Canadian Pension Steps Up Gender Board Diversity Advocacy

The C$368.3 billion ($270.6 billion) Canada Pension Plan Investment Board (CPPIB) is looking to improve the gender balance of public company boards with its new Global Gender Diversity Voting Practice. Under the new policy, CPPIB will vote against the chair responsible for director nominations at the public companies it invests in if the board has no women directors.

The board cited research from financial services firm Credit Suisse and nonprofit Catalyst Inc. that has shown that companies with higher female representation earn higher returns. It also said that research and regulatory reviews of boards at major listed companies show women currently represent only 22% of directors, adding that it would take decades to reach parity even if the rate at which women are joining corporate boards were to double.

“We believe that companies with gender-diverse boards are more likely to achieve superior financial performance over the long-term,” Mark Machin, president and CEO of CPPIB, said in a release. “For that reason, engaging with companies to drive better corporate behaviors is a key part of CPPIB’s mandate.”

In the past year, CPPIB’s Sustainable Investing team added board effectiveness as a fifth area of focus, joining climate change, water, human rights, and executive compensation.

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CPPIB said that in 2017, it leveraged its votes at the shareholder meetings of 45 Canadian companies with no women directors to demonstrate its goal to improve diversity. The board urged the companies to evaluate their directors, including their gender makeup. As a result, CPPIB said that nearly half of those companies have since appointed a woman director.

And during 2018, the CPPIB voted at 22 Canadian public company shareholder meetings with no women directors. It said that despite making efforts to work with the companies, it eventually voted against the nominating committee chair at six companies, and against the entire nominating committee at seven.

“We want to see companies commit to following up on gaps identified through our evaluations of directors and boards, and to renew their boards with directors who bring needed skills,” Machin wrote in an op-ed piece in Canadian newspaper The Globe and Mail in October. “We will continue monitoring developments in female director representation at our investee companies and commend those that take steps to professionalize their director search processes and appoint female directors … CPPIB urges other large institutional investors to send similar messages.”

Tags: Canada Pension Plan Investment Board, Catalyst Inc., Credit Suisse, Gender Diversity, Mark Machin

UK consulting firm Mercer forecasts that nearly one-third of £1 trillion will be paid by UK private sector defined benefit pension plans over the next three years due to the large volume of active and deferred members who are expected to transfer the value of their entitlement to another arrangement.

“A third of a trillion pounds is a huge sum of money and shows how the UK’s DB pension landscape is changing rapidly,” Andrew Ward, a partner at Mercer, said in a release. “There are headwinds, not least the potential for Brexit to disrupt the landscape, but the direction of travel is clear.”

Mercer said the record payout figure was due to a rapidly growing buy-in and buy-out market, where it said unprecedented premium volumes are expected to be paid to insurers. The firm said the payments will lead to private sector defined benefit plans being better funded and having lower risk profiles. This is because transfer payments for individuals who have yet to retire tend to reduce risk for the pension making the payment, as well as reduce any gap between the value of the plan’s assets, and the cost of buying out and closing the plan.

According to Mercer, the volume of transfer values taken by individual members has increased significantly in recent years. And it said 2018 has been a record year for premiums paid to insurers for buy-ins and buy-outs, with more than £20 billion of defined benefit obligations being insured. The firm forecasts the market to grow again in 2019, and “remain strong for the foreseeable future” with £60 billion of transfer values expect to be paid over the next three years.

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It also said that as the UK defined benefit pension landscape matures, there is potential for an emerging pension consolidator market. But added that how this will impact the amount paid by plans depends on how the new offerings are received by plan sponsors and trustees.

“Better funded and increasingly mature pension schemes have taken advantage of excellent pricing from insurers in 2018,” said David Ellis, a partner at Mercer. “Mercer expects the buy-in and buy-out market to smash the record again in 2019 as well-organized schemes take advantage of attractive pricing from insurers.”

Mercer also forecasts defined benefit plans will pay approximately £90 billion in premiums to insurers over the next three years.

Tags: Mercer, Pension, UK