CPP Investment Board reinforces ESG role with new policy

Based on the long-term nature of its investments and the shifting macroeconomic environment, the Canada Pension Plan Investment Board (CPP Investments) has updated its policy on sustainable investing, the board said in a release on Thursday.

In the policy document, which was approved by the board in June, CPP Investments said environmental, social and governance (ESG) factors such as climate change and poor company management “have the potential to be significant drivers of risks or opportunities,” affecting both profitability and shareholder value.

“In our view, shareholder value is inextricably linked to the proactive integration of material ESG factors into company culture and strategy,” the policy document said.

The policy was last updated a decade ago, a spokesperson confirmed.

Some of the principles underlying the board’s approach include: seeking to integrate ESG analysis rather than divest based on responsible factors alone; aiming to engage with companies “to promote improved management of ESG issues”; and expecting disclosure of “financially relevant, potentially material ESG factors” that could affect a company’s performance.

The new policy — which the release says also highlights the board’s support of companies that align with global ESG-focused groups such as the Task Force on Climate-related Financial Disclosures — also refers to CPP Investments’ 2019 Report on Sustainable Investing.

In that report from November 2019, CPP Investments cited “major advancements” in its bid to become an ESG leader since mid-2018. The pension board has formed multiple sustainable and climate-focused committees, and was the world’s first pension fund to issue green bonds.

While the board prefers to engage with companies, the policy details when divestment might occur. If a company’s lack of interest in ESG issues will negatively affect long-term success, or if a company’s brand or reputation could lead to risk, for example, CPP Investments will consider dropping a holding.

However, “These [factors] are not applied to our exposure to companies through broad-based indices,” the policy document said.

In the release, the board’s managing director and head of sustainable investing, Richard Manley, said, “Our policy reflects the growing body of evidence showing that companies that integrate consideration of ESG-related business risks and opportunities are more likely to preserve and create long-term value.”

“We are able to work with companies to bring about change, helping them deliver enduring value-building growth,” he said.