Posted at 12:00 p.m.
Economist Olivier Rancourt has published an opinion that essentially states two things: 1) That the Caisse de depot should not impose on Quebecers moral choices in favor of ESG criteria. Mr. Rancourt says nothing about it, but the same logic should no doubt apply to the Canada Pension Plan. 2) That Quebecers (and Canadians…) should have the right to opt out of the basic pension plan.
ESG criteria: risk management and not a moral choice
All institutional investors act as shareholders and, as such, have the power and the right to influence the strategic decisions of the companies in which they hold shares. ESG criteria are part of this right to influence.
Let’s start with the “G”, as in governance. Good governance is not a fashion to look pretty. It is the shareholders who, for 50 years, have constantly raised their requirements in terms of corporate governance.
It is now abundantly documented that good governance is positively linked to the economic value of a company, and not simply to the “values” of managers, as Mr. Rancourt suggests.
The Caisse, and with it all institutional investors, therefore not only has the legitimacy, but the duty to demand rigorous and transparent governance. It is significant that the Canadian Coalition for Good Governance, which brings together more than 50 institutional investors, was co-founded by Claude Lamoureux, ex-president of Teachers’, and Stephen Jarislowsky, founder and ex-president of Jarislowsky Fraser, two leading institutional investors.
Let’s continue with the “S” of society. The success of companies is not the only fact of their leaders. It is based on many externalities associated with the quality of the ecosystems in which they evolve: social peace, educated workforce, attractive social and physical living environment, infrastructure in good condition, robust and predictable rule of law… these are there are so many business location factors. It is therefore in their interest – selfish interest, but clearly understood – to take care of this ecosystem, to contribute to it or at least not to harm it. It is therefore in the interest of shareholders to be concerned about the behavior of companies in this respect. It has nothing to do with the values of leaders, and everything to do with the value of companies.
Let’s complete with the “E” for environment. Institutional investors display three characteristics that are sorely lacking in democratic states to contribute to solving global environmental issues, in particular the climate issue:
1) a decision horizon that goes far beyond the next elections;
2) an international scope that requires them to integrate the global nature of climate challenges;
3) a strong financial motivation: environmental risks translate into financial risks with literally incalculable potential consequences.
Thus, for an institutional investor, the choice of ESG criteria is not a moral choice. On the contrary, it forms part of any rational risk management strategy.
Disaffiliating from the Pension Plan?
As to whether a citizen of Quebec or elsewhere in Canada should have the right to withdraw from his basic pension plan, the question is conceptually interesting. However, it has absolutely nothing to do with ESG criteria — since these are not about moral values, but about economic value.
I tend to approach this question with pragmatism.
If it is true that today, the investment world is much more accessible to individuals than in 1966, it is also true that it has become infinitely more complex than at that time.
The expertise of professional investors to guarantee all contributors a basic retirement pension remains valuable, especially since they have access to investment vehicles inaccessible to individuals, such as private placements and infrastructure.
Moreover, it is an illusion to think that savers wishing to manage their QPP contribution themselves would fully assume the additional risk thus incurred: improvident workers, inexperienced managers of their assets or simply unlucky would, at the time of retirement, call to the state social security net. Canadian society would not deny them this benefit. The federal guaranteed income supplement program for less affluent retirees already demonstrates our solidarity. Compulsory participation in the basic plan is precisely a fair way of making everyone assume their share of savings and risk.
In the final analysis, moreover, Mr. Rancourt indicates that his fundamental argument is that “we do not have the right to oppose free and informed choices”.
It is he, and not the Fund, which relies on a moral argument.