John Graham Talks About Investing in Canada's Future

Goldy Hyder, President and CEO of the Business Council of Canada sat down with John Graham, President and CEO of CPP Investments to discuss investing in Canada's future:

John Graham has a clear mandate. As CEO of Canada Pension Plan Investments, he oversees the retirement savings of 20 million Canadians, with the goal of achieving the highest possible returns without undue risk.

And yet in a volatile and unpredictable world, his challenge is anything but simple.

Take, for example, the fund’s investments in the energy sector. Recently CPP Investments committed to achieving a net-zero portfolio by 2050. But that doesn’t mean it is divesting its holdings in Canada’s oil and gas industry.

“We believe fundamentally in a path of engagement,” Graham tells Goldy Hyder in the Speaking of Business podcast. “Divesting takes responsible owners away from the table. Divesting basically puts these assets in the hands of people who may not have the same values.”

Graham says Canada is poised for an “economic transition”, not just an energy transition, because the shift to low-carbon energy sources will affect almost everything we produce and consume.

And he sees a significant leadership role for Canada. “Canada knows how to do these types of initiatives at scale. I think we very much have the resources and the scientific and technical know-how.”

Find out more – including why John Graham switched careers from research scientist to pension manager – by listening to this engaging and wide-ranging episode of Speaking of Business.

This is a great discussion where they talk about:

  • Climate Change 
  • COVID 
  • China 
  • Office Culture 
  • Cyber security 
  • Chemistry (John’s first career) 
  • Competition … and why the investment industry punishes Complacency

“One of the things I love about the industry is it is so competitive. If you’re standing still you’re going to fall behind.” -- John Graham, CPP Investments

Two things that keep John up at night:

  1. Competitiveness/ Complacency (losing your edge)
  2. Is the global economy diverging whereas in the past it was converging

He said the whole global economy is in transition and "it will require patient capital, partnership capital and scale capital, and that's what we have."

He said the "S" is ESG is very important. "It needs to be a fair and just transition and it can't be disproportionately borne by certain parts of the population."

He ended with two big ideas:

  1. The solution to energy transition is industrial in scale and will require scientific and technical know-how which Canada has.
  2. Increasing geopolitical risks: "Some of the best minds want to come to Canada" and we can benefit from this talent pool.

I agree, Canada is a great place to live, I just wish our politicians would implement the right long-term policies to attract and retain talented individuals from all over the world.

I'm a little cynical on Canadian politics these days but I won't go there.

John Graham brought up Bill Gates's book on how to avoid a climate disaster.

Gates believes nuclear energy will play a critical role in fighting climate change.

Late last year, his TerraPower announced it will build its first advanced nuclear reactor in a coal town in Wyoming. 

The plant will cost about $4 billion, half coming from TerraPower and half coming from the United States government, the company said.

Rocky Mountain Power — a division of PacifiCorp, which is owned by Berkshire Hathaway Energy — will operate the plant, which will play a role in the power company’s decarbonization strategy.

Why am I sharing this with you? 

Probably because I spoke to someone earlier today who is an expert in nuclear energy and he told me the federal government "hasn't included nuclear energy as part of the clean energies that can qualify for a green bond program."

I was stunned, totally floored, adding to my cynical views on Canadian politics.

Let me be clear on something, and these are my views, it's impossible to tackle climate change without nuclear energy.

We are only fooling ourselves if we think so.

What else? I recently discussed how the US office segment is facing a $1.1 trillion obsolescence hurdle.

In that comment, I brought up another recent comment from John Graham, on why massive disruption requires collective efforts where he states: "Decarbonizing essential sectors: Power, real estate and agriculture are core to our economy, but they can also generate high emissions."

Very few people know that real estate is the largest contributor to climate change at 40% of global emissions.

When you digest that figure, you realize how smart it was to appoint Deborah Orida as CPP Investments' first Chief Sustainability Officer given that she is the Senior Managing Director and Global Head of Real Assets.

Deb is a very smart lady, she knows what her mandate is in that new role and she has a great team backing her up.  

One thing CPP Investments doesn't believe in is blanket divestment.

