In order for a company to successfully navigate turbulent times, we believe that it needs to have a strong governance culture and structure. These convictions are reflected in our day-to-day actions and in our demands to our portfolio companies.
Corporate performance and sustainability depend in part on robust ethical practices, sound risk management and the integration of ESG factors into business strategies and internal processes.
We apply strict governance rules to all our activities, in line with our principles of integrity and responsibility. We encourage our portfolio companies to do the same by adopting best practices in their organizations. Lastly, we closely monitor technology risks in order to protect our institution and our portfolio companies.
Sound governance is essential for good performance and optimal risk management.
Several laws, regulations and policies govern all of CDPQ’s activities. We apply robust governance rules, paying particular attention to integrity, ethics and compliance issues.
CDPQ is governed by three bodies (Figure 10):
These bodies have experienced members who work on developing appropriate strategies and action plans. This allows us to fulfill our dual mandate of generating long-term returns for our depositors while contributing to Québec’s economic development.
CDPQ relies on its Policy on Sustainable Investing to ensure that ESG principles are actively taken into account in its portfolio management. The Sustainability team develops this policy, which is then approved by the Executive Committee, followed by the Board of Directors. The policy applies to all asset classes and is adapted to the business environments of our portfolio companies and external managers.
Investment opportunities are submitted to several committees, based on certain thresholds, the targeted sector and the results of our ESG analyses. These committees may then authorize them or reject them (Figure 11). Investment committees (ICs) constitute the first level of approval and receive the largest volume of files to be analyzed. Some of the files are then presented to the Investment-Risk Committee (IRC), which consists of members of senior management. Lastly, the Investment and Risk Management Committee (IRMC) analyzes a limited number of files that meet specific criteria. The IRMC is composed of members of the Board of Directors.
In addition, to ensure oversight of our sustainable investing governance, the Executive Committee reports annually to the Governance and Ethics Committee of the Board of Directors, based on sectoral strategic plans and our climate strategy.
Throughout the year, we follow up with our portfolio companies on sustainability issues. Our teams pay close attention to disclosure, ESG strategy oversight, Board composition, business risk management and executive compensation.
We use the following levers of influence to support our portfolio companies in their adoption of best practices:
In 2022, we continued to provide post-investment support to companies. In Québec and around the world, we supported them as they integrated sustainability considerations into every aspect of their business. This is an integral part of our responsibility as a long-term investor, and it is a commitment that we reaffirmed when we signed Finance Montréal’s Statement by the Quebec Financial Centre for a Sustainable Finance.
CDPQ maintains an open dialogue with its portfolio companies and external managers to stay aligned on the issues to be monitored and the strategies to be developed. We use these meetings with Board members and management teams to present our priorities and provide recommendations on various topics, such as Board composition, risk management, and the integration of ESG factors into their business strategy (Figure 12).
In 2022, we organized 303 discussions with 175 portfolio companies to raise awareness on ESG issues. We did the same with 63 external managers. This open and constructive dialogue led some of them to make concrete commitments and improve their practices.
Shareholder voting is a preferred lever we use at shareholder meetings in accordance with our Policy Governing the Exercise of Voting Rights of Public Companies. This policy is updated regularly, based on developments in governance best practices and changes in our priorities.
In 2022, during our proxy voting season:
resolutions were voted on, including shareholder proposals (Figure 13) and management proposals, on several topics
shareholder meetings were held by our portfolio companies
Several topics were addressed, including:
As full members of our teams, our operating partners support our efforts to promote sustainable investing to the Boards of Directors of our portfolio companies by bringing our priorities to their attention. This approach is used in both Infrastructure and Private Equity, with a focus on assets for which CDPQ has a position of control or influence.
To that end, our operating partners work with management teams to establish priority areas and objectives, define underlying initiatives and ensure internal and external accountability. These discussions address key issues such as carbon footprint, climate resilience, management and disclosure practices, DEI, governance, cybersecurity and human capital management.
With the growing number of cyberattacks and the emergence of disruptive technologies, technological risks are constantly on the rise and pose a threat to our operations as well as those of our portfolio companies. In order to monitor and prevent these threats, we have several processes in place throughout our activities.
We perform sectoral analyses and conduct regular reviews of the risks in our total portfolio. We also conduct cybersecurity analyses of our portfolio companies and develop risk mitigation plans as required. We support our investment teams and play an advisory role with companies, both in terms of prevention and in responding to incidents. Furthermore, in some cases, our recommendations need to be implemented before an investment is made.
We periodically review our portfolio companies’ exposure to disruptive technologies. We also assess their level of resilience within their industry as well as their digital maturity and how they are adapting to new technologies.
In 2022, we refined our analysis model in order to have an overall indicator that reflects the issues with significant impacts on a company’s technology posture.
We also provided training internally and to our portfolio companies, external managers and operating partners on timely subjects such as the management of ransomware incidents and cyber insurance. This type of initiative is designed to promote the use of best practices. In several cases, we have seen significant progress in our portfolio companies, particularly in terms of cybersecurity. This has reduced the level of risk.
In 2022, our teams performed 325 technology risk analyses.
Pomerleau, one of Canada’s largest construction companies, released its first ESG report last year. The report mentions the call made by CDPQ and other major public contracting authorities to accelerate the construction industry’s shift toward more sustainable practices.
This year, we continued to work with the management of the Pomerleau Capital subsidiary to help them develop a sustainable investing policy. Our teams shared the best practices we have observed among our external managers and portfolio companies, as well as our approach to infrastructure investment.
We supported Grupo Diagnóstico Aries, one of the fastest-growing medical diagnostic services groups in Mexico, in developing its ESG strategy. We met with their teams on several occasions in 2022 to present our approach, vision and expectations, emphasizing the most important ESG factors in the health care industry.
These discussions enabled the company to develop the foundations of its ESG strategy and provided the necessary tools and processes to move forward. We plan to continue working closely with the company in 2023 as it further implements its ESG initiatives into its operations.
Based in Québec City, this leading industrial technology group (formerly Eddyfi/NDT) is focused on using sophisticated diagnostic tools to better monitor the condition of infrastructure. Previan develops sensors, robots, software and specialized services to create a safer world for people, businesses and nature.
Since 2021, we have supported the company as it develops its ESG strategy and the resulting disclosures. We have shared our views as an investor on the appropriate disclosure measures to put in place. We have had opportunities to discuss a number of topics, including our approach to sustainable investing, ESG evaluations and sector-specific priorities, as well as industry best practices. Previan subsequently developed an ambitious ESG action plan with enhanced governance practices and a 1% commitment, under which the company will use its foundation to give back 1% of profits, 1% of equity, and 1% of employee time. This year, the company also published its first ESG report to present the progress made.