Two big pension funds have released their annual reports and their signalled intention to focus on climate change mitigation when investing in the coming years.
The Canada Pension Plan Investment Board (CPPIB) and Public Sector Pension Investment Board (PSP Investments) have released their annual reports. Their returns over the fiscal year 2021-22 were positive while moving towards climate change targets.
With the release of its Fiscal 2022 Annual Report, the CPPIB announced on May 19 that it had achieved a net return of 6.8 per cent for the fiscal year that ended March 31, 2022, a five-year net return of 10 per cent, a 10-year net return of 10.8 per cent, as well as net asset increases of $42 billion for the fiscal year and a one-year dollar value-added of $10 billion or 2.1 per cent above reference portfolios. This led to total net assets of $539 billion.
“CPP Investments delivered solid returns in fiscal 2022 despite turbulent market conditions in the wake of Russia’s war on Ukraine, supply chain disruptions caused by the pandemic and rising inflation,” said president and CEO John Graham. He highlighted the enduring growth of the fund over the long term, with steady resilience in uncertain times.
Looking ahead, Graham suggested things will remain uncertain with higher inflation expectations, potentially worsening supply-chain interruptions, reactions to the war in Europe, climate change and the persistent global pandemic.
On climate change, Heather Munroe-Blum, chairperson of the CPPIB, wrote that “climate change is a major risk and mitigating it is a responsibility shared by all. The steady convergence of evidence, opinion, commitments and action among governments, corporations and civil society concerning the need to transition the global economy to a low-carbon future, identified broadly as ‘net zero by 2050,’ has added impetus to our collective responsibility to act.” CPPIB released its comprehensive approach to reaching net zero.
Meanwhile, it was another very positive year for PSP Investments, which posted a 10.9 per cent total fund one-year net portfolio return as of March 31, 2022. This pushed up the five- and 10-year net annualized returns to nine per cent and 9.8 per cent, respectively. This also brought the net assets under management to $230.5 billion, a 12.7 per cent increase. Over 10 years, this represented net investment gains of $25.9 billion versus a reference portfolio.
The increases are attributed to significant gains in private equity (27.6 per cent), real estate (24.8 per cent), natural resources (15.9 per cent) and infrastructure (13.9 per cent).
PSP Investments said it focused on sustainability in many of its investments this past year. The plan invested in Angel Trains, one of Britain’s leading train asset management companies and a key player in decarbonization in the UK transport system; Brookfield Global Transition Fund and the TPG Rise Climate Fund, which invest at scale in climate opportunities in private markets; and finally Spark Infrastructure, an energy infrastructure company heavily involved in Australia’s transition to a greener electricity grid.
PSP Investments signed on to the statement by the Quebec Financial Centre for a Sustainable Finance, which seeks to tackle the climate emergency and social inequities. PSP issued its first green bond with proceeds earmarked for projects with environmental benefits, and launched a new climate strategy and targets for supporting the transition to net zero.
PSP’s CEO and president Neil Cunningham wrote: “We have integrated ESG (environmental, social and governance) fundamentals into our investment and asset management processes and practices. While we used to consider ESG mainly as a risk lens, we are now approaching it as a way to enhance returns. We do this by investing in companies that have put sustainability and inclusive growth at the centre of their operations and by guiding our portfolio companies to improve their ESG practices.”