary Canadians interested in and concerned about the CPP.

Following these consultations, the federal and provincial governments in 1997 adopted a balanced approach to CPP reform so that the plan could meet the demand in the coming years when the baby boomers would be retiring.

All changes to this federal-provincial program must be approved by at least two-thirds of the provinces representing at least two-thirds of the population.

Those reforms included a rapid increase in CPP contribution rates, a buildup of a larger asset pool while baby boomers were still in the workplace, its investment in the markets at arm's length from government for the best possible rates of return, and administrative and expenditure measures to slow the growing costs of benefits.

All together, those measures ensured that a contribution rate of 9.9% could be expected to maintain the sustainability of the plan. The federal and provincial ministers concluded, in their most recent study in December 2002, that the plan was financially sustainable and would be able to pay benefits to future retirees.

The new market investment policy was a key element of CPP reform in 1997. The Canada Pension Plan Investment Board, which is the subject of today's debate, was set up in 1998 to implement this new investment policy.

Created as a professional and independent investment board, its mandate is to invest on behalf of contributors and beneficiaries and to maximize the return by reducing the risks of unjustified losses.

Before the board was created, the CPP's investment policy was for funds not immediately required to pay benefits to be invested in provincial government bonds at the federal government's interest rate. This represented an undiversified portfolio and an interest rate subsidy to the provinces.

Now, under the new policy, funds that are not needed to pay benefits and expenses are transferred to the CPPIB and are prudently invested in a diversified portfolio of market securities in the best interests of contributors and beneficiaries.

I would like all of my colleagues to know that the new investment policy is consistent with the investment policies of most other public sector pension plans, including the Ontario teachers' pension plan—which is a major pension plan—and the Ontario municipal employees' retirement system. The CPP Investment Board operates under investment rules similar to those of other public sector pension plans in Canada.

These rules require the plan's assets to be prudently administered in the interest of plan contributors and beneficiaries. As well, like all other public plans, it is subject to the foreign property rule restricting investment in non-Canadian companies to 30% of the portfolio.

I would now like to address the content of the motion presented by the hon. member for Winnipeg Centre. Our position on this has always been clear. Canadians are entitled to know why, how and where their CPP contributions are invested, who makes the investment decisions, what assets are held on their behalf, and what the yield is on their investments.

It is essential that the board be fully accountable to Canadians and to federal and provincial governments, and this is indeed the case. It is also essential that Canadians' retirement funds be managed to the highest professional standards and at arm's length from government, with highly qualified, professional managers making investment decisions. And this too is the case.

As many of my colleagues are aware, the framework of governance established for the investment board is designed to ensure total transparency and accountability. I will go into detail on that if I may.

The CPP investment board keeps Canadians well informed of its policies, operations and investments through quarterly financial reports, an annual report tabled here in parliament, regular public meetings in each participating province, and of course its website, where its financial results and investment policies are posted.

A robust process with strong checks and balances that is in place for identifying and appointing CPPIB directors also assures full accountability of the CPPIB. Directors are chosen from a list of candidates recommended by a joint federal-provincial nominating committee after consultation with provincial finance ministers. As a result, the board includes individuals with strong business, financial and investment expertise.

Independence from governments in making investment decisions is critical to the CPPIB's success and public confidence in the CPP investment policy. I should point out that the independence and the quality of the CPPIB board of directors have received strong support from the public and pension management experts.

Some Canadians, including the hon. member for Winnipeg Centre, are concerned that the CPP's assets are being invested in companies or countries whose activities or policies are contrary to their own convictions. In the context of promoting socially responsible investments, they feel that we should take advantage of the power represented by our investment portfolio to influence factors that do not relate to investments.

However, there are other Canadians, some of whom use socially responsible criteria to make their personal investment decisions, who feel that we should focus on the return of the investments, since the financial security of the pension plan is in itself a major social policy goal.

It may be easy for an individual or a group of people who share the same ideals to make investments that pursue social goals. However, it is rather difficult if not impossible to do so for an institutional investor who represents over 16 million CPP contributors and beneficiaries whose personal convictions are extremely varied.

The legislation that regulates the board's activities specifically prohibits it from engaging in any investment activities other than maximizing investment returns without undue risk of loss. Consequently, the board does not select or exclude investments through the application of positive or negative screens based upon religious, social, economic, political, or personal criteria, or any other non-investment criteria.

The board's social investment policy, approved in March 2002, considers as eligible for investment securities of issuers engaged in a business that is lawful in Canada; and securities of issuers in any country with which Canada maintains normal financial, trade and investment relations.

