By John Graham, President & CEO, CPP Investments
In April, my first Letter to Canadians appeared on our website. Having just been appointed CEO, I spoke about my background and leadership approach. I want to turn now to the state of the CPP Fund and current trends of common interest to Canadians, as well as to share updates on our strategies and actions to mitigate risks and seize opportunities arising from these trends.
“The only constant in life is change.”
This phrase, attributed to a Greek philosopher, is as true today as it was 2500 years ago. After the challenges of the past two years, Canadians can find themselves wishing that 2022 brings a steadier, calmer state of affairs.
Heat domes, extreme drought and atmospheric rivers have now become part of our vocabulary. Price hikes are causing shockwaves in shopping aisles. Many young Canadians are understandably worried about being able to afford their first home. And just as we thought that the pandemic might be waning, a new and worrisome variant of COVID-19 has arrived in our communities.
Your retirement security is our business
For many Canadians, the path ahead feels uncertain. However, one unwavering pillar which should provide a measure of comfort to the 20 million of us who are contributors and beneficiaries is the Canada Pension Plan. Your CPP Fund is strong and resilient, and the future value of your benefits remains solid.
With a 75-year investment horizon and a mandate that steers CPP Investments towards long-term thinking, we are very well-equipped to manage through current trends, and plan for those that may emerge years from now. Our highly diversified, global investment portfolio and active management strategy is consistently delivering strong results for you. As of September 30th, the CPP Fund has earned a record 10-year annualized net return of 11.6 per cent, the best 10-year return since we began active investing in 2006.
The impact of inflation
Over the past three decades Canada has become accustomed to low inflation. This year’s rapid rise in the price of goods and services is understandably causing concern. A combination of factors has driven up the price of everyday necessities, from groceries to gasoline. These factors include rising consumer demand as the economy reopens on top of the global supply chain disruptions we’ve endured through the pandemic.
At CPP Investments, we design our portfolio to be resilient to macroeconomic shocks. The diversified assets we hold help to provide protection against inflationary pressures. Certain asset classes such as infrastructure and other real assets, can be expected to perform well in a higher inflation environment. As always, we are ready to adjust our portfolio composition in the face of changing economic circumstances to take advantage of opportunities and mitigate risk. We remain patient and judicious investors.
We also consider inflation in our reporting to you. This is why we report on the real rate of return of the CPP Fund; that is, the value we create after inflation is taken into account. Rest assured that the value of the CPP Fund is well above what is required to fulfill its promise to you of a secure source of retirement income.
Embedding sustainability into our investment activities
The rapid and accelerating warming of our planet can be seen in our daily lives and is creating both risk and opportunity in markets. Climate change rivals COVID as a disruptor of our social and economic life.
With that in mind, I’m proud to report that CPP Investments is a leader in sustainable investing and ESG (environmental, social and governance issues) in general. Through our efforts to promote higher standards and better disclosure of ESG risks in financial reporting, we are encouraging all companies at home and abroad to ramp up their climate change policies and practices as a way to drive long-term value. We work closely with the companies we invest in to strengthen their climate change strategies and their efforts to improve equity, diversity, and inclusion in the workplace. We hold them accountable for their progress through our proxy voting activities and by working directly with their boards of directors. For more information on how we voted this year, I encourage you to review the “Sustainable Investing” section of this website (housed under the main page tab entitled “The Fund”), as well as our most recent Report on Sustainable Investing.
We know that the retirement security of 20 million Canadians, their children and their grandchildren will be impacted by how effectively we manage our investment portfolio amid the global economy’s transition to net zero. It is a challenge that is rooted in our mandate, and we embrace it.
To spearhead this work and underscore its primacy, we have appointed our first-ever Chief Sustainability Officer, Deb Orida, who is also Global Head of Real Assets. In her new role, she will work closely with Ed Cass, our Chief Investment Officer, and our teams across the organization to deliver a Sustainability Roadmap to guide us through the next several decades.
Investing in the path to net zero
CPP Investments is launching a new investment approach to identify and leverage the opportunities that will emerge from the economy-wide transition to a low-carbon future. This investment approach is premised on identifying, funding and supporting essential, but high-emitting companies that are committed to lowering their emissions in a way that will allow CPP Investments to drive strong investment returns. We believe that these companies will deliver value to patient investors where they can successfully navigate this transition. Read more about this in our latest perspective.
We’re focused on investments in innovative technologies that are shifting our economy toward low-carbon pathways, while providing attractive returns and long-term value.
This year we invested in Advanced Drainage Systems, Inc. (ADS), a world-class provider of water management infrastructure. They operate a global network of manufacturing plants and distributions centres and are the second largest plastic recycler in North America.
We also formed a strategic partnership with Conservation International, a leading environmental NGO with offices in 30 countries. This is a rare and unique partnership between a global asset manager and an environmental NGO. Together, we will invest in nature-based solutions within the voluntary carbon market, with initial projects in Brazil, Chile, Peru and Colombia. This investment capitalizes on increasing global demand for nature-based carbon credits and helps advance global decarbonization efforts.
To combat climate change, we also need to track its impact. In September, we invested in Planet Labs Inc., recognized for its data and insights on climate-based changes in the Earth’s forests and agricultural regions. The company designs and manages one of the world’s largest fleets of satellites, capturing over three million images a day.
Optimism for 2022
This past year was a challenging one for Canadians and for people everywhere, yet I see reasons for optimism. The incredibly rapid development of highly effective vaccines to fight COVID-19 has been a remarkable achievement, as are new commitments to achieve net zero emissions globally and the associated emerging technologies to get us there.
I know that Canadians have a lot on their minds these days, from keeping healthy to visiting family. But one item that Canadians can continue to feel secure in, is the certainty of the Canada Pension Plan; it will be there for you and for generations of Canadians to come.
On that note, from all of us at CPP Investments, Happy New Year and best wishes for 2022!