This week the Canada Pension Plan Investment Board provided Canadians with an update on the value of Canada's largest public pension plan. Among the $539 billion in assets managed by the board, it reported shareholdings in tobacco companies worth $343 million.
This post provides an update on these investments.
CPPIB's role as fund manager
The Canada Pension Plan is a public pension plan administered by the federal government for workers in all provinces except Quebec, where the equivalent Quebec Pension Plan is in place. By law, this year each Canadian worker aged 18 to 70 must contribute 5.7% of their earnings as a contribution, up to a maximum contribution of $3,499. Employers must match that contribution, and the self-employed pay both amounts. The CPPIB currently counts 20 million contributors and beneficiaries.
The CPPIB was established twenty five years ago (1997) by the federal government for the purpose of administering contributions without political interference. Since 1999, CPPIB investments have included shareholdings in publicly traded companies in Canada and elsewhere.The independence of the CPPIB from government interference is reflected in the legislation which established it. The same legislation, however, gives governments the right to set regulations on the investments that the board may make, provided that these are supported by two-thirds of the provinces representing two-thirds of the population. (section 53.)
CPPIB policies on investing in tobacco
When the CPPIB was established in 1999, Parliamentarians expressed concern about the need for ethical guidelines on investments. A year later, then finance minister Paul Martin reported to the Commons that the issue of investments in tobacco companies was "under discussion by officials at both the Canadian government level and the provincial government level." By inference, those discussions did not result in decisions by governments to offer direction on ethical investment.
The CPPIB eventually adopted its own Policy on Sustainable Investing. This policy does not currently single out industries for exclusion from investments, although the Board has previously refused to invest in landmines and cluster munitions. Currently, investment exclusions result from the CPPIB's determination that: "management’s strategy or lack of engagement with ESG issues
undermines the long-term sustainability of the business; Where brand and reputation considerations from ESG factors may generate risk impacts
beyond expected risk-adjusted returns; and Legal considerations."
The CPPIB seeks to enhance environmental, social and governance (ESG) goals through engagement, and it reports it has "supported over 50 shareholder proposals at tobacco companies requesting improved disclosure and standards on a range of ESG factors, including health impacts and human rights-related matters."
The board makes public how it votes on these shareholder motions. From these reports, we know that this year the Board voted against a motion at the annual meeting of Philip Morris International that would have requested the board to "initiate steps to phase out all production of PMI’s health hazardous and addictive products by 2025."
Over the past 5 years, the CPPIB has reduced its direct investments in tobacco companies, which are now one-fifth the value that they were in 2017 (from $1.748 billion in 2017 to $343 billion in 2022). During the same period, investments in foreign equities grew from $110 billion to $137 billion. The proportion of the foreign equity portfolio represented by tobacco stocks thus fell from 1.6% in March 2017 to 0.25% in March 2022.
The number of tobacco companies in which the CPPIB directly invests has been reduced from 12 in March 2018 to four this year, of which two (Philip Morris International and Japan Tobacco) are multinational cigarette companies.
The figure below and supporting data are available for download here.
The investment policies of other Canadian pension funds
The CPPIB is the largest, but not the only pension fund administered for Canadian workers. Among the largest ten funds, the CPPIB is one of only three who do not reject tobacco investments, as shown in the ranked list below. Provincial plans in Ontario, Quebec and Alberta are largely tobacco-free.
#1 Canada Pension Plan Investment Board (CPP Investments) -
#2 Caisse de dépôt et placement du Québec (CDPQ) - TOBACCO FREE
#3 Ontario Teachers’ Pension Plan (OTPP) - TOBACCO FREE
#4 Public Sector Pension Investment Board (PSP Investments) -
#5 British Columbia Investment Management Corporation (BCI) -
#6 Alberta Investment Management Corporation (AIMCo) - TOBACCO FREE
#7 Ontario Municipal Employees Retirement System (OMERS) - TOBACCO FREE
#8 Healthcare of Ontario Pension Plan (HOOPP) - TOBACCO FREE
#9 Investment Management Corporation of Ontario (IMCO) - TOBACCO FREE
#10 OPSEU Pension Trust (OPTrust) - TOBACCO FREE
A backgrounder on public pensions and tobacco in Canada can be downloaded here.
More information is also available at Tobacco-Free Portfolios.
