Madam Speaker, it is a great pleasure to join the debate today on the private member's bill of my hon. colleague from Cowichan—Malahat—Langford. It raises some important questions on the role of the Canada pension plan.
I believe that the vast majority of Canadians do not want their money invested in companies that do business in a way that is abhorrent to Canadian values. Increasingly, Canadians, especially younger Canadians, are insisting that their entire portfolio be invested in companies that have robust environmental, social and governance standards. Some studies have shown that over 75% of those born after 1965 see it as increasingly important to consider ESG standards when investing and that responsible investing is the way of the future. Members can firmly count me as one of those people.
Canadian banks are starting to take note, but they too have a long way to go to meet this growing demand. Definitions of responsible investing by the big five banks still allow them to invest in areas that may run afoul of the topics that Bill C-231 brings forth.
Portfolios should not only put their money in companies with strong ESG standards because there is a growing demand from consumers. We know that companies with strong ESG standards tend to vastly outperform the market, and evidence demonstrates that a better ESG score translates to about 10% lower costs of capital. The reasons for this are obvious. These companies have cost efficiencies from use of inputs and other resources, better regulatory relationships and investment optimization, and less overall risk when robust ESG and anti-corruption compliance measures are in place.
As the world swiftly transforms to a lower-carbon and net-zero future, companies that currently actively manage their emissions can assure their investors that they will be prepared for regulatory risks down the road. In this regard, Mark Carney, the former governor of the Bank of Canada, former governor of the Bank of England and current UN special envoy on climate action and finance, said, “...those who invest in [achieving net zero]...and who are part of the solution will be rewarded. Those who are...still part of the problem will be punished.”
Just as Canadians want their private money invested in companies that are not complicit in human labour or environmental crimes, they also expect that public money, especially their pensions, will follow similar guidelines. That brings us to the matter at hand today.
The Canada pension plan has steadily grown over time, and its returns have vastly outperformed the market average. The CPP Investment Board was created as an organization independent of the government in 1997 to monitor and invest funds held by the CPP. The board reports quarterly on its performance and annually to Parliament through our Minister of Finance, and board members are appointed by the Minister of Finance in consultation with the provinces and a nominating committee. Its model is recognized internationally for sound management and governance, and its independence is highlighted as one of the reasons for this. As of the end of last year, the assets under management of the CPP exceeded $475 billion.
While the CPP has provided strong growth of pensions over time, the changing nature of investor preference is not isolated to private banks. Canadians are also expecting that their investments are not unduly put at risk through exposure to companies that are not prepared for the energy transformations that are currently under way, or that could be debarred or otherwise ostracized for committing acts of bribery or human rights abuses.
In terms of monitoring investments, the CPPIB currently asks that companies report material ESG risks and opportunities relevant to their industry and business models. It has also indicated a preference for companies to align their reporting with the standards of the Sustainability Accounting Standards Board, or SASB, and the Financial Stability Board's Task Force on Climate-related Financial Disclosures, or TCFD.
Both SASB and TCFD have created standards for businesses to identify, manage and communicate financially material sustainability information to their investors. Generally, they divide climate risks into two major categories: risks related to the transition to a lower-carbon economy and risks related to the physical impacts of climate change. Where companies in its portfolio do not follow such a standard, the CPP has the ability to utilize its proxy voting rights to push for disclosure along these lines and to improve ESG performance more widely. While completely divesting a company holds appeal to many, oftentimes much more can be accomplished from driving change in practice and reporting as a shareholder, as unpopular as that can sometimes be.
The approach that CPP takes on climate involves bottom-up assessments for new investments from the perspective of climate change and a top-down approach to measure its entire portfolio risk over time. This is smart from both an environmental and economic perspective, and it has informed a couple of notable shifts.
The first is a steady departure from fossil fuel investments. Last May, former CEO Mark Machin noted that fossil fuel producers and services made up only 2.8% of the board's investments as of March 31, 2020. That is a reduction of 4.6% from two years earlier.
The second, as showcased in the CPP's latest report on sustainable investing, is that investments in global renewable energy companies more than doubled to $6.6 billion in the year to June 30, 2020. These are important changes because the numbers show that renewable energy investments are greatly outperforming those in the fossil fuel sector. Reports have shown that over the last five years, investments in fossil fuels have yielded an average of a 7.2% loss, while renewable energy investments have grown by 73%.
Of investments in the last year, the top 30 global clean energy companies have grown between three and four times in size. I know this very well because I have some of these leading clean-tech companies, Carbon Engineering for example, in my riding.
We need transparency in markets so investors can adequately assess risk of carbon exposure. The driving force behind the creation of Canada's expert panel on sustainable finance in 2018 was for it to make recommendations that could scale and align finance in Canada with our country's climate and economic goals.
Among the 15 recommendations outlined to attain our goals, the panel recommended we embed climate-related risk into the monitoring, regulation and supervision of Canada's financials systems. It further recommended that we promote sustainable investment as business as usual within Canada's asset management community.
This is also one of the reasons to support Bill C-12, Canadian Net-Zero Emissions Accountability Act, which, among other things, would require the minister of finance to report annually on how it is managing its financial risks and opportunities related to climate change. This obligation would require the government to report on all of its operations, including crown corporations such as Export Development Canada and the Business Development Bank of Canada.
I believe that this disclosure should extend to CPP. Canadians should have a full picture of the climate-related risks associated with their investments, both those made in Canada and those made internationally, as well as the areas where we can profit. CPP officials have been leading calls for such disclosure within that portfolio. The same can be said for ensuring that CPP does not support companies that are committing human rights abuses and risk undermining our proud commitment to upholding human rights in the world.
The current government has already introduced numerous policies and mechanisms to make sure that Canadian companies are not complicit in human rights abuses in Canada and abroad. Notably, to further strengthen Canada's commitment to responsible business conduct, we appointed a Canadian ombudsman of responsible enterprise in April 2019, whose duty it is to review claims of alleged human rights abuses rising from the operations of Canadian companies abroad in the mining, oil and gas, and garment sectors. Following credible reports of human rights violations affecting Uighurs and other ethnic minorities in Xinxiang, China, Canada adopted several measures to address the risk of goods produced by forced labour from any country from entering Canada and to protect Canadian businesses from becoming annoyingly complicit in the abuse.
A further step I would like to see this Parliament take is to adopt Bill S-216, an act to enact the modern slavery act and to amend the Customs Tariff, which would impose an obligation on entities to report on the measures being taken to prevent and reduce the risk of forced labour or child labour being used at any step in the production of goods in Canada or those imported into Canada. Like Bill C-12, the standards contained in the proposed modern slavery act should apply to the CPP. These disclosures are not just about the moral imperative. Any smart investor seeks to understand the level of risk in its investments, and the CPP is no exception.
To the bill itself, I very much agree with its intents and purposes. Few Canadians would believe we should support businesses running afoul of the human labour or environmental abuses it mentions. I do, however, have serious concerns about the way it has been drafted. The language of this bill is dangerously vague and overly broad in stating that:
...no investment may be made or held in an entity if there are reasons to believe that the entity has performed acts or carried out work contrary to ethical business practices....
This could include just about any unsubstantiated report rather than actual, factual occurrences. To ascertain when there may be a reason to believe something had occurred could result in absolute paralysis of the CPP. As well, companies would be considered guilty until proven innocent.
It also does not define what would constitute a human labour or environmental rights violation that would bar investment. For example, I think we can all agree that we do not want to invest in—