We have been proudly investing the Canada Pension Plan Fund for 25 years, helping ensure that more than 22 million Canadians have financial security in retirement.
In February 2022, CPP Investments committed to reaching net zero greenhouse gas emissions across its portfolio and operations by 2050. The decision, made amid shifting debate about sustainable investing and a challenging economic environment, placed CPP Investments among a small group of global asset owners (around 7%) to have made similar announcements. It also drew some criticism.
In its latest case study, CPP Investments – The Road to Zero, Harvard Business School highlights the factors that led to the decision and the actions CPP Investments is taking to make it happen.
“To us, considering sustainability contributes to delivering superior long-term returns,” CPP Investments’ Chief Executive Officer John Graham notes in the study. “A company’s ability to navigate the transition to net zero can have an enormous impact on its future value … We expect this whole economy transition to be a hugely capital-intensive process, with tremendous opportunities for patient capital like ours.”
The following is an excerpt from the full case study which can be downloaded here.
While the debate on sustainable investing ensued, Graham and Richard Manley, Chief Sustainability Officer, were increasingly feeling the impetus to make a public commitment on climate. Manley explained, “Through 2020 – 21, many financiers and corporates had started to publicly state their position on climate. We believed the time was right for CPP Investments to commit to stewarding the portfolio to net zero, in the best interests of its contributors and beneficiaries and in line with its mandate. This was the result of rigorous analysis, contemplation, and a deep pragmatism toward the data and information available.”
In February 2022, the fund announced a commitment to net-zero portfolio and operating emissions across all scopes by 2050. Graham stated:
The impacts of climate change on the investment landscape are undeniable and have fundamentally transformed the nature of business risks and opportunities. As a capital provider and partner, and with our experience, expertise, and financial resources, we recognize the valuable contribution we can make to this challenge. Committing our portfolio and operations to net zero by 2050 will help us manage the risks, capture the opportunities and deliver on our public purpose – to help generations of Canadians build financial security in retirement.
The fund decided not to set interim emissions targets. Manley explained, “We gave a lot of thought to our mandate, the growth of the fund, the allocation to emerging markets where net-zero was forecast by 2060 – 2070. This indicated that our portfolio emissions would rise in the near-term. Whilst others were willing to commit to an absolute reduction in portfolio carbon emissions, we had headwinds that made such a commitment challenging without effectively constraining portfolio design, which could then challenge our ability to deliver our mandate.” Michel Leduc, CPP Investments’ Head of Public Affairs and Communications added, “Our approach was fairly nuanced. We were not prepared to sell assets for public policy reasons. We don’t make policy, we make returns. There was a lot of healthy dialogue with the board. We were concerned about pressure from politicians and activists, and in a way, we expected that nobody would be happy. We did a roadshow with the federal government and nine participating provinces to make sure they understood our position well.”
While Manley was optimistic about the fund’s ability to use specific levers to influence climate transition, he knew that the fund’s goals were ultimately predicated on the economy’s transition:
There is a perception that the financial sector is a silver bullet to drive decarbonization in the real economy, but the reality is that financial market participants have limited capacity to force change in investee companies or creditors. We can influence portfolio design, the asset classes we invest in, and security selection. We can exercise our governance rights to hold directors accountable for integrating consideration of climate risk into company strategy and in certain asset classes we can negotiate contractual terms to secure climate-related outcomes, but we don’t have any other levers to play with.
The fund’s leadership also understood that the involvement of multiple stakeholders was needed to facilitate the climate transition. This included the acceleration and fulfillment of commitments made by governments, technological progress, the fulfillment of corporate targets, changes in consumer and corporate behaviors, and the development of global reporting standards and carbon markets.
For more on our approach to net zero, visit our website.
