Report date: July 14, 2022
1. Please provide your ESG-related policies.
Please refer to the attached “Appendix I Responsible Investing Policy”, “Appendix II Stewardship & Engagement Policy” and “Appendix III Voting Rights Policy”, and “Appendix IV Climate Related Disclosure”.
2. Are sustainable investing and ESG factors integrated into your investment process and portfolio management decisions? If yes, please provide details.
ESG factors are integrated into CC&L’s quantitative investment process as systematic risk factors, as well as predictors of stock-specific risk. In 2021, the quantitative equity team began incorporating MSCI carbon emissions data directly into its risk management framework in all its quantitative strategies.
CC&L expects the carbon emissions associated with the portfolio to align with that of the benchmark over the long term, with small fluctuations (positive or negative) over shorter periods.
CC&L will provide a carbon footprint report comparing QEM Strategy vs the benchmark based on MSCI data on a quarterly basis on request.
Within the three different pillars, MSCI ESG Ratings identify 10 themes and 37 key issues which are highlighted in the below table.
3.a. Are you a signatory to the UNPRI?
Yes, CC&L has been a signatory to the UN PRI since 2015
3.b. If you are signatory to other coalitions, please list them.
Canadian Coalition for Good Governance
CC&L is an active member in the Canadian Coalition for Good Governance. In addition to CC&L’s engagement activities, the firm collaborated extensively with the Canadian Coalition for Good Governance as an active member of this organization. CC&L’s Head of Client Solutions and a director at CC&L, is a director of the CCGG
International Corporate Governance Network (ICGN)
In July 2019, CC&L became supporters of the International Corporate Governance Network (ICGN) through its affiliation with member CC&L Financial Group. This membership complements CC&L’s active involvement in the Canadian Coalition for Good Governance.
Responsible Investing Association (RIA) Canada
CCLFG is a member of the RIA Canada. As such, CC&L partakes in networking events and educational sessions.
Task Force on Climate Related Financial Disclosures (TCFD)
In June 2021, CC&L endorsed the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD). In doing so, CC&L actively encourages investee companies to incorporate the TCFD recommendations in their future disclosures.
Climate Engagement Canada (CEC)
In October 2021, CC&L became founding participants in Climate Engagement Canada, a Canadian-led collaborative engagement platform to drive broader, more consistent dialogue between finance and industry on climate risks and opportunities. The goal of the engagement is to educate company boards and senior leaders on the concerns and expectations of the financial sector as they relate to a timely transition to net-zero by 2050, spur organizational change, and move Canada forward on achieving commitments to the Paris Accord. CC&L will have more information on this initiative at a later date.
Examples of collaborative initiatives CC&L has participated in:
- In 2016, CC&L’s first full year as a signatory to the UN-backed Principles for Responsible Investment (PRI), CC&L signed on to a UN PRI collaborative initiative, the Statement on ESG in Credit Ratings and Analysis. This statement encourages credit rating agencies and fixed income investors to formally integrate ESG factors into their credit ratings and analysis.
- In 2017, CC&L endorsed the CCGG’s proposed amendments to the Canada Business Corporations Act as set out in Bill C-25. Proposed amendments included adding a majority voting system for director elections, annual individual elections of directors, and diversity disclosure.
- In January 2020, CC&L signed on to a letter put forward by the UN PRI to be sent to the SEC which voiced concerns over proposed rule changes related to proxy voting. The proposed changes would make it meaningfully more difficult for shareholders to put forward shareholder proposals and would hinder the independence and timeliness of proxy advisor recommendations such as those CC&L utilizes from ISS.
- In September 2020 CC&L signed on to the Responsible Investment Association’s (RIA) Canadian Investor Statement on Diversity & Inclusion. The Statement acknowledges the existence of systemic racism and its impacts on Black and Indigenous communities and People of Colour in Canada and globally and asks Canadian public companies to endeavor to increase transparency, adopt policies and expand and disclose organizational efforts to address barriers to diversity and inclusion.
- In June 2021 as members of the CCGG, CC&L supported a submission sent to the US Securities & Engage Commission (SEC) in response to the SEC’s request for public input on the topic of climate change disclosure. In this letter the CCGG advocated for increased disclosure, support for the Task Force on Climate-related Financial Disclosure (TCFD) as an appropriate framework for climate-related financial disclosures and indicated support for the International Financial Reporting Standards Foundation’s (IFRS) initiative to establish an International Sustainability Standards Board (ISSB) as a global standard setter to achieve consistency and global comparability in sustainability reporting.
3.c. Indicate any other international standards, industry guidelines, reporting frameworks, or initiatives that guide your responsible investing practices.
Please refer to the response to question 3 b) above
4. Please describe how ESG oversight and integration responsibilities are structured at your firm, including the process for escalation of key ESG issues. How do you obtain ESG information/data (e.g. public information, third party research, reports and statements from the company, direct engagement with the company)?
