SRI not in our mandate: CPPIB

(October 8, 2004) If Canadians oppose their federal pension funds being invested in tobacco and military stocks, they should tell their politicians, not the group managing the money, says the head of the Canadian Pension Plan Investment Board (CPPIB).

John MacNaughton, outgoing president and CEO of the CCPIB, was peppered with questions and comments from outraged citizens at the board’s public meeting in Toronto on Thursday. While he said he appreciated the concerns voiced, he pointed out that the CPPIB’s mandate allowed it to make investment decisions based solely on their financial merits.

“Investments by CPPIB in tobacco are inappropriate,” said Dr. Lawrence Erlick, a member of the Canadian Medical Association’s board of directors. “It is inconsistent and illogical for government to spend millions of dollars in an effort to reduce tobacco use for the health of Canadians, while a Crown corporation invests millions of dollars in the tobacco industry.”

“There are two competing public goods here,” MacNaughton explained. “One is the public health of Canadians, the other is security of the pension for 16 million Canadians. The mandate we’ve been given by government is to focus on investing in a portfolio for these 16 million people. The mandate, as we interpret it, is to focus on making investments based on investment considerations and not to take non-investment considerations into account.”

While the tobacco issue dominated the comments from the floor, attendees also questioned the schism between Canada’s foreign policy and the board’s investments. One group stated that the Foreign Affairs Department has urged Canadians to avoid investment in Burma until substantial social changes had been made. Yet the CPPIB holds investments in Ivanhoe Mines, which operates in that country in a 50-50 partnership with the ruling military dictatorship.

There was some praise for the CPPIB as well, as some of those protesting its investment decisions prefaced their comments by acknowledging the transparency of the fund.

However, to Eugene Ellman, executive director of the Social Investment Organization, tobacco is obviously fraught with financial peril. He pointed out that the CPPIB has invested in British American Tobacco, which is putting on a major push in the Chinese market. As that society becomes increasingly Westernized, he says, the Chinese will adopt Western-style litigiousness.

“Can you imagine a class-action suit of a billion people?” he asked.

Prior to question period, MacNaughton reaffirmed the Chief Actuary’s report that the CPP could meet its financial obligations for the next 75 years. He said the expected long-term rate of return on the fund is 4.5% above inflation, topping the actuarial assumption of 4%. The five-year rate of return has been even better, at 5.94%, with a hefty 17.6% return in fiscal 2004 easily wiping out the losses incurred in the bear market of 2000-2003.

“The question I am most often asked is ‘will it still be there when I’m ready to retire?’ The answer is an emphatic ‘yes’,” he said.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com