An initiative spearheaded by the C$225m (€151m) Canadian Pension Plan Investment Board (CPPIB) to promote long-term behaviour in capital markets has attracted the participation of the likes of asset management giant BlackRock and consumer goods group Unilever – and will unveil an “action plan” by next year, according to the CPPIB’s Head of Public Market Investments Eric Wetlaufer.
Speaking at this year’s RI Europe conference in London yesterday (June 4), Wetlaufer said the Focusing Capital on the Long-Term initiative was looking at two methods to promote long-termism. The first was designing new long-term metrics and benchmarks for both companies and investors. This work is being done in conjunction with fellow Canadian pension fund the Caisse de dépôt et placement du Québec. More than 20 investment professionals were “deeply involved”.
The second had to do with engagement by investors with corporates regarding long-term value creation. “This includes ESG (environmental, social and governance) factors, but goes beyond them to include a more broad understanding of the companies’ long-term strategy,” Wetlaufer told delegates.
He argued the case for long-termism, saying market short-termism was not only adversely influencing the pricing of securities, but also leading to “herd behaviour, excess volatility and bubbles”.
He spoke of investment returns “not over the next quarter but the next quarter century”.On the corporate side, Wetlaufer also said companies were telling the CPPIB that “innovation and strong financial returns are the top two benefits that can be realised if their senior executives took a longer term view when making business decisions.”
Since the initiative’s launch by the Canadian scheme and the US business consultancy McKinsey one year ago, 17 companies and investors have joined it. They also include Singapore state investor GIC and Indian industrial group Tata.
“Not over the next quarter but the next quarter century”.
The project is headed up by CPPIB President and CEO Mark Wiseman and McKinsey Global Managing Director Dominic Barton, the author of Capitalism for the Long Term in the Harvard Business Review in 2011.
Wetlaufer said the results of the effort would be presented in the form of an action plan next year.
Wiseman & Barton’s original six “starting point” suggestions:
1) An asset owner-led collaboration and engagement platform
2) ‘Activated’ passive holdings
3) Set of agreed upon engagement principles.
1) Long-term value committees
2) New compensation models
3) Narrative integrated reporting