CDPQ's 2020 Stewardship Investing Report

CDPQ put out a press release today on investing constructive capital to support strong companies in strong communities:

In its most recent Stewardship Investing Report released on April 21, 2020, CDPQ provides an overview of the latest developments in its strategy to fight against climate change, as well as on matters related to equity, diversity, inclusion and governance. Charles Emond, President and Chief Executive Officer, and Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing, take stock of 2020 and provide some important observations on the organization’s ambition to achieve a green, equitable and inclusive economic recovery.

In 2020, the COVID-19 pandemic and ensuing crisis had unprecedented impacts on communities, exacerbating already existing inequalities. Women, young people and members of ethnocultural minority groups around the globe were particularly hard hit.

This year also saw citizens around the world stand up in support of social justice. The echo of their voices is a strong signal that encourages us to continue and expand our efforts to promote equity, diversity and inclusion.

While the crisis has severely affected economies, the recovery is an opportunity for us all to rebuild better and be more ambitious in our fight against climate change and meet rising needs. By directing capital to a greener, more equitable transition, we can generate growth while contributing to a more sustainable world.

As a global investment group that takes a long-term approach, we have an opportunity to invest and develop assets that foster stronger communities and healthier living environments. Guided by this ambition, we can carry out our mission while safeguarding the trust of millions of Quebecers for whom we are working, as well as the communities that are home to our portfolio companies.

Each day, we assess the quality of our investments in light of targeted returns as well as rigorous sustainability criteria. Our teams also rely on expertise and close collaboration with our partners to promote ideas that are important to us, such as fighting climate change, promoting diversity and inclusion and sound governance within our portfolio companies.

Enhancing our climate ambitions

We work to fight against climate change each and every day. Given that we have exceeded our targets set in 2017, this first phase of our commitment has been successfully completed this year.

In the coming months, we will be resetting our low-carbon investment targets to focus more on assets that support the transition.

Moreover, adjusting our carbon intensity reduction target will allow us to enhance our efforts across our entire portfolio. We will pay very close attention to the decarbonization of the real economy by strengthening our commitment to our portfolio companies as the transition unfolds. Our target is still tied to our goal of achieving a carbon neutral portfolio by 2050 and we are continuing our efforts in this area, particularly with our partners.

In line with this vision, we have also confirmed that we wish to eliminate our coal exposure and that we have significantly reduced our exposure to oil production since 2017, in keeping with our goal to ultimately eliminate the most polluting forms of fossil fuel from our portfolios.

Promoting equity, diversity and inclusion

This past year has solidified our conviction that championing equity, diversity and inclusion is now more important than ever.

We have clarified our expectations of portfolio companies in our improved Policy on the Principles Governing the Exercise of Voting Rights of Public Companies. This governance tool provides guidance for our voting positions with regard to our stewardship investing priorities, allowing us to signal that our portfolio companies must implement this change more quickly.

Because we firmly believe that a corporate culture based on equity, diversity and inclusion is synonymous with success, we also provide an inclusive work environment for the development of all our talent. 

In addition, we continue to work with our international partners to advance these issues in our industry, both locally and around the world. 

Leading by example on best governance practices

The impacts of the pandemic have shined a light on how important strong governance is.

Transparency and resilience are fundamental in the companies we invest in.

We develop our companies’ expertise in areas such as environmental, social and governance (ESG) factors, cybersecurity and abusive tax planning through discussions with our experts.

The progress made and results achieved in recent months illustrate the important work our teams do, our efforts to address these major societal issues and our commitment to meet our depositors’ needs.

For the coming year we will continue down this path of investing constructive capital.

You can download CDPQ's 2020 Stewardship Investing Report here.

It is worth noting that this is the third Stewardship Investing Report published by CDPQ. On April 27, 2018, the 1st Stewardship Investing Report was published by CDPQ. 

Under the leadership of Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing, CDPQ has been a leader in Canada in advancing thinking on sustainability and all the issues it entails as a complement to traditional financial metrics.

I strongly recommend you take the time to read this report, it's very well written and packed with great insights.

The first figure in the report shows you how CDPQ's geographic exposure has changed over the last 10 years:

Not surprisingly, Canadian investments have been reduced and are being reduced to invest more in the US, Europe and rest of the world, especially Asia and Latin America.

The second figure shows you the levers of influence in their stewardship investing:


The report goes into details on the four pillars of their investment strategy on stewardship investing:

Importantly, each pillar is backed up by actionable processes which include developing specialized tools to factor climate risk into their investment process, carbon budgeting, investing in innovation and variable compensation tied to achieving climate targets.

In other words, every pillar is thought out and there are concrete steps and ways to measure if targets are being achieved.

