August 31, 2020

In 1997, the CPP Investment Board (the Board) was given responsibility for the management of the assets of the Canada Pension Plan.  The governing mandate was to maximize investment returns without undue risk of loss.  To avoid any political interference, the Board operates at arm’s length from government and is guided by independent Directors.  Also, the Board has stated that it is not influenced by economic development considerations.

To manage this money, the Board has built a highly trained staff of 1,824 people and has established offices around the world.  It is presently incurring annual costs of $3 Billion or .7% of assets.  The investment capabilities and sophistication of the Board’s employees place it amongst the top investment organizations in the world. The Board specializes in recognizing emerging investment trends which will result in favourable returns over the long term.  Countries with high growth rates are favoured with investments being made through a very broad range of investment vehicles. The Board also tries to earn additional returns through borrowing as well as the use of sophisticated investment strategies.  Over the past ten years ending December 31, 2019, investment results of 10% per year were achieved.


In managing these assets, the Board and its employees have been guided by its “Policy on Responsible Investing” (the Policy) dated August 10, 2010.   Consistent with this Policy, the Board integrates environmental, social and governance factors (ESG) into its investment analysis, both before and after making investments.  To implement this program, the Sustainable Investment Group works with the internal investment teams.  Companies and their supply chains are carefully evaluated with respect to both “Human Rights” and “Reputational Risk.”  In the latter case, the Board considers how corporate activities could cause harm to the Board’s brand. 

As set out in their 2019 Report on Responsible Investing (seventy-four pages), the Board defines “Human Rights” and “Reputational Risk” as being with respect to Corporate activity only.  While this narrow definition is convenient for the Board as it makes its job easier, it is misleading to the general public.  When the Board speaks about “Human Rights,” most people think that this includes state sponsored oppression.  “Human Rights” are commonly ignored in totalitarian states and individuals do not have any legal protections from state sponsored persecution.  It is not the purpose of this Blog to review all of the oppressive conduct of such states, as this has already been well documented in the general media.  

 According to Article 7 of the National Intelligence Law of China, corporations domiciled there must participate in state activities when so ordered and keep those requests secret.  This can include activities that are illegal under our laws.  Many corporations domiciled there claim to be completely independent.   This Law makes such claims spurious.

 When the Board invests in companies domiciled in totalitarian states, it is also incurring “Reputational Risk” with respect to the actions of the state.  Such state actions have included hacking and other methods to illegally obtain intellectual property, the operation of “re-education camps”, the persecution and removal of the basic human rights of minority groups, military actions against neighbours, and the militarization of the South China Sea.   Investing in a country is a tacit form of approval.  It is a complex issue, but I am suggesting that a much broader definition of both “Human Rights” and “Reputational Risk” is appropriate.  Revisions to the Policy should reflect such a change.

 The world has changed since 2010, as evidenced by the last briefing by Global Affairs Canada (our diplomatic experts).  They stated that, “while Canada has long framed its China policy through the lens of economic opportunity, it now needs to take account of Beijing’s long-term strategic challenge to Canada’s interests and values.”   Today, one totalitarian state holds at least two Canadians hostage and arbitrarily cuts off or reduces imports from us.  Tomorrow, our investments might be held hostage.   Because of its large size, the Board’s investment decisions are in effect part of Canada’s foreign policy and should be consistent with it.  As a result of the mandated substantial increases in the Canada Pension Plan contribution rates, the Board will have increasing amounts available for investment.   Over the next twenty years, the total assets are forecast to grow by over one trillion dollars.  This increase will more than triple the current asset level.  

 The question is – What approach should we take regarding investment in countries where human rights are not respected and the protections afforded by the “rule of law” are absent?  Should a revised Policy reflect the universal values which most Canadians share?  Should the Board invite input from Canadians on these matters?  In that regard, can we not be a leading light in the world?  That might involve trying to invest more in countries where human rights are respected and the rule of law prevails.  At least investors will have the benefit of more transparency and a reduction of the unknown risks.  There are no easy answers to these questions and careful consideration will be needed.


