Forum Speech by Michael Sabia before The Canadian Club

Constructive Capital

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These are interesting times. Times of transformation. But also of turmoil.

Great potential – but also great challenge. For the world. And for investors like la Caisse.

Today, record markets. But also low productivity. A growing infrastructure gap.

Disruptive technologies are revolutionizing the way we live and work.

Finding a job isn’t a problem. Finding a job that pays a living wage can be. 

There’s rising inequality – as some benefit more than others from economic progress. Populist governments are reviving protectionist policies.

Here’s the hard truth: today’s problems are everyone’s problems. We all need to step up and pitch in. Businesses, universities, not-for-profits, citizens, and, yes, investors.

And the defining conflict of our time – the United States and China.

A dispute over trade – but much more than that. A clash for technological supremacy. For geopolitical leadership – and the potential for the world to splinter along two different technological standards. Two internets. Globalism pulled back into regionalism.

This rivalry will have enormous consequences for supply chains and trade flows. But also for everyday things, like how our cell phones work. How social media sites work – or don’t.

And then, of course, the greatest challenge of all: our changing climate. Rising seas threaten coastal cities. Typhoons in Japan. Flooding in Venice. Wildfires in California and Australia. 

It’s true that every era has its challenges. But there’s a critical difference this time.

In the past, governments have led our collective response to major challenges. 

Today, on their own or even together, governments are increasingly unable to act effectively on many urgent issues.

The world is moving too fast. Many governments can’t respond quickly enough. Some populist governments don’t even try.

Here’s the hard truth: today’s problems are everyone’s problems. We all need to step up and pitch in. Businesses, universities, not-for-profits, citizens, and, yes, investors.

Not out of some noble impulse – but because it’s in our interest. And our collective interest.

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Constructive Capital

Speech by Michael Sabia before The Canadian Club, November 28, 2019.

The key to meeting many of the challenges before us is growth. 

But not just any growth. 

The world needs durable growth – rooted in the productivity of the real economy.

Sustainable growth – that won’t suffocate our planet.

And inclusive growth – so more can share in economic progress.

Those who make financial decisions have a crucial role to play. The world needs investors who think beyond the next day, the next month. The next quarter.

Why? Because investors are coming to understand that over the course of years and decades, our returns will be only as strong as the economies we invest in. Or as healthy as our planet. 

Pension funds. Insurance companies. Sovereign funds. They oversee a growing pool of capital that is focused on the long term. 

Together, institutional investors around the world have more than $80 trillion under management.

That can move the dial. 

But we need to do more than invest. We need to invest with purpose. We need to invest constructively. 

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Over the past decade, we have reinvented la Caisse. 

Never losing sight of our fundamental commitment to serve the interests of the people of Québec, we have rebuilt an organization – and reimagined how and where we invest. 

Everything we’ve done, every change we’ve made, has been guided by the imperative to invest capital constructively. 

This mindset determines the partners we choose. The industries we focus on. The companies we invest in. The risks we take.

Today, we think differently. We make decisions differently. 

Not to stand out among pension funds. 

We think and invest with a constructive mindset because it’s the best and safest path to the steady, reliable returns that long-term capital needs.

It’s a way of ensuring reliability in an uncertain world. 

It’s a way of achieving resilience in a turbulent time.

And it’s a way of contributing to a shared effort to confront the challenges we face together.

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To invest constructively, we needed to make three critical changes.

First? Put our capital to work around the world. Globalize. 

A decade ago, la Caisse had $62 billion invested outside Canada. Today, it’s almost $220 billion – two-thirds of our assets.

Everything we’ve done, every change we’ve made, has been guided by the imperative to invest capital constructively.

We’ve built the expertise to develop a deep understanding of international markets.

We’ve put ourselves in a position to work with trusted and accomplished local partners in promising sectors. 

The result? We’ve gained access to more quality investment opportunities. 

But not just any investments. 

We are squarely focused on investing constructively in the real economy. In the things that build countries up – and improve the lives of people. 

The German company Techem – guiding businesses and homeowners to use less energy and water.

The fintech firm FNZ – making it easier for people to meet their financial goals.

And Suez Water Technologies & Solutions – a world leader in water treatment. 

We’re also investing in infrastructure. In real stuff that has a real impact on people’s lives – and a country’s future. A metro system in Sydney. Wireless telecom towers in the U.S. Ports from Canada, to Chile, to Australia. 

Every major infrastructure project – an example of constructive capital at work. 

Second: To invest constructively we needed to address climate change. 

Many investors continue to see climate change as a constraint – a drag on returns. They're looking at it all wrong. 

La Caisse is one of North America’s largest investors in wind power. We’re investing in solar power in India. We’re earning double-digit returns doing it. 

