CPP Fund Faces New Ethical Investment Bans

Summary#

This bill changes the Canada Pension Plan Investment Board Act to add new limits on where the CPP Fund can invest. It requires the Board’s investment policies to bar investments in any entity if there are reasons to believe it engaged in certain unethical practices, and to consider environmental, social, and governance (ESG) factors when setting those policies (Bill Section 1). The bill takes effect on a date set by the Governor in Council (Coming into Force).

• Bans new investments and continued holdings in entities tied to human, labour, or environmental rights violations (Bill Section 1).
• Bans investments in entities that produce arms or munitions prohibited under international law (Bill Section 1).
• Bans investments in entities that ordered, controlled, or directed acts of corruption under listed Criminal Code and Corruption of Foreign Public Officials Act sections (Bill Section 1).
• Requires the CPP Investment Board to build these bans into its investment policies and procedures and to consider ESG factors (Bill Section 1).
• Effective date will be set by Order in Council; not specified in the bill (Coming into Force).

What it means for you#

• Households (CPP contributors and retirees)

  • Your CPP benefits and contribution rules do not change under this bill. It only addresses how the fund may invest (Bill Section 1).
  • The fund may sell some holdings and avoid others that fall under the bans. This could change which companies the fund owns (Bill Section 1).
  • The bill does not state any expected effect on investment returns. Data unavailable.

• Workers and future retirees

  • The Board must consider ESG factors when it sets investment policies. This could shift the mix of assets over time (Bill Section 1).
  • Timing is uncertain. The bill takes effect on a date chosen by the Governor in Council (Coming into Force).

• Businesses seeking CPP Investment Board capital

  • If there are reasons to believe your entity committed human, labour, or environmental rights violations, or engaged in covered corruption, the Board may not invest or remain invested (Bill Section 1).
  • If your entity produces arms prohibited under international law, you would be excluded from investment (Bill Section 1).

• CPP Investment Board (CPPIB)

  • Must update its investment policies, standards, and procedures to: consider ESG factors; and prohibit investing in or holding investments in entities that meet any of the listed criteria (Bill Section 1).
  • Must design and apply screening, due diligence, and monitoring to assess “reasons to believe” an entity engaged in prohibited practices (Bill Section 1).
  • Must review existing holdings and divest where the prohibitions apply, since “no investment may be made or held” (Bill Section 1).
  • The bill does not define “entity” in this section. The Board will need to interpret scope when drafting policies (Bill Section 1).

• Governments

  • No changes to tax or transfer programs. The Governor in Council sets the coming-into-force date (Coming into Force).

Expenses#

Estimated net cost: Data unavailable.

• The bill contains no appropriations, fines, fees, or tax changes. It mandates policy changes at the CPP Investment Board (Bill Section 1).
• The Board may face operational costs to build and run screening and monitoring systems. Amounts not specified. Data unavailable.
• No fiscal note identified. Data unavailable.

Proponents' View#

• Protects public pension money from supporting human, labour, or environmental rights violations by barring such investments (Bill Section 1).
• Stops CPP funds from flowing to producers of arms and munitions that are prohibited under international law (Bill Section 1).
• Blocks investments in entities implicated in corruption offenses listed in the Criminal Code and the Corruption of Foreign Public Officials Act (Bill Section 1).
• Embeds consideration of ESG factors in Board policies, which supporters say aligns with responsible investment practices and Canada’s values (Preamble; Bill Section 1). Assumes ESG consideration helps manage long-term risk.
• Reduces reputational and potential legal risks to the fund by avoiding entities tied to abuses or corruption (Bill Section 1). Assumes these exclusions lower risk.

Opponents' View#

• Could shrink the set of allowable investments and lead to lower returns if excluded entities outperform alternatives (Bill Section 1). Assumes exclusions reduce performance.
• “Reasons to believe” is not defined, which may create subjective judgments, inconsistent application, and potential legal challenges (Bill Section 1).
• May increase costs to screen current and future holdings, including complex or indirect investments; the bill provides no funding or process details (Bill Section 1). Data unavailable.
• Possible tension with the Board’s existing duty to manage assets in contributors’ and beneficiaries’ best interests and pursue returns, since the bill adds non-financial exclusions (existing s.35 as renumbered 35(1); Bill Section 1). Assumes the exclusions could conflict with return maximization.
• No timelines or transition rules for divestment. Forced sales to comply could occur at unfavorable times and affect prices (Bill Section 1). Assumes market impact from timing.