RI Interview: Roland Lescure, CIO, $151.7bn CDP Québec fund: stepping up its RI policy

Engagement becomes a prime focus for the Canadian giant.

The $151.7bn Canadian pensions giant, the Caisse de Dépôt et Placement du Québec, is no newcomer to responsible investment. The fund, which manages public and private pension and insurance funds in Québec, had already developed a proxy voting programme by the mid 90s. In 2004, it established its RI policy ahead of its backing in 2006 of the creation of the United Nations Principles for Responsible Investment (UNPRI), for which it was one of the lead signatories. The fund is also active in the Carbon Disclosure Project (CDP) Canada Advisory Group and is a member of the CDP Water Disclosure Project. Roland Lescure, Executive Vice-President and Chief Investment Officer, says the principle behind its activity has always been that of an engaged shareholder, principally voting in Canada and now increasingly overseas. All of the fund’s votes are published on its website. However, Lescure says there has been a notable step up in its RI strategy in the last year or so: “We felt that although we had been ahead of the curve in terms of RI, we still needed to bring our policy up to date. And we wanted to make it a little more ambitious than it was.” Lescure says one accent that the fund really wanted to confirm was a commitment to corporate engagement: “The largest responsible investors are much more involved in the engagement space and not in exclusions.” He cites the fund’s long-term investment horizon as the reason: “As a public equity investor we have an average 5-year holding duration, which is 3-4 times longer than the average mutual fund. So-called extra-financial issues can become a definite risk over that timeframe. You could argue that this is especially the case in Canada where 50% of the largest Canadianpublic companies are involved in the energy or natural resources sector where there is a considerable social ‘licence to operate’ concern. As a result, Lescure says, the Caisse has increased its activities to working alongside corporates on their sustainability strategies, often joining a firm’s stakeholder committee or other relevant body: “We want to be fully engaged with companies where we can and sometimes that means getting out of our comfort zone, but we need to do that.” An exception to the engagement preference was the fund’s exclusion earlier this year of companies – less than 10, according to Lescure – involved in the production of cluster bombs and landmines. Other large pension funds such as the New Zealand Superannuation Fund have sold off stakes in firms including Goodrich Corporation, L-3 Communications, Northrup Grumman, Poonsang Corporation and Raytheon, for their involvement in the manufacture of cluster munitions. 
 The Caisse, says Lescure, “does not like blacklists”. This, he says, is because it does not see itself as an ‘ethical investor’, but rather a ‘responsible investor’, weighing up financial risks and following international law where necessary: “There is a legal issue with cluster bombs and landmines. There are international treaties that have been signed by Canada. We used a research house to identify the companies that were relevant to us. We’re not giving any details out on them because we are in discussion and engaging with the companies on this topic. Some may be reinstated to the portfolio. Other companies we talked to already said they had already changed their business.” An obvious issue to bring up given the Caisse’s size as a Canadian investor, is that of
oil sands. The issue has been exercising many of the Caisse’s international peers this year. In June, a group of 26 leading global institutional investors with a combined heft of $1.2trn (€820m) in assets wrote to the co-chairs of the new Alberta Environmental Monitoring Panel, Howard Tennant and Hal Kvisle, requesting that the province’s checks on the standards applied to oil sands development should be “beyond reproach”.
Says Lescure: “I think you could say that as a Canadian investor we look at this a bit more intensely. But in reality it is the same way we look at tar shale or copper. There are long-term risks involved and we look at those as a responsible investor. The Caisse is not part of the engagement with Alberta province, but Lescure says it has regular related discussions with UNPRI and CDP signatories: “We talk, and occasionally we have pooled resources for resolutions. But we have no formal network for working on these issues. It’s case by case. Another area where the fund is making a notable sustainability push is in real estate where it runs one of the tenlargest real estate asset portfolios in the world. Lescure says the fund is looking at the environmental impact of the buildings it owns through reporting by its real estate operating companies. For private equity, the fund pushes sustainability criteria where it is present on boards, but as Lescure notes: “We also have to be careful not to be too onerous on the demands we make of smaller companies.”
Hedge funds represent about 2% of the Caisse’s portfolio and Lescure says issues such as fund transparency and costs fall into the RI remit. As it expands its RI capacity, the fund has been building a responsible investment committee, which includes Lescure and a group of internal and external advisors. The fund is also developing a professional certification program in sustainable investment in partnership with local universities. As Lescure summarises: “Responsible investment is about both what we do in our investment and the way we present ourselves to the outside world.”