CPP Investment Board's Approach to Responsible Investing:

CPP Investment Board’s Approach to Responsible Investing:ESG Matters!

Babak AbbaszadehDirector, Stakeholder Relations

June 26, 2007 – Charlottetown, PEI

2007 CAUBO CONFERENCE

2May 5, 2010 © 2007 copyright CPP Investment Board

Who we are• Arm’s length Crown corporation created by federal and

provincial governments as joint stewards of the CPP in 1997.

• Accountable to federal and provincial Ministers of Finance and to Parliament through the federal Minister of Finance

• A professional investment management organization operating in the private sector with public sector accountability

• We manage the assets of the Canada Pension Plan not needed to pay current pension benefits


Our MandateUnder the Canada Pension Plan Investment Board Act, the objects of the CPP Investment Board are:

• To assist the CPP in meeting its obligations to contributors & beneficiaries under the Canada Pension Plan

• To manage the assets transferred to it in the best interests of CPP contributors and beneficiaries

• To invest its assets with a view to making a maximum rate of return without undue risk of loss, having regard to factors that may affect the funding of the Canada Pension Plan and its ability to meet its financial obligations on any given business day


Our History – CPP Reforms

Federal &

Provincial Finance

Ministers took Bold

Action

Crisis

• $11 billion in and $17 billion out

• Demographics: fewer workers to support pensioners

• CPP was unsustainable

1996

Solution

• Contribution rates were increased

• Net cash inflows

• CPP Investment Board formed to invest assets

1997


Our Governance Framework

Independence Accountability


Our Governance Framework (con’t)

Independence

• Board selects CEO and management compensation

• Investment decisions made by investment professionals

• CPP Investment Board Act requires federal and provincial governments to amend


Our Governance Framework (con’t)

Accountability

• Quarterly Financial Statements• Annual Report• Public meetings• Triennial review of CPP/CPPIB• Special exam every 6 years• Special audit provision• Extensive disclosure


Financial Performance


Asset MixFinancial Information – continued


About the CPP FundFinancial Information - con’t

13.113.16.310.3-1.12.33.01.1Investment Income ($ billions)

5.53.64.54.6 3.12.61.2-1.3CPP Contributions ($ billions)

15.5

35.0

16.7

98.0

2006

8.5

21.9

10.8

81.3

2005

17.6

15.6

14.9

70.5

2004

-1.5

5.3

2.0

55.6

2003

4.0

6.4

4.9

53.6

2002

7.0

4.1

4.2

48.7

2001

3.2

1.1

-0.2

44.5

2000

12.9Rate of Return (annualized) (%)

48.1Cumulative Investment Income ($ billion)

18.6Asset Growth ($ billions)

116.6Total Assets ($billions)

2007CPP Fund (As at March 31)


Fund Growth Since 2000


Projected Assets

The Chief Actuary of Canada, in the 21st Actuarial Report on the Canada Pension Plan, has projected that the CPP contributions will exceed annual benefits paid through 2021 providing 15 years in which excess CPP contributions will be available for investment.


Policy on Responsible Investing


Our Policy on Responsible Investing

Our approach• Consistent with our investment only mandate:

• We look at environmental, social and governance (ESG) factors only as they affect the potential risk and return of investments

• We believe ESG factors can generally have a positive influence on long-term shareholder value

Core elements1. Engagement 2. Research on ESG factors3. Integration into investment management


Our Policy on Responsible Investing The Principle Underlying the Policy:

As an owner, we are committed to encouraging companies to adopt policies and practices that enhance long-term corporate financial performance.

• Extensive review of emerging trends, standards, and initiatives on responsible investing led to adoption of the Policy on Responsible Investing in Oct. 2005.

• We participated in the development of and were among the first group of signatories to the UN Principles for Responsible Investing established in 2006.


Implementing the Policy

Direct engagement• We seek dialogue with senior executives, board

members, investor relations, and/or the sustainability manager

• Focused on:• transparency on relevant ESG factors• assurance that the company has a plan to

manage ESG issues in the short and long term



Collaborative engagement

• UN Principles for Responsible Investment

• Carbon Disclosure Project

• Enhanced Analytics Initiative

• Extractive Industries Transparency Initiative

• Canadian Coalition for Good Governance



Engagement strategy• Dialogue with public companies to encourage improved

performance on and disclosure of ESG factors • Own on average 2-3% of shares outstanding of

Canadian companies (0.05% for international)

How we approach engagement• Identify focus areas for engagement • Use both direct and collaborative approaches • Importance of proxy voting



Our engagement focus areas

• Key goal of engagement is transparency• Our engagement activities currently focus on key

ESG issues in the public equity portfolio• Our current areas of focus:

1. climate change2. extractive industries3. executive compensation



Proxy voting

• Review and vote on proxies for all public equity holdings (over 2000 companies)

• In the 12 months ended June 30, 2006, we voted at 2,366 meetings on 12,393 agenda items

– 17.5% of votes were not in support of management’s recommendation



Blockbuster (first to receive majority support), Verizon Communications, Occidental Petroleum, Coca-Cola, Yum! Brands, Time Warner

Say on Pay

Ford Motor Company, General Motors, Exxon Mobil, Wells Fargo & Company, Allegheny Energy, Dominion Resources

Report/Adopt Greenhouse Gas Emissions Goals

Wal-Mart, Wendy's Int’l, Kellogg Co., Allegheny Technologies, Amgen, CVS/Caremark, Comerica, Safeway, Dillard’s, Comcast, R. R. Donnelley & Sons, Loblaws

Prepare a Sustainability Report

Proxy voting - examples



Integration of ESG factors

• Passive equity: Review the portfolio and consider materiality to identify engagement focus areas

• Active equity: Integration of ESG factors into quantitative and fundamental research

• Private Market Investments (incl. infrastructure & real estate): Address ESG factors in due diligence

• For example, climate change considerations with AWG plc, a UK water utilities company


Summarizing Key PRI Activities in 2006-2007

• Completed the first UN PRI benchmarking survey • Joined Extractive Industries Transparency Initiative • Announced engagement focus areas • Met with several Canadian mining companies

regarding human rights concerns abroad• Sponsored the Carbon Disclosure Project in Canada • Recognized by the Social Investment Organization • Review of public equity portfolio with regard to Sudan• Letter to tobacco companies regarding WHO

Convention on Tobacco Control


Conclusion

How we define success?• We believe active ownership through engagement and

integration leads to lower risk and/or higher returns over the long-term

• Short-term milestones include:- increased research on ESG factors raising

understanding of risks and opportunities - increased company transparency on ESG factors- adoption of standards and practices by companies

likely to lead to improved performance


Conclusion

Future direction of responsible investing• Collaborative initiatives facilitate institutional

investor action

• Transparency on ESG factors, such as climate change risk, will lead to improved analysis and integration into investment management

• For our part, we have a commitment to engagement to encourage leading companies and work with laggards to improve performance

Documents

CPP Investment Board's Approach to Responsible Investing: