Finance Committee on June 11th, 2020

[Mark Machin]

Okay. I'll try to do it in a minute. It's a huge question, really important question on board effectiveness.

Page 48 and onward in our sustainable investing report, which is online, goes through all the reasons why we think gender diversity is a really important issue for company performance. We've analyzed this from a quantitative point of view. We've done meta-analysis. We've done our own quant portfolios, and we believe this is a real issue.

Therefore, we began voting against this a couple of years ago in Canada. We've extended it now across the world, and we've been pretty pleased. It has been a real success, not just us but all the movements. It's just terrific to see that real progress has been made in Canada. As of December, 30.4% of TSX 60 board members were women, in the TSX composite, 27.6% are women. So progress has been made—not full progress, but it's still terrific—and we hope that continues around the world.

To the specific question of what excuses we will accept, it's not an excuse that we can't find anyone or there's no expertise in this sector or anything. It may be that there is a particular board limit and there will be turnover in a year or two and therefore they have their eyes on doing it at that point and it's just impractical for them to do it that year, for example. But we're not taking the weak excuses as an answer.

[The Chair, Liberal, Wayne Easter]

Thank you.

We have Mr. Morantz, followed by Ms. Dzerowicz, who will split with Mr. McLeod.

Mr. Morantz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

I don't have many questions. We've covered a lot of really good ground today.

I want to ask about the increase in the employer-employee contributions. I don't think we've touched on that yet.

From 2018 to now, they've gone up by about 30 basis points, from 495 to 525. Could you describe the reason for that, and whether you anticipate that this is a trend now and we'll be seeing regular increases? For years, it was at 495 and was stable at that rate.

[Mark Machin]

That refers to the reform and the legislation that was passed in 2016-17 for the additional CPP. That was a decision taken by provincial and federal governments. Back then, legislation was passed to increase the contribution rates.

Those will gradually increase, both the rate of the contribution required on the earnings covered by the CPP and the upper limit on the covered earnings. That upper limit increases between 2023 and 2025, so it's being gradually phased in over that time period.

Our job is to manage the money that comes from that. We describe in the annual report on page 21 how we do that, how we're —

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I understand that.

These increases were legislated. Were they based on actuarial advice?

[Mark Machin]

I would presume that was the case, but it's not our realm to get into the policy changes; our realm is to invest the money that comes to us. Clearly, there's an increased benefit that comes from that increased contribution. The goal is that, over time, the maximum benefit will rise from about 25% of pensionable earnings to 33% of pensionable earnings, once this all plays through.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I was curious about the rate of return. The Canadian dollar has been declining. It's gone up a little bit lately, but it's weakened significantly over the last.... If you go back to 2012, I think it was at par. When you're calculating your rate of return overall, year to year, do you take into account the value of your foreign assets vis-à-vis the value of the Canadian dollar?

[Mark Machin]

One of the benefits of diversifying the portfolio globally is that hedge, if you will, so when the Canadian economy is being hit hard on a relative basis, the foreign assets to some extent will be valued higher, and vice versa. When the Canadian economy is doing well, then contributions in employment are high, which offsets any relative weakness from the international economy.

It's one of the reasons we don't hedge the exposure to foreign currencies, because we think there's a natural hedge there in terms of the contributions versus where the portfolio is based. So yes, that's one of the things we think about.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Okay, thank you.

[The Chair, Liberal, Wayne Easter]

We'll turn to Ms. Dzerowicz, who will be followed by Mr. McLeod.

Go ahead, Julie.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I just want to say a huge thanks to you, Mr. Machin, and your team for your excellent work in managing what I think most agree is a “best in class” and well-run pension fund. You've done a wonderful job in responding to a wide range of questions today, and most of my questions have already been asked.

There is one area I want to delve a bit more into. The chair raised some very important questions around investment in oil and gas companies. You provided a wonderful response around the fact that we're going to need some traditional oil for many years to come, but climate change is still happening. The world will be looking at all companies to reduce their emissions.

Mark Carney, a recent Bank of England governor, in one of his last speeches said, “Companies and industries that are not moving towards zero-carbon emissions will be punished by investors and go bankrupt”.

You've mentioned that every company CPPIB invests in has to show that it is disclosing risk posed by climate change to its business. Do you think that we also have to start moving towards asking businesses to show how they're moving towards zero-carbon emissions?

[Mark Machin]

Thank you for the kind comments at the beginning. I really appreciate them. I'll accept them on behalf of my 1,800 colleagues who do all the hard work.

With respect to Mark Carney and his work on climate, we were one of only two pension funds involved in the task force for climate-related disclosure, chaired by Michael Bloomberg. The purpose of that is to make sure, as you say, that we really understand what the risks are in our portfolio. Otherwise, it's extremely hard, when you have thousands of company positions, to really understand what we own in the portfolio and what the risks are. That's something that has been extremely helpful as more and more companies adopt these standards and we ourselves adopt the standards.

