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Filed under: March 2004

CPP Investment Board comes under fire

The current Canadian government and it’s representatives have made it clear that when it comes to searching for the highest return on our pension assets, pretty much anything goes. An NDP-sponsored motion introduced recently in the House of Commons called on the Canada Pension Plan Investment Board (CPPIB) to be “prohibited from investing in companies and enterprises that manufacture and trade in military arms and weapons, have records of poor environmental and labour practices or whose conduct and practices are contrary to Canadian values.”

CPPIB spokesman John Cappelletti was quick to return fire, replying that federal legislation requires the board to focus only on maximizing returns and that changing the legislation would not be easy. Indeed, the CPPIB’s investment policy states “social investing means different things to different people and…while it might be easy for individuals or small groups of like-minded people to agree on criteria for including or excluding certain investments, the CPPIB cannot reflect the divergent religious, economic, political, social and personal views of millions of Canadians in its investment decisions.” In my opinion that kind of response is a cop-out. It diminishes us as a nation that likes to take pride in occupying the moral high ground in our social affairs.

If the CPPIB wants to earn the biggest bang for it’s buck regardless, I wonder if they’ve considered investing in the Afghan opium trade, I mean have we missed the boat on that one? Or how about we become big players in the trade of kidneys, there’s gotta be a few quick bucks in that. So what if they come from political prisoners? They’re not our political prisoners. Why don’t we openly do business with repressive regimes such as the one in Myanmar, rather than quietly sub-contracting to foreign firms that have no qualms about operating there? We don’t engage in these activities because they run counter to the shared values of the vast majority of Canadians. Oh, and I guess some of them are illegal too.

Fred Ketchen, Scotia Macleod’s managing director of equities and official mouthpiece on these matters, says that, “I know that it’s tough for those people who may think that some of their Canada Pension Plan money is being invested in God knows what — Rothmans or Molsons or Lockheed Martin or Boeing — but I thought the Canada Pension Plan was supposed to represent all Canadians.” Personally I wish they’d leave beer out of this, but it’s certainly not the fringe in Canada that believes in things like basic human rights or clean air, is it?

According to Ketchen, ethical investing also runs counter to the all-important rule of diversification. “I admire people who have that philosophy but if I was running a pension plan, I’d be looking for the best results that I could get from all sectors with diversification,” he said. I should pass him my opium idea. He goes on to prove that bank directors can obfuscate with the best of our politicians when he trots out the ill-conceived observation that ethical investment funds have in the past, and will continue in the future to underperform traditional investments. He seems to base this opinion on the belief that if you aren’t making money on bombs or cigarettes then the return on our CPP assets will suffer.

The vast majority of evidence continues to mount otherwise, both in the US where this kind of research has been documented for almost 20 years now, and in Canada more recently through work conducted by Michael Jantzi Research Associates in Toronto. They have introduced the Jantzi Social Index (JSI), a socially screened stock index modeled after the S&P/TSX 60. The JSI was created as a benchmark against which investors could measure the performance of socially screened portfolios in Canada. Since its January 1, 2000 inception, the JSI has blown away these benchmarks, increasing in value by 6.68 percent while the S&P/TSX 60 decreased in value by 1.75 percent.

Various forms of socially responsible investment policy are already in place at public and private pension schemes in the UK, Continental Europe, Australia, New Zealand and parts of the US. Too bad Canada can’t be a leader instead of follower on these issues and our CPP assets managed with some loftier goals in mind.

By the way, the NDP motion mentioned in the opening paragraph was inspired by a recent study by the Coalition to Oppose the Arms Trade [COAT], which linked CPP investments to top U.S. military contractors. COAT has created a web petition to oppose CPP war investments and if you’d like to sign you can do so by visiting http://www.coat.openconcept.ca/

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