In terms of supporting international initiatives:

  • CDPQ cofounded the Investor Leadership Network against the backdrop of Canada’s presidency of the G7 in 2018. The ILN currently brings together 14 global institutional investors.
  • CDPQ is one of the founding members of the UN-convened Net-Zero Asset Owner Alliance, a UN initiative that currently brings together 35 large global investors with a shared objective of achieving carbon-neutral portfolios by 2050 while focusing on the impact on the real economy.

In terms of promoting diversity and inclusion I note these three pillars:

Again, these pillars are backed by actionable steps and performance targets. For example:

This is great but I do have one remark: why did CDPQ leave out people of disabilities? It needs to start taking some initiative there, working with non-profit groups like AIM CROIT to hire and develop more talent from disadvantaged and marginalized groups.

I keep harping on this and then I get people telling me: "Well Leo, people with disabilities can't work at CDPQ or CPPIB, it's too stressful and hard."

I say "absolute rubbish!!", if you focus on negatives and their disabilities, not their abilities, then don't bother hiring them because you'll make their life miserable.

Anyway, the report ends with three pillars of supporting responsible governance:

Again, I encourage you to take the time to read the details in the report as it covers all these pillars in-depth.

I was also happy to note that CDPQ continues its support of communities and stepped up its efforts during this crisis. 

In fact the report begins by noting the pandemic has exacerbated inequality, hitting women, young people and ethnocultural minority groups particularly hard.

We talk a lot about doctors, nurses, teachers, police officers and other front line workers but what about the working poor, typically immigrants, working at some plant, not being able to take any paid sick leave? (don't get me started on Doug Ford and paid sick leave, they really dropped the ball!)

All this to say we take a lot of things for granted (and that includes me who has the luxury of typing this blog at a leisurely pace every afternoon from the comforts of my home), but we all need to step back and remember there are people out there who are really suffering and need help.

Just today, I drove downtown and was struck by how many beggars were coming up to my car every other block. I was thinking how Montreal is struggling but then I remembered, it's not just Montreal, these are social problems you see in every major city right now. 

I'm not going to lie, it was depressing driving downtown, not to mention there's still endless construction all over St-Catherine street.

I'm looking forward to the day where downtown Montreal is bustling again, with cafés open, people sitting outside, enjoying the beautiful summer days. 

Alright, let me wrap it up there. Take the time to read CDPQ's 2020 Stewardship Investing Report here.

I commend Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing, and her team for putting together this excellent report. Very well done.

Also, read my previous comment where CDPQ's CEO Charles Emond discusses investing in climate action as well as my recent comment on why CDPQ's massive real estate subsidiary, Ivanhoé Cambridge, is committing to achieving net zero carbon by 2040.

One thing is for sure, Charles is following in his predecessor's footsteps taking ESG very seriously and shaping it in his own vision. These aren't just empty words, they're backed by a strategy, concrete actions and measurable processes and targets.

Lastly, take the time to read CDPQ's 2020 Annual Report (in English), Constructive Capital, here

Below, watch this exchange which took place earlier today between Conservative MP Pierre Poilievre and the Governor of the Bank of Canada, Tiff Macklem, who was also part of the Expert Panel on Sustainable Finance with Kim Thomassin, Barbara Zvan and Andy Chisholm.

What Pierre Poilievre doesn't realize is in order for the Bank of Canada to continue its asset purchases, it needs the federal government to emit billions in debt which the Bank then monetizes. The exact same thing is going on in the US where Fed Chair Jay Powell said they're staying put, not raising rates.

But Poilievre is right about one thing, central banks can only create housing and asset inflation, not sustained inflation which comes from wage gains, and this only exacerbates inequality. 

To be honest, my biggest fear is central banks are cornered, sowing the seeds of the next deflationary crisis and it won't end well. 

Lastly, last November, Governor Tiff Macklem and Barbara Zvan, President of University Pension Plan Ontario, discussed the Bank of Canada’s role in advancing sustainable finance in Canada and other recommendations of the Expert Panel on Sustainable Finance. Watch it below, excellent discussion.

Update: Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing at CDPQ, was kind enough to get back to after reading this post:

Merci beaucoup d’avoir partagé notre rapport d’investissement durable, c’est très apprécié. Comme tu l’imagines, il s’agit d’un travail qui a mobilisé beaucoup de personnes au sein de l’organisation au cours des dernières semaines, et l’équipe en est très fière. 

With respect to your point on people with disabilities, I completely agree with you that it is a crucial topic, and at CDPQ we take it very seriously, both internally and with our portfolio companies.

  • Internally, our Action Plan for Persons with Disabilities 2021-2022 is accessible on our website that outlines the measures we are taking and planning to reduce barriers to the integration of people with disabilities; 
  • Externally, the fund Equity 25^3 aims to encourage organizations to advance diversity and inclusion, broadly speaking. Although its focus is on women, Indigenous people and visible minorities, we leverage this fund to share our convictions on inclusion, including of course, of persons with disabilities.

I thank Kim for getting back to me and I am glad CDPQ is committed to diversity in all its forms, both internally and externally.