In Toronto, Chicago, Houston and Paris, we’re building a new generation of energy-efficient buildings – with substantial returns. 

Our commitment on climate isn’t episodic. It has become part of our DNA.

A decade ago, la Caisse had $62 billion invested outside Canada. Today, it’s almost $220 billion – two-thirds of our assets.

For decades, we looked for the right risk-return balance in our portfolio. Today, we look for the right risk-return-carbon balance. 

We’ve actively decreased the number of high-carbon assets in our portfolio.

We’re stepping down our investments in petroleum. Overall, we are going to reduce the intensity of our carbon footprint by 25% by 2025.

At the same time, we’ve increased our investments in low-carbon assets by 50% – more than $10 billion. And we’re going to increase them by another 30% by the end of next year. Our low-carbon portfolio will surpass $35 billion by the end of 2020.

We’ve also taken on a global leadership role – working with other investors to make a difference on climate. 

The Investor Leadership Network – 14 international funds with more than $6 trillion under management working to accelerate the disclosure of climate risks and opportunities around the world. 

And we’re a founding member of the UN Net-Zero Alliance – committing to carbon-neutral investment portfolios by 2050.

Again: Our returns will be only as strong as our society. Only as healthy as our planet. 

Third and finally: To invest constructively, we needed to fundamentally change how we invest in Québec. 

The Québec economy of past generations is being transformed. 

Every day, the real economy bears less and less resemblance to the traditional, the familiar.

Every day, it moves closer toward a dynamic new reality – driven by technology and a desire to compete and win on the global stage. 

Today, more than 240,000 Quebecers are working in the new economy. The companies that once led this economy are giving way to a new generation of businesses – and a new generation of business leaders. 

La Caisse is fully and deeply engaged in that transition. 

We are investing in companies that have a global presence. Like CGI – a world leader in IT and consulting.

Many investors continue to see climate change as a constraint – a drag on returns. They're looking at it all wrong.

We are investing in companies that are making a constructive difference on the environment. Like AddEnergie – which provides smart charging stations for electric vehicles.

We are investing in companies that are at the forefront of technological change.  Lightspeed – the first Québec unicorn. Now a global leader in point-of-sale software. 

And we’re not shying away from challenges. Element AI: World-class academic expertise and creative thinking – that needs to be commercialized. Not easy. But essential in the new economy.

Over the last five years, Québec-based companies in our portfolio have completed more than 200 acquisitions outside Québec, representing $27 B. 

That improves their ability to compete globally – and achieve their full potential.

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The REM here in Montréal is an expression of today’s la Caisse. It is constructive capital in action – an investment in our real economy, in our economic growth and in our collective future.

A transit system that is carbon neutral – for the fight against climate change.

A project that reinforces this city as a magnet for talent – and better enables it to compete globally. 

Third and finally: To invest constructively, we needed to fundamentally change how we invest in Québec.

A project that will improve quality of life for millions of people. The very point of constructive capital.

And a project that will serve for decades as a source of reliable returns for la Caisse – and for Quebecers. Resilience through turbulent times.

At la Caisse, it’s not about the next quarter. It’s about the next generation.

It’s about building a fund that’s as dynamic and innovative as the Québec we serve.

It’s about putting our capital to constructive use – for our own good, and for the greater good.

******

Two weeks ago, when I announced that I would be leaving la Caisse early next year, I wrote a letter to our people.

It was a letter of recognition – for their work, their dedication, and their insight over the years. It was also a letter of gratitude.

Our people are always focused on looking forward. Just once, I urged them to look back – and reflect on what they have achieved for Quebecers. 

Our formal role as an institution hasn’t changed over the past decade. 

What has changed is how we do it. 

We are proof that a pension fund can build useful things – and make good returns.

It can reduce emissions – and make good returns.

It can improve the daily lives of people around the world – and make good returns.

At la Caisse, we are showing that a pension fund can invest constructively – and make good returns.

To Quebecers, I say: We are a community of eight million people – a small population in a big world.

Our people are always focused on looking forward. Just once, I urged them to look back – and reflect on what they have achieved for Quebecers. 

Together, we have created, sustained and grown a fund that today manages more than $330 billion in assets.

A fund that is recognized and respected around the globe. Not only for making returns – but for making a difference.

As la Caisse was being created, Jean Lesage said “nous sommes déjà en marche vers une nouvelle étape.” 

Today, more than half a century later, we continue to move forward.

We have responded to our changing times.

We have put constructive capital to work. 

To Quebecers, I say: Look with confidence at la Caisse.

And look at it with pride.

Pride in its achievements. Its success. And in its future.

There are a lot of big challenges out there. Through la Caisse, Quebecers can know they are part of the solution. 

In today’s world, that’s something to be proud of.

Thank you.

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