Following the tabling of the most recent report of the Intergovernmental Panel on Climate Change (IPCC), the decarbonization of financial investments will probably be put back on the agenda by many ethical institutional investors. of their customers and members. The Caisse de depot et placement du Quebec (CDPQ) may continue its momentum by reducing its investments in gas and pipelines. However, this exercise should not be restricted to the environmental dimension and would benefit, in order to guarantee the ethical nature of the financial decisions taken by this public company which manages the retirement savings of a quarter of Quebecers, to include social criteria.
Last fall, the CDPQ, like other financial institutions, committed to strengthening the integration of ESG factors in the management of its portfolios, a strategy that was already part of its responsible investment policy. What does ESG mean? It is an assessment tool based on environmental, social and governance (ESG) criteria for companies. For an investor, ESG criteria therefore make it possible to quickly assess the risks and opportunities of companies according to criteria that are not exclusively focused on profitability.
The Caisse has chosen to integrate ESG criteria “into the investment analysis and decision-making process”, but it is especially proud of having applied this decision-making process to calculate the carbon footprint and governance of companies in which it invests. On the other hand, leaving aside for the moment the social side of the ESG rating, it is led to make questionable choices, such as investing in the private security sector, an industry prone to ethical breaches. In 2019, the Caisse de depot et placement du Québec became the main shareholder of Allied Universal by investing more than $1.5 million in the company. This acquisition made the firm an important asset in its portfolio.
This CDPQ transaction had surprised several analysts, because not only was the company’s economic performance considered mediocre, but it was under the magnifying glass after various scandals which had led a series of institutional players to withdraw their funds from the CDPQ. ‘business. In 2018, Allied Universal security guards beat a man in a public restroom.
It must be said that human resources management is a recurring problem for private security services which tend to improve their financial performance by neglecting the qualification and training of personnel as well as working conditions. Allied’s G4S subsidiaries also ensure that CDPQ has assets in Russia, even though it announced in February that it wanted to divest itself of its investments in companies present on Russian soil.
In 2021, Allied Universal acquired G4S, another security company implicated in numerous ethics and human rights scandals and which has a low overall ESG rating (C– in 2019, on a scale from from D– to A+). G4S’s hiring and human resources practices have come under fire following an investigation by USA Today which revealed that the company had hired employees who participated in violent acts against people.
As a result, national pension funds from 21 countries have sold their shares in G4S since 2014. Only 14 funds still held shares in the company before its takeover by Allied. Eight major US banks are now excluding companies linked to private prisons from their portfolios, reducing funding prospects for G4S and Allied. Several pension funds also chose not to fund Allied’s debt after it acquired G4S.
Institutional investors often occupy the role of ethical leader, a position that the Caisse should no longer brush aside. Choosing to get out of carbon is a first step towards a slightly more responsible finance, but the Caisse must broaden its thinking so that its commitment to reducing social inequalities is not just lip service.