With respect to moving toward requirements for people to move to zero emissions, I think it's possible that it's something that people will require over time. I think the U.K. government is moving to being carbon-neutral by 2050. I think an increasing number of governments are moving toward that type of scenario. I think energy companies generally around the world do see that this transition is happening. They want to be ahead of it, in many cases. One thing Mark Carney has said is to just be careful about cutting off funding to these companies when they are actually funding transition. It's all very well to exclude everything from your portfolio, but then you end up not actually funding the transition. Some of these companies are real experts in this area. They can actually make massive investments in renewable power and manage that transition. That's certainly something that we see around the world.

I gave the example earlier of a joint venture with Enbridge in Europe called Maple Power. Together, we are making very substantial investments in offshore wind in Europe. We're very happy with that relationship and those investments.

[The Chair, Liberal, Wayne Easter]

Thanks to you both.

The last questioner is Mr. McLeod.

Go ahead, Michael.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chairman.

Thank you to the witnesses for appearing and for their very interesting information. I also want to thank them for their engagement with northern governments. I think that's really good to see. People are quite happy to have that discussion with them and their making themselves available.

On indigenous hiring, I'm not satisfied that the numbers are where they should be, but you're working at it, you have good programs in place, and that's all I can ask.

I guess the biggest piece everybody wants to hear about is that the fund is sound and secure. It was interesting to see how well the fund was doing in December and then to watch how things affected investment during the pandemic and the ability to bounce back. Has the employment situation, with the great employment numbers that we were seeing, helped? Has that impacted how the investment has been doing—before and now?

[Mark Machin]

I'll say one quick thing on the territories. I was thrilled to get to up the Yukon earlier this year. We have 88,000 residents in the territories who serve as contributors and beneficiaries, so we see that as important. I was hoping to get to the Arctic Indigenous Investment Conference in June in Nunavut, so I was disappointed, but hopefully there will be next year. It was terrific to make that meeting in Yukon and meet with a number of indigenous leaders, and to speak at Yukon College's School of Business and Leadership. We're working as hard as we can to increase the number of indigenous employees we have.

I've forgotten your main question. I apologize.

[Michael McLeod, Liberal, Northwest Territories, NT]

My main question was around the employment numbers and how they helped.

[Mark Machin]

Sorry, yes, it was about the employment numbers. At the moment, we're anticipating that the employment numbers will have a significant impact on the inflows into the fund. Based on our modelling, we expect a very small inflow into the fund this year, and then it picks up rapidly after that. We do hope that as the employment numbers improve here....

It's certainly gone from what could have been a reasonably significant outflow from the fund this year to a very modest inflow to the fund based on the latest employment numbers. It is much more promising than we had previously anticipated. It's still down, obviously, based on what we had previously anticipated the flows into the fund would be, but we do see a rapid rebound in the next year.

[Michael McLeod, Liberal, Northwest Territories, NT]

Can I just ask one more quick question?

[The Chair, Liberal, Wayne Easter]

We're over, but go ahead.

[Michael McLeod, Liberal, Northwest Territories, NT]

You mentioned that the fund was doing well in December. That was a record high, right? I thought it was the best in 20 years.

[Mark Machin]

The 12.6% wouldn't be a record. We've had higher percentage returns for particular years. We had 18% in at least one fiscal year, but last year was a very strong year. I'd love to say to expect 12.6% in the future, but that would be a little optimistic.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you.

[The Chair, Liberal, Wayne Easter]

Okay, we are going to have to end it there. The minister's on the next panel, and we really don't want to keep him waiting.

Many members thank you for your candid responses. I can tell you, not all witnesses get that kind of reaction from members on this committee. We certainly thank you. Through you, we want to thank all your teams and all your staff for the work that they do. I think your performance record, as evidenced in your report and what you stated today, speaks well for itself. I think Canadians can be proud of the work that the Canada Pension Plan Investment Board does.

With that, thank you again to you both, Mr. Leduc and Mr. Machin. I hope that next time we'll get to meet in person. We are living in interesting times.

We will suspend the meeting for about two minutes while the staff bring the other witnesses online.

[The Chair, Liberal, Wayne Easter]

Seeing as we're short on time, we'll call the meeting to order.

Welcome to meeting number 36 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference from the House, we are meeting on the government's response to the COVID-19 pandemic.

We'll be having the minister here today. The biweekly report has been sent to the committee.

With the minister, we have the Canadian Development Investment Corporation, the Canada Revenue Agency, the Department of Employment and Social Development, the Department of Finance and Global Affairs Canada.

We've just had the Canada Pension Plan Investment Board here, and I couldn't help but think of when we were going through the testing of all those earphones that have been sent out to representatives. I hope they invest in the company that sells these earphones, because there are a lot of them going out.

Minister, welcome. It's great to see you in person, at least on the screen. Thank you for coming. The floor is yours.

[Bill Morneau, Liberal, Minister of Finance]

Thank you, Mr. Chair.

Before I begin, I'd like to once again thank the members of the committee for their continued work during this particularly challenging period for all of us.

