Mr. Pat Martin (Winnipeg Centre, NDP)
That, in the opinion of this House, the Canada Pension Plan Investment Review Board should be guided by ethical investment policies which would ensure that our pension investments are socially responsible and do not support companies or enterprises that manufacture or trade in military arms and weapons, have records of poor labour practices, contribute to environmental degradation, or whose conduct, practices or activities are similarly contrary to Canadian values.
Mr. Speaker, I thank the House for the opportunity to raise what my party believes to be a pressing national issue, an issue that is very much top of the mind with many Canadians, especially at this time of year when they are making their choices about where to invest their RRSPs.
I believe that many Canadians take the time to ensure that the money they put away for their retirement is used ethically, through investments, for instance, that do not harm people or the environment. However, the Canadian government has no such scruples.
This year, $2.5 billion in Canada pension plan funds were invested in corporations that manufacture the world's deadliest weapons, including missile launchers, incendiary bombs, battle tanks, high tech fighter aircraft, anti-personnel cluster munitions, warships, and even landmines. Many of these were used in the U.S.-led war in Iraq. The Canadian government has conscripted us into war profiteering whether we like it or not by investing in what we call the merchants of death.
In order for this to change, the mandate of the Canada Pension Plan Investment Board must also change. Profit is currently the sole criteria for determining investments. It is our goal as the NDP caucus to inject an ethical screen and socially responsible requirements into that pattern.
I should point out by way of introduction what the current policy is for the Canada Pension Plan Investment Board. It speaks specifically to the call for ethical investments. The board's website states:
Our legislation specifically prohibits us from engaging in any investment activities other than maximizing investment returns without undue risk of loss.
This policy--and I should point out that it is a policy rather than legislation--further states that the board, and I quote:
will not accept or reject investments based on non-investment criteria.
I will go through the point that we are raising, which is that we do not have to sacrifice profitability to introduce ethics into our investment strategy. The empirical evidence is clear that having an ethical investment screen on our investment strategy does not in and of itself compromise profitability. In fact, I will point out examples where ethical investment plans and funds outperform conventional free and open indexes on the open equities stock market.
Let us talk about what we mean by ethical investment, because I believe there is a great deal of misunderstanding about this. What we are talking about is socially responsible investing. Ethical investment funds can be implemented using either positive or negative screens. A positive screen would seek out companies that fulfill certain environmental, ethical or social objectives. A negative screen would exclude companies that violate these same standards. Some common negative screens that are mentioned in many of the ethical investment plans include barring the purchase of shares involving tobacco, the creation of pornography, which I feel particularly strongly about, and military production.
Some of the negative screens we are asking to have introduced would prohibit investment in tobacco, military production, any activities which violate human rights, or those that involve environmental degradation.
Key and paramount among what we believe to be these practices that Canadians would object to our investing in is the production of pornography. There is no limit or restriction on the current Canada pension plan investing in the legal creation of adult pornography even though most Canadians would not want their Canada pension plan money invested in this, no matter how profitable it may be.
An ethical investment plan rewards companies that operate in a certain way and provides a carrot to firms that do not meet these criteria and urges them to improve their behaviour to the highest standard.
As a result, society benefits from firms acting, for example, in an environmentally friendly way. We would not advocate that our investment strategy avoids industry sectors all together, such as logging, on the basis that it may not be environmentally friendly. We would argue that we should selectively invest in companies that have environmental practices so that we invest in those companies that have the best practices in that sector and therefore urge other companies to also adopt that high standard of ethical and environmental accountability.
In comparing rates of return, the most common and frequently used argument when we raise this issue is that we will be sacrificing rate of return and therefore somehow compromising the retirement security of pensioners.
There is no clear cut evidence that funds invested ethically always perform better or worse than funds invested according to normal market principles. The results depend on the index or the fund that is being looked at and the time period in question.
I have examples both ways that I would like to go through. One example in the United States is the Domini 400 Social Index which was created in 1989. It has qualitative screens on the Standard & Poor's 500 index of companies and then added certain other companies.