I've gone over this many times but here are the critical points:

  • The transition to clean energy won't happen overnight, it will take decades
  • Divesting from oil & gas transfers risk to funds or other companies that don't care about responsible investing
  • Divesting isn't free, it comes at a cost, especially in an inflationary environment where all commodities rally.
  • Most importantly, engaging with these companies will ensure a smoother path forward as we transition away from carbon.

Got that? I am all for decarbonization but we need nuclear energy and we still need fossil fuels as we transition to a cleaner energy future.

I don't know why but sometimes I get these nasty emails from people who think I'm against clean energy.

Quite the contrary, I'm all for solar, wind, hydro, nuclear and other forms of clean energy but I'm realistic and think too many people naively think we can flick the switch and go renewable in a nanosecond.

Sorry folks, like it or not, we still need oil, gas and coal to power our world and unless you want to freeze or starve to death in winter, you need to accept that the transition economy will take decades and offers patient capital like CPP Investments and others a lot of opportunities and risks.

Lastly, speaking of risks, geopolitical risks are on everyone's mind these days.

John Graham talks about how the world is diverging after years of converging.

Talking to a friend of mine earlier, he remarked how global trade "created interdependence" among nations which don't share the same values and political systems.

We are now rethinking all of this and the world will likely look a lot more fragmented over the next decade.

My friend also thinks Canada's large pensions need to invest more of their assets in Canadian companies to keep them more competitive."This model works well for CDPQ and its Quebec portfolio" (see an earlier comment of mine on this topic).

Anyways, let me stop there and leave you with some food for thought.

First, take the time to listen to John Graham and Goldy Hyder below.

Second, an older TED talk where Joe Lassiter explains why we need nuclear energy to solve climate change.

Third, a brilliant discussion between Freddie Sayers and Bismarck Analysis’s Samo Burja covering sanctions and why the world order is fragmenting and becoming more anarchic.

Lastly, Judge Ketanji Brown Jackson wiped away tears as Sen. Cory Booker, D-N.J., delivered a passionate speech on how she earned her spot to become the first Black woman nominated to the Supreme Court.

What does this have to do with John Graham, CPP Investments and pensions?

Well, it epitomizes what it means to live in a fair and just society where everyone has an opportunity to rise to the highest levels. 

Judge Ketanji Brown Jackson is an incredible lady and we should all celebrate her confirmation to the highest court in the United States.

Update: Following this comment, I saw this Linkedin post from Mike Rencheck, President and CEO of Bruce Power, a holding of OMERS, publicly rebuking the decision to exclude nuclear energy from the green bond framework:

The lack of transparency must be questioned. Political figures picking winners and losers has resulted in little impact in dealing with climate change.

A focus on solar and wind for the last 20 years has resulted in no progress toward climate change reductions of CO2 emissions and in fact has caused continued increases in emission. Now an energy crisis has formed with geopolitical unrest with major portions of the world experiencing high energy prices.

It’s time to move to a diverse portfolio of technologies coupling renewables and nuclear to be able to deliver baseload and intermittent energy at a scale that can make a difference, and also use CCS, hydro, and other clean options


Indeed, Canada's nuclear industry was ‘blindsided’ after exclusion from green bond framework

“We have been, quite frankly, blindsided by the release of the green bond because there was no consultation with the nuclear, or any, industry,” says President and CEO of the Canadian Nuclear Association (CAN) John Gorman.

The federal government has also locked nuclear out of other supporting fiscal measures, Gorman says, including a green manufacturing tax credit, an accelerated capital cost allowance, which has been extended to other non-carbon-emitting technologies, and an investment tax credit, which the nuclear industry is not being consulted on.

“Canada has lost another incredible opportunity to demonstrate global leadership here by excluding the nuclear industry in the green bond framework. It’s very disappointing,” Gorman says.

By excluding nuclear from Triple-A bond issuances such as that supported under the framework, companies are forced to pay higher interest rates on lending, with some seeing financing costs making up to two thirds of the total expense of building and operating the plant.

I am glad Mr. Rencheck and others are publicly calling out the folly of such a shortsighted energy policy which excludes nuclear from a green bond framework meant to reduce emissions significantly.