The ABC of CPP – J

It will be challenging, but not impossible, to effect a change in the judicial mandate of the Canada Pension Plan Investment Board (CPPIB) that will mandate them to consider climate risk in their investment decisions. A change in the mandate of the CPPIB can only be made with the approval of the federal finance minister, and approvals from at least seven of the ten provincial finance ministers.

The CPP Investment Board (CPPIB) was established by an Act of Parliament in December 1997. The CPPIB is accountable to Parliament and to federal and provincial ministers who serve as the CPP stewards. They are, however, governed and managed independently from the CPP itself, and operate at arm’s length from governments.

The CPPIB mandate is based on a governance structure that distinguishes them from a sovereign wealth fund. They have an investment-only mandate, that, according to them “…is unencumbered by political agendas and insulated from political interference in investment decision-making. Our management reports to an independent Board of Directors.”

The mandate is set out in legislation. It states that:

  • “We [CPPIB] invest in the best interests of CPP contributors and beneficiaries.
  • We have a singular objective: to maximize long-term investment returns without undue risk, taking into account the factors that may affect the funding of the Canada Pension Plan and its ability to meet its financial obligations.
  • We provide cash management services to the Canada Pension Plan so that they can pay benefits.”

On the topic of sustainable investing, the CPPIB informs us that: “…we consider and integrate Environmental, Social and Governance (ESG) factors…risks and opportunities…into our investment decisions. Given our legislated investment-only mandate, we consider and integrate both ESG risks and opportunities into our investment analysis, rather than eliminating investments based on ESG factors alone.”  

The CPPIB’s timid policy is to engage companies they invest in to be forthcoming about disclosing the investment risks associated with their activities, including those activities that may significantly contribute to global warming. Canadian should expect and demand more from the CPPIB in this regard. Climate risk assessment should be fundamental to its investment choices, and these assessments should be public documents.