Since 1989 the Domini 400 ethical investment fund has generally outperformed the Standard and Poor's 500 by a small margin. In recent years it has lagged slightly in back of the Standard and Poor's index, but over a 10 year study it has in fact ended up 1.1% higher in performance than an index that has no other governing objectives in its investment strategy.
A similar trend can be seen in a like-minded Canadian index, the Jantzi Social Index. This index invokes different screens than the Domini index and uses as its starting point the Standard & Poor's TSE 60. Using recent data the Jantzi outperformed throughout the mid and late 1990s and since June 2001 it has generally under performed the wider market. However, on a 10 year average it ends up approximately 1% higher than the other indexes.
What seems clear from these two examples is that ethical funds do not chronically underperform more market oriented funds. In fact, we can have our cake and eat it too. We can invest ethically in a way that does not compromise the values of Canadians and does not offend Canadians, and still receive a good rate of return to our investment.
The current record has not been all that sterling with the Canada Pension Plan Investment Board since it was created in 1997. It hemorrhaged money. Even with its generous guidelines that have no limits on it whatsoever, it lost billions of dollars. We could have done better by playing pin the tail on the donkey in choosing stocks to invest our hard earned pension money. It rolled the dice and gambled, and it did it badly.
I do not think we should hear too much high flown talk about the downfall of ethical investment when the experience without any ethical guidelines has been abysmal, frankly. We said “Here's $20 billion. Don't lose it”, and it went out and lost about $4 billion. We would have been better off digging a hole and putting that money in the ground. At least we would still have the principal. We would not have lost it.
Our arguments for ethical investment could not have done worse than the current experience with the 12 person Canada Pension Plan Investment Board.
Let us talk about the fiduciary obligations of trustees of any pension plan. I was a trustee of a union health and welfare benefit plan. I know the limitations. However, we could craft the trust document to allow as many ethical investment funds and allow for other considerations to be factored into the investment strategy other than simply maximizing the rate of return.
If we only wanted the maximum possible profit, we could be making porn movies because one can make a 60% and 70% profit making pornography. We could be selling landmines more than any other activity because landmines and armaments are very profitable. We argue that there are better things that can be done with our money.
We believe that the fiduciary obligations, as contemplated in the trust document of the Canada Pension Plan Investment Board, could be amended or modified to allow that an investment in a positive rate of return does not have to compete with the best rate of return. In other words, an adequate or reasonable rate of return should be the language that we should be using in order to take into consideration other issues.
The Ontario public service employees union, OPSEU, pension trust fund is a large jointly trusteed pension plan. It stipulates that a reasonable rate of return is the target. That gives it the latitude in its plan to either achieve other secondary goals for which it may wish to use some of its investment strategy or to ensure that it is investing in a selective way that does not offend the sensibilities or the values of the participants in its plan.
Another major investment house dealing with pension plans is the hospitals of Ontario pension plan, HOOPP, which has invested according to four major ethical screens. The president of that plan, Mr. Ed Baker, noted that in order to meet the actuarial assumptions, the plan did not need the biggest returns. He stated that what was needed was a return that was reasonable and invested in a socially responsible manner. Socially responsible are the operative words here.
There is little support for the theory that ethical investments necessarily yield a lower rate of return. I have a list of some 120 ethical investment funds that I can cite that are outperforming on the open market other plans that have no such ethical guidelines attached to them.
In Canada the only evidence about social investment and the rate of return is anecdotal at best. In the United States there is some systematic research related to social investment strategies. In a comprehensive review of the U.S. literature on pension fund activism, there is no substantial effect to having ethical guidelines or ethical screens compared to having none at all.
In Canada the anecdotal evidence states that ethical investments are above average performers compared to mutual funds. For example, the social investment organization has reported that the ethical growth fund with a screened portfolio has performed as well or better than non-screened mutual funds, with an average annual compounded rate of return over 10 years of 12.5%. Over the same period, the ethical growth fund outstripped the TSE 300 by 1.1%. However, given the interest in the issue, there is little systematic research. Much of this is anecdotal.
