A few basic facts: China is the second largest economy in the world (and is heading to No. 1 within the decade, according to most economic forecasts). China now has the second largest equity market in the world. China holds irresistible allure for portfolio managers whose job it is to invest the billions of dollars in retirement savings sitting in the Canada Pension Plan.
That all sounds straightforward. Except, of course, we know it isn’t.
A recent examination by the Star into the holdings of the Canada Pension Plan Investment Board revealed that two Chinese companies included in its foreign publicly traded equity holdings also appear on the list of 59 People’s Republic of China companies added, by executive order of President Joe Biden, to a U.S investment blacklist.
As of Aug. 2, Americans will be barred from buying or selling shares in the group of 59. The vast majority are in the defence sector. The rest are surveillance technology firms that are alleged to contribute to the repression and persecution of religious and ethnic minorities.
As the Star report found, the CPPIB’s investment in the now blacklisted China Shipbuilding Industry Group Power, which manufactures special auxiliary equipment warships, grew from 394,000 shares in March 2020 to 862,000 shares as of the end of March of this year.
Right. But we are owed assurances that as pensioners present and future we aren’t being complicit in, say, human rights violations. The company’s Environmental, Social and Governance (ESG) standards haven’t interfered with the CPPIB’s investing in the likes of Tencent Holdings Ltd. Tencent’s social media app WeChat has for years been fingered as a means of monitoring and censoring the Uyghurs of Xinjiang. The pension plan’s investment in Tencent sat at roughly $3.5 billion (U.S.) As of March 31, that is. Are we onboard with that?
The U.K.-based charity Hong Kong Watch says we should not be. In a report released last month the human rights advocacy group highlighted the China investments of three Canadian pension plans, including the CPPIB. The report’s recommendations include encouraging the government to create an entities list of companies where there is evidence of complicity in crimes against humanity and human rights abuses. Another point: Canadian parliamentarians should view Canadian investment in companies complicit in human rights as an ESG issue.
Why is that important? Because ESG tends to be used principally as a means to assess sustainability – that is, climate change and emissions strategies.
Human rights must play a bigger role. So, too, timely transparency.
The CPPIB’s executives tend to emphasize their commercial, investment-only mandate. Its active investment strategy has been in place for a mere decade and a half. In that time the size of the pension pool has grown from $98 billion and a staff of 90 to a hair’s breadth short of half a trillion dollars with nearly 2,000 employees spread around the globe. The dream is to become a trillion-dollar global player.
The noise around responsible investing has similarly grown and grown. You wouldn’t necessarily know that from listening to the CPPIB’s leaders. Constituted to operate at arm’s length from the federal and provincial governments, the same leaders talk a lot about their independent pro-global stance. Human rights? Not so much.
As examples in China attest, the topic has grown in urgency. It’s time for the CPPIB to join the conversation.