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ANDREW COYNE: Canada Pension Plan caved to pressure from activists — where will it stop?

Canada Pension Plan Investment Board President and CEO Mark Machin in November 2018.
Canada Pension Plan Investment Board President and CEO Mark Machin in November 2018.

Well, this is odd. “Canada’s largest pension fund,” the Toronto Star reported last week, “has quietly divested from two American private prison operators deeply involved in the detention of thousands of Latin American migrants at the southern border of the United States.”

The oddity: as late as last fall, the Canada Pension Plan Investment Board (for it is they) was still investing in the companies, The GEO Group (previously the Wackenhut Corp., I kid you not) and CoreCivic, with combined holdings of nearly $8 million (US).

The investments, to be sure, were a tiny sliver of the fund’s $392-billion portfolio, and acquired in the part of it under “passive management,” an automatic, non-discretionary policy of buying every stock on the market (both firms are listed on the New York Stock Exchange) with a view to matching the market average.

Moreover, as the fund commented in response to news reports of the investment, “CPPIB’s objective is to seek a maximum rate of return without undue risk of loss. This singular goal means CPPIB does not screen out individual investments based on social, religious, economic or political criteria.” It isn’t that the fund chose to invest in the companies, in other words: it just didn’t choose not to.

And yet, scant months later, the fund has done just that. Why the change of heart? It is probably just coincidence that there is an election coming. After all, didn’t Bill Morneau, insist, in response to questions in the House last year, that the CPPIB is “independent of government, so that it can invest to assure that Canadians can retire in dignity …”

Rather, the CPPIB would appear to have caved to pressure from activists. In fairness, it’s hard to see how it could have done otherwise.

The fund would be in a much stronger position to insist on its “singular goal” of maximizing returns to pensioners if in fact it had such a singular goal. It could plausibly claim that it does not invest based on “social, religious, economic or political criteria,” if it did not also boast, in one impenetrable report after another, of its commitment to investing based on a range of “environmental, social and governance” factors — from climate change to Indigenous rights to gender-balanced boards — whose connection to maximizing returns ranges from arguable to fanciful.

It could disclaim responsibility for any individual investments, in light of the passive management policy, if it had not also become heavily involved, not just in active management — trying to beat the market — but in management: voting at shareholders’ meetings, taking seats on boards of directors, even buying majority stakes in some companies. It could better resist pressure, activist or political, to invest in pet social causes if it did not itself brag of pressuring firms to do likewise.

Well, what’s wrong with that? Who wants to see pensioners’ money invested in companies that have been implicated in the Trump administration’s inhumane detention policy? (Who, that is, other than nearly two dozen other large private and public pension plans across North America?)

But then, why stop there? After all, as the Guardian reported last year, the CPPIB also has investments in Philip Morris International, General Dynamics and Raytheon. “If they’re going to be investing in private prisons, weapons manufacturers and tobacco companies, why aren’t they investing in narco gangs?” NDP MP Charlie Angus quipped.

Little chance of that, or much else, if his party had its way. Bill C-431, tabled by NDP MP Alistair MacGregor in February, would have forbid the CPPIB to invest “in any entity that has performed acts or carried out work contrary to ethical business practices or has committed human, labour or environmental rights violations.” You could probably exclude most of the Fortune 500 under such a law.

Neither are such concerns the province only of the left. If you’re on the right you might be just as upset that the CPPIB is invested in Chinese companies that supply the regime with equipment for its mass surveillance programs. Or perhaps the media conglomerates that are indoctrinating the population with their godless liberal agendas. Or whatever your personal hobbyhorse may be.

No amount of “sustainable” bumf can get the CPPIB out of this dilemma, so long as it continues to pursue a discretionary investment policy. The more interventionist it becomes, the more its own decisions will come under scrutiny. It can boast all it likes of how it insists on “improved disclosure and standards” at tobacco manufacturers, but it’s still investing in cancer sticks. It can invest in renewable energy, but as an NDP press release notes, it also has “billions of dollars in direct private investments in the oil and gas sector.” Surely this, too, is intolerable, in the midst of a “climate emergency”?

This is but one of the many unfortunate consequences of the fund’s plunge into active management, now in its thirteenth year, under which it has ramped up expenses from $118 million to $3.3 billion a year while still largely tracking the market. It is particularly hilarious to see the fund demanding the companies it invests in adopt “Say on Pay” policies, giving shareholders a vote on executive compensation, given that its own “shareholders,” its 20 million beneficiaries, have precisely zero say on the bloated pay packages ($4-million plus) to which its top executives are entitled.

The regulation of what companies can and can’t do should properly be left to the people we elect for that purpose. It is hardly the responsibility of pensioners, still less of the managers to whose oversight their savings have been forcibly entrusted.

Copyright Postmedia Network Inc., 2019

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