Fast Five: CPPIB 20th Anniversary Edition
2019 marks a major milestone for CPPIB – our 20th anniversary as the investment manager of the Canada Pension Plan Fund. A lot can change in a generation (it was in 1999 that the newly formed territory of Nunavut elected its first Premier). CPPIB and the Fund we manage have evolved meaningfully during its first two decades. In this special “Fast Five” edition we reflect on those changes and what they mean for our future.
Sustainability of the CPP: CPPIB emerged out of a 1990s realization that the CPP was unsustainable. Changing Canadian demographics meant fewer workers were left to support a growing number of retirees. The CPP Investment Board was created in 1997 with a mandate to invest. We received our first funds in 1999 and since that initial investment of $12 million, the Fund has grown from $36.9 billion in 1999 to over $368.5 billion today. We’ve also gone from zero to approximately 1,600 employees overseeing investors and strategic partners in Toronto, Hong Kong, London, Luxembourg, Mumbai, New York, São Paulo and Sydney. Every three years the Chief Actuary of Canada issues a report on the state of the Fund that measures its sustainability. The most recent report again concluded the Plan is on track to meet all its obligations over a 75-year horizon.
Fast Fact: In 2008, we opened our first international office in Hong Kong – it now employs over 130 investment professionals. tweet
Helping investors play the long game: As investors of the CPP, we are fortunate to have some degree of certainty about the Fund’s future contributions. This gives us the benefit of looking past short-term market dynamics to make patient, forward-looking investment decisions. This long-term view is a focal point in our investment strategy – one we’ve tested over the years through research and partnerships with business leaders worldwide. In 2014, alongside McKinsey & Company, we launched a multi-year initiative called Focusing Capital on the Long Term (FCLT) to promote greater focus on long-term value creation. FCLTGlobal now operates as an independent not-for-profit organization.
Fast Fact: FCLTGlobal has 50 member organizations, including world leaders in business, investing, and research. tweet
Marking opportunity in renewable energy: We see sustainable investing simply as intelligent long-term investing. Investments in renewables can provide attractive risk-adjusted returns when done in a thoughtful, prudent manner. That’s why, in 2018, CPPIB made history by issuing our inaugural Green Bond, the first by a pension fund and the largest single Canadian green bond transaction to date. Since being introduced in 2007, green bonds have become a mainstream tool for organizations to raise funds for projects that have environmental benefits. Our Green Bond Framework defines the categories eligible for investment from green bond proceeds, which include: renewable energy, sustainable water and wastewater management projects and green buildings.
Fast Fact: According to the Climate Bonds Initiative, annual issuance of green bonds globally is expected to reach $250-$300 billion in 2018 and increase to $1 trillion by 2020. tweet
Advancing diverse, effective boards: Women currently represent about 22% of board directors at major listed companies – and movement toward parity is at a glacial pace. With research telling us companies with higher female board and executive representation deliver higher returns, CPPIB chose to act. In 2018, CPPIB’s Sustainable Investing team added Board Effectiveness as a fifth area of focus, and during the 2017 proxy voting season, leveraged our votes at shareholder meetings of 45 Canadian companies with no women directors to demonstrate our desire for improved diversity. A year later, nearly half of those companies have added a female director. So, in 2018 we adopted a new global voting policy to vote against the chair of the board’s nominating committee if the board has no women.
Fast Fact: CPPIB’s first ever Chair was a woman, Gail Cook-Bennett. Her legacy of effective leadership is carried on by our current Chair, Heather Munroe-Blum. CPPIB’s Board has maintained gender parity since 2017. tweet
A growing fund: This year, we started receiving and investing the first contribution amounts from the CPP enhancement. These contributions will support a gradual increase in how much working Canadians will receive from CPP when they retire. With more Canadians living longer, the need to prepare properly for retirement is becoming increasingly important and the contributions-based CPP is a key component of that overall retirement picture. CPPIB now invests contributions from the CPP enhancement with careful attention to growth, risk control, and transparency – because over 20 million Canadians are counting on us.
Fast Fact: For the first time in its history, the number of senior citizens in Canada was larger than the number of children in 2017. tweet