The policy further states that the board will not accept or reject investments based on non-investment criteria. However, it will generally support corporate policies and practices and shareholder resolutions that would result in the disclosure of information that could enable investors to evaluate whether a corporation's behaviour will enhance or hinder long-term investment returns.

The board has also established mechanisms to promote sound corporate management and proper accountability on the part of corporations whose securities are part of its portfolio.

Under these instructions for proxy voting, the board uses its right to vote as a mechanism for encouraging corporations to provide information on their corporate code of conduct and ethics. This can help investors determine whether the corporation's conduct is a gauge for good long-term results or a risk to their return.

As a rule, the board believes that companies that respect the environment, human rights, fair employee practices, community relations and otherwise act in an ethical manner tend to perform better over the long run. We as government wholeheartedly agree with that principle, but in recent months the board has shown that it is prepared to go further on these issues relating to public concern over its investment practices.

When allegations were raised that companies currently being helped with the CPPIB's investment portfolio were involved in the manufacture of anti-personnel mines, the board undertook its own investigation in the matter. After consulting the specific companies directly and conducting its own investigation through third party sources, the board has reported that it has not found any evidence to support these claims.

Moreover, the board told my colleague, the Minister of Finance, that, if one of these corporations it invests in were found to be conducting such activities in Canada or abroad, the board would sell its shares in this or any other corporation conducting this type of activity, pursuant to its policy on the social aspect of its investments.

The results of the board's investment strategy speak for themselves. In 1997, the Canada pension plan had a deficit of over $6 billion and many believed the CPP would not satisfy the needs of the next generation of Canadian workers. For the hundreds of thousands of Canadians reaching retirement age, this was hardly good news.

A little less than seven years later, the plan has undergone nothing short of a spectacular turnaround. The plan's reserve fund is currently worth more than $64.4 billion. What is behind this turnaround? Without a doubt, the decision to increase the contribution rate to 9.9% has a lot to do with it.

However, we must not underestimate the role of investment income from the board's activities in explaining the dramatic improvement of the plan's finances. Retired Canadians will be able to count on the CPP for many years to come. Despite equity and bond market fluctuations, the board's prudent investment strategy will continue to pay dividends to Canadians of all ages.

If current estimates prove correct, the reserve fund will reach $80 billion in 2007, and nearly $160 billion ten years from now. These figures support the statements of the Chief Actuary of Canada, who said publicly that the CPP is sound for at least the next 75 years.

This means that all the members, their children and even grandchildren can expect to receive the CPP benefits to which they will be entitled. In this uncertain world, this is a very remarkable achievement.

In conclusion, I want to quote the President and CEO of the Canada Pension Plan Investment Board, John MacNaughton, in a speech he recently gave to the Calgary Chamber of Commerce.

He said that no investment strategy is—or should be—written in stone, and undoubtedly further adjustmentswill take place over time in line with shifting market conditions and portfolio needs. For now, weare proud of what we have accomplished, and we are confident we can meet Canadians’expectations, fulfill our mandate, and keep our promise.

The promise is nothing less than the right of all working Canadians to collect pension benefits to which they are entitled, and to enjoy a comfortable and dignified retirement. They deserve nothing less.

For these reasons, I cannot support the motion of the member for Winnipeg Centre as written. However, I thank the hon. member for having raised this important question.

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Government Orders

11:05 a.m.

Canadian Alliance

Gary Lunn Saanich—Gulf Islands, BC

Mr. Speaker, I am very pleased to stand as the critic for the Conservative Party and deal with today's NDP motion:

That, in the opinion of this House, the Canada Pension Plan Investment Review Board should be guided by ethical investment policies which would ensure that our pension investments are socially responsible and do not support companies or enterprises that manufacture or trade in military arms and weapons, have records of poor labour practices, contribute to environmental degradation, or whose conduct, practices or activities are similarly contrary to Canadian values.

It is a nice warm motherhood statement. It has lots of fuzzy language but it does raise a number of concerns. First and foremost it would create another administration, another level of bureaucracy that would make it very difficult for the Canada Pension Plan Investment Board to actually operate.

When it makes investments, its first and foremost concern is to ensure a fund is there that is going to grow and meet the needs of the demands that are going to be placed upon it. We will get into those details a little more but I am not too sure the motion is practical. Again, it is nice, warm, fuzzy language and something they may want to think about in some cases but to put this forward I am not sure is the right approach.

