Home > News > Pensions > Canada Pension Plan Increases Green, Transition Investments by 20% to C$79B
Pensions

Canada Pension Plan Increases Green, Transition Investments by 20% to C$79B

The pension fund also said its internal operations have reached carbon neutrality for scope 1, 2 and 3 emissions.
By Michael Katz



The C$575 billion ($416.4 billion) Canada Pension Plan Investment Board’s investments in green and transition assets rose 20% to C$79 billion, as of March 31, from C$66 billion at the same time in 2022, according to its “2023 Report on Sustainable Investing.”

The pension giant, which aims to invest at least $130 billion in green and transition assets by 2030, also announced it has reached carbon neutrality for internal operations for scope 1, 2 and 3 emissions sources for fiscal 2023.

“Investing sustainably drives value for CPP Investments and is an important factor at every stage of our investment process,” John Graham, president and CEO of the CPPIB, said in a release. “CPP Investments’ approach to sustainable investing contributes to our ability to compete globally and creates long-term value.”

While championing its green and transition investments, the pension fund affirmed its belief in active ownership, hoping to create better long-term sustainability-related outcomes and generate more value for the fund. For example, it uses its shareholder voting rights to ensure alignment between the pension fund’s expectations of directors and their actions.

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“As a long-term investor, we prefer to actively engage with and attempt to influence companies when we disagree with a position taken by management or a board of directors of our active holdings,” the report stated. “We have the ability to be a patient provider of capital and to work with companies to bring about change.”

However, the report stated that the pension fund may decide not to pursue or maintain investments in companies if it decides a firm’s strategy or lack of engagement with sustainability-related issues undermine the long-term competitiveness of the business; if sustainability-related factors impact its brand and reputation; or for legal reasons.

The CPPIB report also stated that a company’s board should be majority independent to deliver the best outcomes; however, it is reasonable for a controlling shareholder to have representation on a board proportionate to its economic equity stake. It also recommended that company boards have “sufficient diversity” and strongly encouraged boards to disclose their diverse attributes when appropriate “to fully and accurately evaluate board diversity holistically.”

The CPPIB noted that it updated its proxy voting guidelines earlier this year to include consideration of nature-related dependencies and potential impacts on companies’ long-term performance, highlighting a difference between the expectations on boards regarding climate and nature.

“Although the two intersect, we see the difference as significant enough to warrant a specific reference to nature in the list of factors we call out as examples for boards to anticipate, manage and integrate into their strategy,” the pension fund’s report stated. It further emphasized a need to understand businesses’ dependency on natural systems through specific commodities or operating locations and to determine whether that dependency is material and sustainable.

When that dependency is material and unsustainable, according to the pension fund, boards should consider how to adjust their operations to create a more sustainable dependency or work with their supply chain to do the same. The CPPIB added that as a member of the Taskforce on Nature-related Financial Disclosures’ Forum, it follows the group’s guidance.

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Home > News > Research > Why a Slowdown Might Not Be Too Bad, CIOs Say
Research

Why a Slowdown Might Not Be Too Bad, CIOs Say

At a Franklin Templeton webinar, finance chiefs describe corporate America’s strengths.

By Larry Light




If the U.S. should fall into a recession, there are many strong points in the economy to mitigate any pain. That was the thrust of a webinar held by Franklin Templeton, featuring CIOs from three of the investment house’s subsidiaries.

Whether a slowdown or a full-blown recession occurs, some kind of deceleration is likely, according to Scott Glasser, CIO of ClearBridge Investments; Ed Perks, CIO of Franklin Income Investors; and Michael Buchanan, co-CIO of Western Asset Management Co. Admittedly, the trio observed, a recession has been forecast for a long time and has not materialized—and indeed gross domestic product growth was up year-over-year by 4.9% in the third quarter.

“Corporate health is solid,” Glasser noted. “Earnings have held up.” At the same time, he acknowledged that they likely will not stay at current high levels, with 2.3% growth expected for the full year. He said he expects the figure to come in at half that and also pointed out that, for small companies, the picture is not as rosy, with 40% of the small-cap Russell 2000 not profitable.

Still, corporate cash this year is at an all-time high, said Buchanan: “Balance sheets are in good shape.” A lot of company bond and loan refinancing occurred in recent years, when interest rates were very low, and that debt will come due in the next few years, with rates higher, but not high enough to be worrisome, he added.

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Ticking off the indicators of a possible recession, Perks said the inverted yield curve—a longstanding warning sign of bad times ahead—has flattened lately, with yields clustered around 5%.

So what is the better route for investors, fixed income or equities? Perks pointed to fixed income due to how much yields have risen: “You’re getting paid a lot more today,” he said. Investment-grade bonds average 6.5% annually and high-yield 9.5%, with average bond prices at 85 cents on the dollar.

At the same time, if the Federal Reserve has finished tightening and yields do go down, bonds with lengthy durations will flourish in price terms, Buchanan said: “That’s a good time to own them,”

Meanwhile, owing to the narrow breadth of the stock market, with shares of the five biggest capitalized companies occupying 25% of the S&P 500, the average stock is flat for the year, Glasser said: “They haven’t done much.”

That said, whatever the degree of an expected slowdown, higher quality debt should be the way to go, in Buchanan’s view. A reassuring factor is that lower-rated investment-grade bonds, namely those at BBB-, are thought to be in good shape, with only 12% having a negative outlook regarding possible downgrades to junk, he said.

“A lot of lessons were learned” from the financial crisis of 2008 and 2009, Buchanan went on. Thus, he concluded, companies are more careful about risk nowadays.

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