The Canada Pension Plan Investment Board (CPPIB) said it is increasing its focus on strengthening corporate governance, with an emphasis on improving the gender composition of the board of directors of companies it invests in.
“It’s crucial for companies in which we invest capital to assemble boards that reflect the full range of talent available,” Mark Machin, CEO of CPPIB, said in a release. “If companies don’t take the required action to achieve the board effectiveness that today’s business environment requires, it falls to investors to provide a nudge, and when necessary, a push.”
In its most recent report on sustainable investing, CPPIB added board effectiveness as a fifth focus area, along with climate change, water, human rights, and executive compensation. The change is intended to help CPPIB better identify and address issues such as gender diversity. The report also said that during 2017, CPPIB voted on measures at shareholder meetings for 45 Canadian companies with no female directors to demonstrate the organization’s desire for improved diversity. It said that one year later, nearly half of the businesses had appointed at least one woman to their boards.
“CPPIB believes companies with diverse boards are more likely to achieve superior financial performance,” said the company, citing research from Credit Suisse and Catalyst Inc. that have shown that companies with a higher representation of women reported higher returns.
According to 2020 Women on Boards, a non-profit organization created to increase the inclusion of women on company boards, women now hold 20.8% of the board seats among the 801 Fortune 1000 companies tracked by its Gender Diversity Index. This is up from 19.7% in 2016, and 14.6% in 2011, when it first started tracking the data.
“Enhancing board effectiveness is just one of the ways CPPIB addresses environmental, social, and governance (ESG) issues,” said the fund. “Others include engaging with companies on ESG practices, collaborating with other investors, and incorporating ESG factors into investment decision-making processes.”
The report also said CPPIB has developed a toolkit to help investment teams better assess the impact of climate change on both existing and potential investments.
“We aim to be a leader among asset owners and managers in understanding the investment risks and opportunities presented by climate change,” said Machin.
CPPIB said it expanded its portfolio of renewable energy assets, which its investment teams believe can provide better risk-adjusted returns “when done in a thoughtful, prudent manner.”
Earlier this year, CPPIB became the first pension fund to issue green bonds, which the organization said increased its capacity to invest in renewables.