If members of the NDP really want to target corporate corruption, if they really want to improve some of these labour and environmental standards, they should be going after companies like Canada Steamship Lines that refuses to fly the Canadian flag and flies a flag of convenience to circumvent these issues. One would have to ask if they believe that the current Liberal government has any interest in actually doing this when the Liberals see the Prime Minister, the leader of their party has actively engaged in this through CSL.

In any event, since we are going to be talking about the Canada pension plan, it would be helpful to discuss some of the historical problems with the CPP. There is no question there are problems inherent in the CPP investment system and certainly the Liberals have not helped them. The Liberal solution to the problems has been merely to bilk Canadian workers and employers out of billions of dollars. This is well documented. The facts are pretty straightforward.

The Canada pension plan began to founder in the 1990s. In 1996, 30 years after its inception, the plan was going bust. More than 10 million Canadians were paying $11 billion into the plan but three million were being paid $17 billion in benefits. The $6 billion difference obviously had to be made up out of general revenues.

Of course, at that time it was the Chrétien government and the Liberal solution, the member for LaSalle—Émard, the current Prime Minister, was the minister of finance. Their solution was nothing more than the largest tax grab in Canadian history.

Beginning in 1998 they raised Canada pension plan premiums. They were jacked up from 5.6% for an average industrial wage to 9.9%. It was almost double. It represented a 73% increase. Again it was the largest tax grab in Canadian history. The 9.9% was matched by the employers. For the self-employed it was even worse because they had to pay both contributions. It was terrible.

Every Canadian can expect to get an average benefit of $5,500 a year at age 65. The highest payout available under the Canada pension plan is $9,000.

However the worst injustice by the Liberal government and its CPP was the tax grab. It did not look at the real problems of the Canada pension plan. It saw that it was not sustainable and that it would go broke but Canadians had come to expect this pension. They had been paying in for all those years. Of course when they were paying into it, it was to fund the people who were receiving the benefits at that time. Unfortunately, our younger generation, those just graduating from university and heading out to work, will, without question, be hit the hardest.

Let us look at the realities of the plan. Every worker who was born after 1980, people who are in their early twenties today, will only ever receive a 2% return on their retirement investment. Those who retired in 1995 are receiving a 9% return on their investment. There is a huge inequity.

We are absolutely committed to ensuring that retirees receive their benefits but the government of the day, I would argue, should have looked into other possibilities, other opportunities, other structures where there may have been greater opportunities for young Canadians to have some input into the decisions made on their investment plan because it looks very bleak for them.

One of the issues that convinced me to run for Parliament was the so-called brain drain where our best and brightest were leaving the country to seek employment elsewhere. I would argue that it is still a huge problem.

The Liberal government has often said that we have a brain gain. The raw numbers may show we have a brain gain but the very best and brightest, the future CEOs and entrepreneurs, are the ones who are leaving. They are the ones who should be creating the jobs and the economic wealth so that we have a large tax base and so we can fund social programs like health care and CPP.

Without that strong economic base, all these programs are put into serious question. Yet the government absolutely ignored this generation 100% when it became apparent that the Canada pension plan was not sustainable. All it did was double the premiums, which was another big tax grab, as opposed to looking at the real problems. Of course, we have seen this too often from the government.

This painful and expensive Liberal solution has left the Canada pension plan with an unfunded liability of half a trillion dollars. It is the same as the national debt which has an unfunded liability of some $500 billion, a half a trillion dollars. How can anyone comprehend a number like that? Even worse, this unfunded liability is not shrinking. It is growing at a rate of 6% per year.

I come back again to the NDP motion. This is a serious problem. However, in its warm and fuzzy latent left way, it has completely ignored any kind of reality and has come up with a warm and fuzzy statement without addressing the real problems that need to be looked at.

The Canada Pension Plan Investment Board invests funds. It is delivering right now roughly 2.6% annualized performance, slightly better than TSE for the same period. However there is absolutely nothing being done to address the growing unfunded liability. Quite simply, it is not making enough money on the investments to cover the liabilities.

If we were to put further restrictions on the investment board of the Canada pension plan it would really tie its hands. I am sure there are times when we would say no, that this is not be a good place to invest, but we should leave that to the responsibility of the investment board.

The additional cost and burden of creating another bureaucracy, another administration, another level of all these approvals would not be reasonable. Furthermore, opportunities would be lost because of the extra administrative burden of having to do reviews to ensure the investments meet all of the guidelines when in many cases they would be acceptable investments.

The NDP motion would also place further limits on the investment board. One question I would have to ask is whether the NDP has done an economic study to determine what impact it would actually have and whether there is even a problem where they are suggesting there is one.