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Chief Sustainability Officer Richard Manley shares his reflections on the importance of sustainability and the opportunities he sees to
Video
October 26, 2023
In February 2022, CPP Investments committed to reaching net zero greenhouse gas emissions across its portfolio and operations by 2050. The decision, made amid shifting debate about sustainable investing and a challenging economic environment, placed CPP Investments among a small group of global asset owners (around 7%) to have made similar announcements. It also drew some criticism. In its latest case study, CPP Investments - The Road to Zero, Harvard Business School highlights the factors that led to the decision and the actions CPP Investments is taking to make it happen. “To us, considering sustainability contributes to delivering superior long-term returns,” CPP Investments’ Chief Executive Officer John Graham notes in the study. “A company’s ability to navigate the transition to net zero can have an enormous impact on its future value … We expect this whole economy transition to be a hugely capital-intensive process, with tremendous opportunities for patient capital like ours.” The following is an excerpt from the full case study which can be downloaded here. While the debate on sustainable investing ensued, Graham and Richard Manley, Chief Sustainability Officer, were increasingly feeling the impetus to make a public commitment on climate. Manley explained, “Through 2020 – 21, many financiers and corporates had started to publicly state their position on climate. We believed the time was right for CPP Investments to commit to stewarding the portfolio to net zero, in the best interests of its contributors and beneficiaries and in line with its mandate. This was the result of rigorous analysis, contemplation, and a deep pragmatism toward the data and information available.” In February 2022, the fund announced a commitment to net-zero portfolio and operating emissions across all scopes by 2050. Graham stated: The impacts of climate change on the investment landscape are undeniable and have fundamentally transformed the nature of business risks and opportunities. As a capital provider and partner, and with our experience, expertise, and financial resources, we recognize the valuable contribution we can make to this challenge. Committing our portfolio and operations to net zero by 2050 will help us manage the risks, capture the opportunities and deliver on our public purpose – to help generations of Canadians build financial security in retirement. The fund decided not to set interim emissions targets. Manley explained, “We gave a lot of thought to our mandate, the growth of the fund, the allocation to emerging markets where net-zero was forecast by 2060 – 2070. This indicated that our portfolio emissions would rise in the near-term. Whilst others were willing to commit to an absolute reduction in portfolio carbon emissions, we had headwinds that made such a commitment challenging without effectively constraining portfolio design, which could then challenge our ability to deliver our mandate.” Michel Leduc, CPP Investments' Head of Public Affairs and Communications added, “Our approach was fairly nuanced. We were not prepared to sell assets for public policy reasons. We don’t make policy, we make returns. There was a lot of healthy dialogue with the board. We were concerned about pressure from politicians and activists, and in a way, we expected that nobody would be happy. We did a roadshow with the federal government and nine participating provinces to make sure they understood our position well.” While Manley was optimistic about the fund's ability to use specific levers to influence climate transition, he knew that the fund’s goals were ultimately predicated on the economy’s transition: There is a perception that the financial sector is a silver bullet to drive decarbonization in the real economy, but the reality is that financial market participants have limited capacity to force change in investee companies or creditors. We can influence portfolio design, the asset classes we invest in, and security selection. We can exercise our governance rights to hold directors accountable for integrating consideration of climate risk into company strategy and in certain asset classes we can negotiate contractual terms to secure climate-related outcomes, but we don’t have any other levers to play with. The fund’s leadership also understood that the involvement of multiple stakeholders was needed to facilitate the climate transition. This included the acceleration and fulfillment of commitments made by governments, technological progress, the fulfillment of corporate targets, changes in consumer and corporate behaviors, and the development of global reporting standards and carbon markets. For more on our approach to net zero, visit our website. 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Video January 3, 2024 The profits of purpose: How can we shift from corporate commitments to concrete What we learned since COP26 two years ago: The financial sector cannot solve climate change alone – but can act as a key facilitator. Article November 9, 2023 Takeaways from our 2023 Report on Sustainable Investing Chief Sustainability Officer Richard Manley shares his reflections on the importance of sustainability and the opportunities he sees to Video October 26, 2023
