CPP updates responsible investing policy

The CPP, which has been steadfast in its opposition to adopting socially responsible investing principles, has had a change of heart, announcing that it will consider environmental, social and governance factors as part of its investment process.

In an updated responsible investing policy released on Thursday, the CPP investment board (CPPIB) said that while in the past it has focused on disclosure and corporate governance, it will now expand that mandate to include other factors that affect long-term investment performance.

“The CPPIB is pursuing its goal of encouraging corporate conduct that enhances long-term financial performance through a policy of engagement,” the new policy reads. “This reflects the current thinking among leaders in the field of responsible investing that active shareholder engagement is preferential to screening stocks.”

“We believe that engagement is a more effective approach through which shareholders can best effect positive change and enhance long-term financial performance. Moreover, we believe engagement is consistent with our mandate and highly complementary to our investment objective to maximize investment returns without undue risk.”

Social investment advocates are welcoming the CPP’s new policy. “It’s a step in the right direction,” says Eugene Ellmen, executive director of the Social Investment Organization. “I think the biggest difference is that they are pledging to engage with companies on environmental social and governance issues and that’s a major departure from what they have done in the past.”

The board remains opposed to implementing a screening process, arguing that such “artificial” constraints decrease returns and increase returns over time. Ellmen says he has no problem with the CPPIB’s position on screening.

“Obviously the SRI community does screen out certain sectors, but we understand that it’s virtually impossible for the CPPIB to do that because most of their equities are held in a passive portfolio. They’re one of the largest investment funds in Canada and to start picking and choosing sectors would be a major change, so we don’t disagree with that.”

“But they do say that they want to look at how social and environmental issues affect risk and return and we want to work with them on that.”

The CPP’s new engagement policy could include supporting and conducting research into the long-term financial impact of environmental, social and governance factors, supporting shareholder resolutions that encourage the disclosure of such factors and voting proxies in support of the board’s principles.

In addition, the board says it will consider engaging management and corporate boards of firms on specific issues.

“In some cases, where there’s a company that has a particularly egregious issue, they’re saying they will sit down with that company and work things out. We certainly welcome that too, that’s a long-standing strategy within the social investment community,” says Ellmen.

And Ellmen predicts the CPPIB’s new policy could have implications across the pension sector. “The Caisse implemented an SRI policy last year and with the CPPIB now doing the same thing, this is going to set a trend.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com