Canada-China Relations Committee on May 8th, 2023

[Michel Leduc]

What I would say is this: The legislation we operate under was crafted with a lot of foresight. Risk is not.... It changes over time in terms of commercial activity and what the broad stakeholder expectations are. I would suggest that those broad risks you mentioned are absolutely part of risk-adjusted returns. They're two sides of the same coin.

The CPPIB was established because the fund was going to be insolvent. It was not taking on enough risk. We were established to take calculated and sophisticated levels of risk. As time marches on, our understanding of what drives the value in corporations is determined by how they manage their relationships with their employees, their communities and first nations. That's part of risk.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

I'm sorry to interrupt, but it feels as if.... I mean, we have a core ombudsperson in this country who has no ability to compel testimony or witnesses, and who has, in fact, found zero companies guilty of perpetrating any human rights abuses, even though we know very clearly this is happening.

How do we trust that? Where are you getting your information from? You can't compel testimony and witnesses from businesses either. Are you accepting that they say they're doing the right thing? Is that how we're going with it?

[Michel Leduc]

Well, I—

[The Chair, Liberal, Ken Hardie]

At this point, we'll have to wait until Ms. McPherson's time comes around again.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Two and a half minutes is very short.

[The Chair, Liberal, Ken Hardie]

Yes, two and a half minutes goes by very quickly.

We'll go to five minutes with Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, gentlemen, for being here.

I'll continue along that line with regard to ESG.

You're requiring ESG when you look at your different investments. How are you making sure the investments you're putting money into are doing the same thing? How are you getting that picture, at that next level where you have passive investments or even active investments, that they have a proper ESG strategy?

We'll have to be quick, because I have lots of questions. I'll start with you, Mr. Leduc.

[Michel Leduc]

Sure.

In the context of a direct investment, it's strong due diligence. It's looking management in the eye, having a data room and truly understanding their track record—

[Randy Hoback, Conservative, Prince Albert, SK]

Quickly, right there, if it's a Chinese investment versus an American or a Canadian investment, do you use the exact same formula and criteria for the ESG requirements as you would for China?

[Michel Leduc]

No. It would be sectoral, first and foremost. Investing in a particular sector would be very different within a country.

In the context of China, for example, there are hundreds of companies in the Asia market, so we would pore through them and do our deep dive into all of those companies to understand what the purpose of their business is and what they are exposed to. If we don't have the necessary information at our disposal, we will engage. If we don't have the answers that make us comfortable, we will not invest. We have a process in place to ensure we do not get exposed to companies we're not comfortable with.

[Randy Hoback, Conservative, Prince Albert, SK]

Go ahead, Mr. van Gelderen.

[Eduard van Gelderen]

Our approach is exactly the same. We use the same criteria, but it's definitely different in working in the U.S. with the same criteria compared to in other parts of the [Inaudible—Editor] markets.

[Randy Hoback, Conservative, Prince Albert, SK]

How do they look at it from the other side, the other shoe? if I'm looking for that investment from you, how do I say that it's fair for me if I have to meet higher criteria for ESG factors than, let's say, a company out of China. Is that fair to say?

[Eduard van Gelderen]

I would approach it differently and say that we expect the U.S. companies or western companies to comply with a lot of criteria we bring forward. Most of the time they do, which requires less of a risk premium that we look for than when we go to other parts of the world.

[Randy Hoback, Conservative, Prince Albert, SK]

You adjust it in the risk premium part of the equation?

[Eduard van Gelderen]

Yes, for sure.

If, like my neighbour said, there is more uncertainty, again, as I mentioned before, no one is telling me that I have to go into those regions. If the premium I ask is too high and is not given to me, I'm not investing.

[Randy Hoback, Conservative, Prince Albert, SK]

On the Chinese belt and road initiative, we're very aware of what that is. Have you run into Chinese investment directly that has scooped deals on you as they go down that path? Also, do you know if you've invested in companies that are part of the belt and road initiative?

I'll start off with you, Mr. Leduc—it's easier in the middle—and then I'll go to Mr. Delisle.

[Michel Leduc]

To the best of my knowledge, we don't have a lot of exposure, understanding that countries that are impacted are not really part of our core markets.

With regard to the beginning of your question, we do, from time time as we invest around the world, run into Chinese investors. There's a large sovereign wealth fund that we would compete against, so that does happen.

[Vincent Delisle]

Our exposure to private markets and assets totals $4.4 billion, mainly in real estate, logistics and multi-residential, and includes private investments; it's therefore not in the belt and road initiative.

[Randy Hoback, Conservative, Prince Albert, SK]

Okay.

Go ahead, Eduard.

[Eduard van Gelderen]

I can confirm that it's the same for us.

[Randy Hoback, Conservative, Prince Albert, SK]

You're not necessarily active in that activity.

[A voice]

No.

[Randy Hoback, Conservative, Prince Albert, SK]

Then I'm going to go right back to trying to understand the ratios that you use in the countries like China at this point in time.

What does it take to change those ratios around? Is that ratio today the same ratio that you would have had in your portfolio, let's say, in 2016? How would it compare?

[Michel Leduc]

Our investment pieces, as we think about emerging markets and as we think about China's place in that broad market, are something that we continue to evaluate on a year-to-year basis. We tend to think through multiple years; we tend to not tweak our portfolio on a 12-month basis. We do think in larger time periods. We have a strategic portfolio that is really more in terms of a five-year time frame, and we're absolutely seized with changes in geopolitical patterns and taking those into account, so it's under review for certain.