The Board’s Hong Kong office is responsible for about $100 billion of Asian investments which includes $30 billion in China.  On March 19, 2019, the Managing Director of that office said that the Board was considering opening an office in Beijing as early as 2020 as it seeks greater exposure to the world’s second largest economy.  China has recently been responsible for arrests of those non-violently advocating for democracy in Hong Kong and has affirmed its right to “supervise” Hong Kong’s internal affairs.  It has now approved a national Security Law for Hong Kong which takes aim at any dissent.  As a result, the Chinese Communist Party will be determining all of the new rules to be in place.  To enforce these rules, China has established a new security office reporting directly to Beijing with no local oversight.  This Law and its implementation is contrary to “The Basic Law” guaranteeing Hong Kong’s independence until 2047.

This new Law criminalizes criticism of China anywhere on the planet.   In the past, China has abducted foreign citizens from other countries and is now aggressively attacking free speech in Hong Kong and around the world.  On the same day that the Law went into effect, 300 protesters were arrested.  Subsequently, the authorities arrested Jimmy Lai (media tycoon) and a number of his associates.  His company operates Apple Daily, a pro-democracy tabloid.  The authorities also sent 200 officers to his office carting away 25 boxes of “evidence”.  The authorities are also obtaining information from all social media Sites to find and terrify any “dissidents.”

In response and in reference to Hong Kong, Canada is suspending its extradition treaty and prohibiting the export of sensitive military items.   The government has stated that it views the new Law as a violation of the autonomy promised to Hong Kong.   It has also published a new travel advisory saying that Canadians in Hong Kong “may be at increased risk of arbitrary detention on national security grounds and possible extradition to mainland China.”  The US has cancelled its extradition treaty and two tax exemption treaties, while the UK will offer a new path to citizenship for three million Hong Kong citizens.

At a May 30, 2019 Finance Committee Hearing, a senior executive of the Board said, “We’ve been factoring in human rights for more than a decade and factoring them into our decision making.”  He then went on to explain that they had just found a “tool” that enables them to apply this principle to all 10,000 of their holdings.  In his response, the executive made no reference to the limited definitions of human rights and reputational risk which the Board uses.   In response to a media inquiry, Michel Leduc (global head of public affairs) stated that companies that violate human rights have no place in any portfolio.  It is difficult to reconcile these statements with the fact that the Board has invested in Chinese Companies that manufacture surveillance equipment used to monitor and persecute Muslim Uyghurs.

On January 20, 2020 the President of the Board presented an impressive review of the Board’s historical and future investment strategy.  It included an analysis of investment trends indicating that more money would be going to emerging markets due to their higher growth rates.  In another more recent statement, he clearly indicated that taking care of Canadians means achieving good long term investment results.  In neither of these presentations was there any mention of human rights or investing in Canada.  On May 26, 2020 the President reconfirmed that an increasing proportion of assets would be invested in emerging markets including China.


The Board characterizes itself as one of the largest institutional investors in the world exploring investment opportunities that meet its criteria and scale.  Those working for the Board should not forget that the assets they manage are in effect owned by all Canadians who have contributed or will contribute to the Canada Pension Plan.  For most Canadians, the value of this financial asset (their future pensions and other benefits) is or will be close in size to their possible ownership of a home.

The December 31, 2018 Actuarial Report proves that good economic growth and job creation are essential to the viability of the Canada Pension Plan.  Any shortfall here will cause increases in required pension contributions or a reduction in benefits.  Also, Canadians want to see job opportunities for themselves, their neighbours and their children so that everyone can enjoy the benefits of a productive life.

Canada needs the additional investment at this time.  The traditional sources of economic growth do not look promising for the future.  Development in the oil industry has been curtailed due to low prices and environmental concerns.  Resource development is also affected by similar issues.  Canada is further affected by a highly competitive international environment as well as trade problems with both the United States and China.   The Conference Board of Canada recently forecast annual GDP growth from 2020 to 2040 of 1.7%, compared to a growth rate of 3.1% from 1962 to 2019. 

The CPP Investment Board has great expertise in finding investment opportunities consistent with emerging investment trends.  I encourage a greater emphasis on job creating investments in Canada by the Board.  Canada is fighting a difficult economic battle as a result of the impact of COVID-19.  I appeal to each Director of the Board to consider how heartening it would be for Canadians to hear that the Board is with them, and will be establishing a new office in Western Canada. 


The Board has built a very effective organization and my suggestions for improvement do not detract from that fact.  The Board has said that it welcomes comments and I hope the Directors will address the issues I have raised.  To summarize, I recommend increased job creating investment in Canada and an immediate review and updating of the Policy.

Elliot Rodin
Bachelor of Commerce     -University of Manitoba
MBA                                      -Harvard Business School