Public Sector Pension Investment Board

 2018 Responsible Investment Report

Think Look Move Responsibly

Public Sector Pension Investment Board

 2018 Responsible Investment Report

Our approach to responsible investing is rooted in our commitment to protecting and enhancing the value of our investments over the long term. We seek to reduce risk and capture value by integrating environmental, social and governance (ESG) factors throughout the investment process and across all asset classes. We focus on those ESG risks and opportunities that have the potential to impact a company’s ability to create or preserve long-term financial value.

Our integration process varies by asset class and investment type, and ESG factors considered vary by company, industry and geography. Our Responsible Investment group leads our ESG integration activities in collaboration with asset classes and regularly reports on its activities to the Governance Committee of PSP’s board of directors.

President’s
message

Neil Cunningham

President and Chief Executive Officer

In the increasingly complex and constantly evolving global environment in which we invest, PSP’s expertise in addressing ESG-related issues has never been more relevant. We believe that ESG factors can be significant drivers of long-term sustainable value.

Two years ago, we created a dedicated Responsible Investment (RI) group to strengthen our responsible investment practices and I’m pleased to report that we’ve made significant progress.

This year’s focus was on further integrating ESG considerations into the investment processes of all of our asset classes. Our RI group has proven its value, making the ESG perspective relevant to our asset classes and becoming an integral part of PSP’s investment decision-making processes and ownership practices. In fiscal year 2018, the group also introduced an innovative framework for helping us objectively evaluate and benchmark the ESG practices of external managers and general partners.

Guided by our RI group and asset classes, PSP has taken a strong stance on key ESG issues. Among them, climate change. We believe that climate change is a long-term structural trend that will have a material impact on investment risks and returns, across different sectors, geographies and asset classes. As a long-term investor, we must proactively address the reality of climate change risks and opportunities as part of our investment decisions.

In this year’s RI report, we shine a light on five recurring ESG themes from fiscal year 2018, explaining why they matter to us as investors and how we took action on them in private markets, public markets and from a best practice perspective. In reading about them, I trust that you will also gain an appreciation of the knowledge and resourcefulness of our people, and of our strong culture of listening, learning and speaking up when we need to. We challenge ourselves to be bold and act decisively on opportunities to promote long-term investment growth.

Sincerely,

Neil Cunningham
President and Chief Executive Officer

Highlights

Fiscal year 2018

Our ESG strategy is structured around four pillars:

Responsible Investment

Policy development
and strategy
Advisory role to
Board, President
and CEO, and
Investment Groups
Responsible
investment
oversight
ESG training &
communications

Seeing near
and far

We shine a light on five recurring themes from fiscal year 2018. These were important issues that mattered to us as investors and where we took strong action.

Proxy voting

PSP strives to vote at all shareholders’ meetings organized by companies in which we invest. Last year, we voted at 3,871 meetings for a total of 43,172 management and shareholder resolutions in all regions of the world.

3.871 meetings

43.172 resolutions

Engagement

We actively engage in direct dialogue in order to improve public companies’ ESG practices.
1

Policy development and strategy

Develop responsible investment policy and strategic initiatives. Monitor ESG themes, measure ESG risks and identify opportunities for each asset class, and on a total portfolio basis.

  • Updated our Responsible Investment Policy and Statement of Investment Policies, Standards and Procedures (SIP&P).
  • Updated PSP’s Investment Risk Policy to explicitly reference ESG risks as one of the six principal investment risk types to which we are exposed.
  • Revised our Proxy Voting Guidelines to clearly set out our expectations on key governance issues.
  • Initiated a comprehensive assessment of our portfolio’s exposure to climate change risk, developed climate change decision support tools, and supported industry initiatives to improve disclosure of climate-related risks and opportunities.
  • Collaborated with Canadian peers to advocate for annual mandatory advisory votes on management compensation (“Say on Pay”) and successfully influenced several Canadian companies to adopt Say on Pay.
  • Reaffirmed our commitment to diversity by endorsing the 30% Club Canadian Investor Group Statement of Intent and through our engagement activities.
2

Advisory role to Board,
President
and CEO, and
Investment Groups

Provide advice and guidance on ESG trends. Work collaboratively with the asset classes to integrate ESG factors in investment decision making process.

  • Worked with our Public Markets group to develop an ESG integration framework.
  • Collaborated with our Private Market investment teams to help them assess ESG risks and opportunities as part of their investment due diligence process.
  • Provided advice to senior management on emerging ESG trends and themes impacting our portfolio.
3

Responsible investment oversight

Manage and monitor our portfolio as active stewards of our assets.

  • Launched the PSP Health and Safety Best Practices Network among our Infrastructure portfolio companies to foster greater connectivity and share best practices.
  • Developed a framework for objectively assessing the ESG practices of external managers and general partners and fostering discussions on adopting best practices.
  • Joined the Sustainable Stock Exchange Initiative to explore how exchanges, in collaboration with investors, regulators and companies, can enhance corporate transparency and ultimately performance on ESG issues.
4

ESG training & communications

Increase internal capabilities so ESG factors are adequately considered during the investment decision making process. Report on our ESG activities to key stakeholders.

  • Presented our key priorities and best practices and tools for ESG integration and monitoring to internal investment groups and external business partners.
  • Engaged regularly with investment groups and business partners to ensure they are equipped to assess and manage emerging climate change and cybersecurity risks.
  • Published our first standalone annual Responsible Investment Report.

Board
composition
and
effectiveness

Why it matters

A high performing board of directors and good governance are the foundation of responsible business practices and critical to a company’s long-term success. The board is ultimately responsible for overseeing corporate strategy and therefore needs a comprehensive understanding of the impact that ESG factors may have on a company’s competitiveness, risk profile, resilience and long-term viability.

Climate
change

Why it matters

Climate change is one of the most critical challenges of our time. According to the World Economic Forum, over the next 10 years, three of the top five global risks in terms of potential impact and likelihood are linked to the physical or transition risks of climate change

Cybersecurity

Why it matters

The past year has highlighted the extent to which cyberattackers have both the capability and intent to cause significant business disruption. Data security breaches are a material risk to many companies, can affect numerous stakeholders and may lead to significant internal costs. In addition, information or intellectual property theft can cause business disruption, such as revenue losses, fines from regulators, reputational damage and erosion of customer confidence.

Health
and safety

Why it matters

There are certain risks that can affect all companies, and health and safety is one of them. A serious workplace injury or death changes lives forever – for families, friends, communities and coworkers. All companies should strive to foster a work environment in which everyone has a sense of wellbeing and feels safe from injuries and illness.

Community
engagement

Why it matters

While many commercial projects can improve people’s lives and stimulate economic growth, they can also raise serious social issues which make approval neither automatic nor unconditional. Responsible development of projects is achieved by promoting a balanced approach towards environmental, social and economic considerations.