There is no question that some investments would be made. However some people might argue that a company, such as a forest product company engaged in harvesting the forest, would not qualify because of the environmental consequences. Others might argue that for proper forest management one has to harvest the timber when it matures because it is susceptible to the pine beetle which goes into different areas.

The point I am making is that all this administration and all this hand tying would not be a wise decision.

The other issue is that by the time the baby boomers begin to retire in 2012 the fund will have in excess of $140 billion, a very large amount to invest. The Canada Pension Plan Investment Board would be unable to trade freely and smaller funds will delight in playing off the investment board's positions. It would only be to the detriment of Canadians. The more restrictions we put on the Canada Pension Plan Investment Board, the less it would be able to do its job, and it obviously would get a smaller return on its investments. I do not think the extra administration, the extra bureaucracy that it would have to go through would be healthy at all.

As I mentioned earlier, how the Canada pension plan scheme basically operates is that those who are working today pay into the fund and obviously they do not have the investments built up to a point where it can cover those who have retired. In other words, what they are paying today only covers those who are retired now.

The problem is compounded because people are living longer. The pension eligibility age is 65 and life expectancy, because of recent advances in medical technology and because of health trends, is almost 80. Therefore people will be collecting their pensions for around 14 years but nothing has been built into the system for this. The bottom line is that we will end up with an enormously underfunded Canada pension plan. It is not sustainable when it is underfunded by a rate of a half a trillion dollars, not unlike our health care system. Under the current government's policies, both those programs will collapse under their own weight in the coming years because they are not sustainable. Those are the programs on which we should be focusing our energies right now.

We should be looking at other things as well. We should be looking at doing away with mandatory retirement ages. Mandatory retirement ages merely encourage people to walk away from the workforce which has a serious negative effect. It stops CPP payments from coming in and it puts more pressure on people to draw on the account.

We should also be looking at reforms but, first and foremost, we should be looking at reforming the Canada pension plan so our younger generation will have a fair and equitable pension plan. The older generation, which has paid into the plan for many years, has planned their retirement on it and are expecting a certain pension. We are committed to supporting that pension. However it is the younger generation, the 20 and 30 year olds, who are paying the large premiums and yet the government is doing nothing to ensure they will have a pension when they retire.

The plan will be crushed under its own weight. We should be looking at structures where individuals would have more input into investment decisions. The first step would be to give them the opportunity to be more active in developing their own pensions and watching them grow. The second step would be to ensure the sustainability of the plan. Any actuary looking at this plan would say that it is not sustainable, not unlike our health care system.

The NDP motion has nothing to do with the sustainability of the plan. It has nothing to do with individuals having any kind of input and it has nothing to do with young people having a say in their investment decisions. The motion is silent on all that. It just makes warm, fuzzy statements. I call them the Layton left statements. That is not a healthy thing to do.

I want to switch gears here and talk about the present. We put a great deal of faith in the Canada Pension Plan Investment Board. The Conservative Party believes that the people on the board, as far as we know, are doing a good job with the resources they have. However we should try to institute reforms and looking at the sustainability of the plan would be the most important part.

The NDP motion is the latest in a string of misguided attempts to force CPP investments into the NDP's societal values. It should be voluntary from the board. We have to trust its judgment. Micromanaging the board would only be asking for more problems.

If the NDP is really serious about dealing with some of these issues, I encourage it to start at the top of the list and go after companies like Canada Steamship Lines. CSL flies flags of convenience so it can avoid any type of environmental regulations and avoid employment regulations here in Canada. It is no wonder we have problems on all these fronts when Canadian companies, such as the one the Prime Minister owned in the past, have a direct involvement in the plan. The record speaks for itself.

I cannot support the motion because it would do nothing for the sustainability of the Canada pension plan, which is an important issue that needs to be addressed. The motion is a nice, warm, fuzzy, motherhood statement, but it should look at the harsh realities.

Supply
Government Orders

11:25 a.m.

Canadian Alliance

Howard Hilstrom Selkirk—Interlake, MB

Mr. Speaker, I am concerned, of course, with the sponsorship scandal that is going on around here, with the government giving out contracts for little or no work being done and in particular with the crown corporation allegations, the latest allegations that came out of the Auditor General's report. I remember when the legislation went through in regard to the Canada pension plan being set up, as to actually having the money in the bank to invest as opposed to the government just dumping it into general revenues.

I wonder if the member could tell us if there is any concern about Liberal appointees being put onto this Canada pension plan investment team and about the direction of it. Could he tell us if the Auditor General has the authority to look at the Canada pension plan, how it is handled, where it invests the money and its operation? Who does it report to? Does the member know that offhand?