The pandemic continues, obviously, to have serious economic impacts across Canada. For many Canadians, the pandemic has brought about unprecedented uncertainty: uncertainty about their jobs and their financial security and uncertainty about making ends meet.

Today marks three months since the Prime Minister announced the first elements of Canada's COVID-19 response plan. From the very beginning, we've maintained an unwavering commitment to supporting Canadian households and businesses. We've rolled out measures for workers and businesses across all sectors and for employers of all sizes. We've worked and are continuing to work closely with local, provincial, territorial and indigenous partners to minimize the health, economic and social impacts of COVID-19.

Now, three months into the crisis, there are some encouraging signs in Canada that the spread of the virus is slowing down. Many provinces and territories in Canada are beginning to cautiously reopen their economies, something that the finance ministers are telling me in my weekly calls is really beginning across the country, but we're not out of the woods yet. COVID-19 continues to pose significant risks to Canadians and, of course, to our economy.

That is why our government continues to take action to reduce the impact of COVID-19. Our goals remain the same: to protect Canadians, support Canadian workers and businesses, and support our communities to ensure that Canada is ready to bounce back when we emerge from this crisis.

I'd like to highlight some of the measures we've recently announced.

Earlier this month, the Prime Minister announced that funding for the federal gas tax fund has been brought forward this year. The gas tax fund is a permanent source of funding that is provided to the provinces and territories. The provinces and territories then disburse the money to municipalities to support various local priorities.

Usually, the federal government transfers the money in two instalments, one during the summer and the other a few months later. We know that this year the municipalities need the money now so that they can deal with the crisis caused by COVID-19.

In the next few weeks, $2.2 billion from the federal gas tax fund will go to Canadian municipalities: money that will help municipalities move forward with infrastructure projects that will improve quality of life, help restart local economies and create good jobs. We understand that more will be needed to help municipalities, as many are facing significant COVID-19-related financial pressures, but we know that this is an important first step. We'll keep working with provinces and territories in order to help support municipalities.

As the provinces and territories gradually get their economies back on track, our top priority remains protecting the health of Canadians. That is why we have begun negotiations with our provincial and territorial counterparts to ensure that any reopening takes place while protecting the health of Canadians and minimizing the risk of transmission of the virus.

In particular, we are working with the provinces and territories to ensure that all Canadians can have paid sick days. People need to be able to stay home if they have symptoms of COVID-19 without worrying about how they're going to pay their bills.

We also continue to ship equipment across the country, such as surgical masks and gloves, and provide support to the provinces and territories in testing for COVID-19.

As we continue our discussions with our provincial counterparts to make sure Canadians can get back to work safely, we'll also be focused on the following areas: testing and contact tracing; making sure there is personal protective equipment, so Canadians are safe on the job; support for child care; support for vulnerable people, like those in long-term care facilities; and support for cities and municipalities. We know we all need to work together.

Throughout the pandemic, one thing has been clear: we've all been touched by this crisis.

Last week, the Prime Minister announced that seniors eligible for old-age security in the guaranteed income supplement will receive their special one-time tax-free payment during the week of July 6. Seniors eligible for the OAS pension will receive a payment of $300. Those eligible for the GIS, who are the most vulnerable, will receive an additional $200.

The pandemic has also heightened and highlighted the additional challenges already facing indigenous peoples in our country. We're working with first nations, Inuit and Métis communities to address their specific needs. Since we last met, our government has announced additional funding to support indigenous peoples. This includes an additional $75 million in supports for organizations that provide services to indigenous people in urban centres and off reserve, and an additional $650 million to support communities on health care, income support and new shelters for women.

This builds on measures already announced to support the public health response in indigenous communities, as well as the support to indigenous businesses and aboriginal financial institutions.

The measures to help Canadians that were recently announced, and which I just mentioned, are in addition to the measures that were previously put in place. These are measures that we continue to improve. For example, we continue to improve the Canada emergency wage subsidy. Last month, we proposed that the program be extended to August 29.

In recent weeks, the government has also held consultations with representatives of business, labour, non-profit organizations and charities. We want to see what improvements can be made to the program. The Canada emergency wage subsidy has already helped more than 2.6 million Canadians keep or return to their jobs.

The key objectives of any potential changes to the Canada emergency wage subsidy would be to maximize employment to ensure that the program reflects the immediate needs of employers and to support the post-crisis economic recovery.

Overall, our government's swift and comprehensive actions through the COVID-19 economic response plan are providing more than $150 billion in direct support to Canadians. This, coupled with liquidity support of $85 billion through tax and duty deferrals, represents support equivalent to more than 10% of our GDP. This has put Canada at the forefront of our international peers in the robustness of our response. We've done this because we believe that, by investing in Canadians now, we stand well prepared for success in the economic recovery to come.

While there is reason to be optimistic, we must all continue to take precautions to control the spread of the virus. As provinces, territories, municipalities and businesses begin to gradually reopen, we'll stand ready to support them to make sure Canadians remain safe and supported. Our government will be there with Canadians every step of the way.

I would now be pleased to take questions from the members.