The issue has been treated completely unfairly by the media of late. There have been two editorials, one in the Ottawa Citizen and one in the Vancouver Province , that hastily did away with any idea that we should have any ethical guidelines involved in our investment strategy at all. They were not only badly researched, but they were out and out rude toward those who felt strongly about this issue, calling people who believed in ethical investment silly socialists.
I represent a large group of Mennonites in my riding. They feel strongly about the fact that they do not like to have part of their income tax used to invest in the military. Some of them withhold a certain percentage of their income taxes per year, about 2%, because they believe 2% of the GDP or tax revenue goes toward the military. That is how strongly they feel about it. For these newspaper articles to accuse those well-meaning Christians of being silly socialists because they do not want their investment dollars being spent on landmines is ignorant on the part of the newspapers. They would not even entertain the general argument in any realistic way.
We should look at other ethical investment funds for direction because many are doing it very well. The Caisse de dépôt et placement du Québec invests over $120 billion for a number of Quebec pension plans and the Quebec pension plan. It uses its investments for other strategic secondary goals other than simply the maximum rate of return. Again, a reasonable and acceptable rate of return is language that is used in many of these plans, but they are not bound by a trust document that so clearly limits the use of this massive fund.
People would question whether we should be investing our Canada pension plan in the equities market at all. We now have $30.6 billion in equities and real estate and about $34 billion invested in bonds and other secure investments.
Should we be rolling the dice with our pension plan? We believe that there are other secondary goals for which we could use this pot of money. For instance, lending money to municipalities for infrastructure programs or rapid transit at a stable but lower rate of return would achieve other secondary goals with our investment strategy.
The parliamentary leader for the NDP wrote a letter to the Minister of Finance on December 15 of last year, just three days after he was sworn in, to raise this very issue with him. He wrote that Lockheed Martin, along with Raytheon, General Electric, General Dynamic, Carlisle and two other American corporations that benefit from significant Canada pension plan investments were all complicit in the production of anti-personnel landmines for the U.S. military.
He said that Canada pension plan investments in these corporations contravened the convention on the prohibition of use, stockpiling, transfer and production of anti-personnel landmines and section 1 of that convention, which was ratified by Canada. It started here with the then Minister of Foreign Affairs, Lloyd Axworthy, and others on the Liberal benches who initiated this laudable international goal to eradicate the world from landmines.
Our leader further stated that subsection 1(c) of article 1 of this treaty signed by Canada in Ottawa on December 3, 1997, the very same year that the Canada Pension Plan Investment Board started investing in landmines, stated that, “each state party undertakes never under any circumstances to assist, encourage or induce in any way anyone to engage in any activity prohibited to a state party under this convention”.
This is strong language. No wiggle room whatsoever; it was ratified by Canada on December 3, 1997, the very same year that the Canada Pension Plan Investment Board began investing in these obnoxious anti-personnel landmines. He went on:
He went on to say that they were not allowed to develop, produce or otherwise acquire anti-personnel landmines. The Canada pension plan investments, our parliamentary leader argued, were therefore made in companies engaged in business that was unlawful in this country and these contraventions were unacceptable. He therefore urged the Minister of Finance to halt the investment of CPP funds in any corporations that developed or produced anti-personnel landmines.
My motion today goes farther than that. Obviously, this turns heads because it is so reprehensible to even think it. The motion that I introduced today on behalf of the New Democratic Party goes further than just barring investment in merchants of death. It states that:
...the Canada Pension Plan Investment Review Board should be guided by ethical investment policies which would ensure that our pension investments are socially responsible and do not support companies or enterprises that manufacture or trade in military arms and weapons, have records of poor labour practices, contribute to environmental degradation, or whose conduct, practices or activities are similarly contrary to Canadian values.
I believe there is broad cross-party support and national support for such ethical guidelines for our Canada pension plan.