The CC&L Board of Directors has ultimate responsibility for the firm’s approach to Responsible Investing (RI). In 2015, the Board established the CC&L ESG Committee comprised of leaders from each of our investment teams, our client solutions team, and compliance. The ESG Committee meets at least quarterly, however, in practice, meetings and discussions are more frequent. The composition of the Committee was purposefully created in order to facilitate the flow of information between the Committee and the investment teams as well as to foster dialogue across investment teams. The CC&L ESG Committee reports directly to the Board and its mandate is to oversee and coordinate firm wide RI activities including:
- Integration of ESG factors in our investment processes,
- Education of our teams including the internal communication of industry best practices and gathering of team insights regarding RI,
- External communication efforts including reporting to our clients on RI issues,
- Stewardship and engagement practices, including proxy voting,
- ESG related policies and guidelines, including our proxy voting policy,
- Oversight of our commitments under industry collaborative initiatives, including as a signatory to the UN-backed Principles for Responsible Investing (PRI),
- Review and evaluation of additional industry collaborative initiatives, and
- Most importantly, recommendations to our investment teams and our Board of ongoing improvements in all of these areas.
Each of the investment teams are responsible for ensuring the firm’s ESG policies are being implemented.
The CC&L ESG Committee is comprised of the following individuals:
The ESG Committee and investment teams also receive the support of the centralized Stewardship & Engagement (S&E) team, who assist with direct corporate engagement, collaborative initiatives and proxy voting.
While not specifically part of our quantitative equity process, the S&E team provides support to CC&L’s fundamental equity and fixed income analysts and portfolio managers to more proactively engage with investee companies, collaborate with like-minded investors and facilitate proxy voting.
Our engagement activity focuses on the Canadian universe where we believe we have the largest influence given our holdings across our fundamental and quantitative mandates. The outcomes benefit all of our Canadian strategies, including our Canadian quantitative mandates.
ESG factors, using MSCI ESG rankings are integrated into CC&L’s quantitative investment process as systematic risk factors, as well as predictors of stock-specific risk. In late 2021, the quantitative equity team began using MSCI carbon emissions data to manage carbon exposures in all its quantitative strategies.
In addition, the global proxy research and voting services of Institutional Shareholder Services Inc. (ISS) are employed to help analyze and vote proxies on behalf of CC&L’s clients. ISS prepares the voting recommendations in accordance with the CC&L’s customized guidelines for all items for which it is entitled to vote.
5. What channels do you use to communicate ESG-related information to clients and/or the public? Do you produce thought leadership (written reports and publications)? If so, is the information available to the public? Please provide links, if applicable.
As a signatory to the UN-backed PRI, CC&L is required to report annually on ESG related activities in accordance with the PRI reporting framework. The firm’s PRI Transparency Reports are available on its website.
CC&L’s proxy voting records are provided to clients quarterly and additional details are made available upon request.
CC&L’s first annual Responsible Investing Update was sent to clients in November 2019 and annually thereafter. These updates provide information on the firm’s ESG and active ownership activities. Additional interim information is always available to clients upon request.
In July 2021, CC&L endorsed the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. As official supporters of the TCFD, CC&L published its own TCFD-aligned disclosures and will continue to advocate for further adoption of the recommendations in their engagements with issuers. CC&L will provide carbon related exposures for their long-only equity portfolios on request.
All of the firm’s RI policies are available to clients annually as part of the communication of CC&L’s governance documents, and are also available on the firm’s website.
Please refer to the attached “Appendix I Responsible Investing Policy”, “Appendix V Responsible Investing Update”, “Appendix VI CC&L PRI Transparency Report” and “Appendix IV Climate-Related Disclosure Report”.
6. Do you have periodic reviews of your ESG process/approach to assess its effectiveness? What are the results? What would cause you to disregard ESG issues in your investment/analysis decisions?
The ESG Committee sets out an annual project plan at the beginning of each calendar year for Board review and approval. Additional projects may arise throughout the year, however, and the Committee is flexible in adding new initiatives to their agenda as needed.
For example, in 2022, CC&L’s ESG Committee is examining all of their practices to ensure CC&L is adhering to best practices in their overall approach to ESG and finding ways to improve in all areas. We will provide updates in future correspondence as these are completed.
In addition, the Quantitative Equity team undertakes regular research projects in order to find ways to improve the integration of ESG factors into our investment process. The following provides a summary of the research undertaken over the last 7 years.
- In 2015, the Quantitative Equity Team undertook their first formal research project to examine the risk and reward prospects for each individual component of ESG as well as a composite of all three factors within the quantitative model. The key findings from the research concluded at that time was that there was an overlap between ESG scores and the existing alpha and risk factors in the quantitative model. For example, high ESG stocks tended to be large cap stocks (likely because these companies are under pressure to conform to higher standards and also have the resources and capacity to do so) and stocks with low volatility (aside from being large cap, tended to focus on long-term goals and transparency of management). A relationship was also found between ESG scores and sector classification. For example, energy stocks tend to have lower environmental scores.
- While each of the ESG pillars and the composite did predict returns, the explanatory power of these factors was very low in the context of the model’s existing alpha and risk factors. In addition, the data quality and availability at the time was quite poor. As a result, the Quantitative Equity Team concluded that the model implicitly captures ESG factors and there was little remaining value to incorporating the factors into their model.
- In 2018, in conjunction with the CC&L ESG Committee, the Quantitative Equity Team undertook a project to review the quality of the available data and methodologies around measuring ESG risks. This was spurred by the last review in 2015 and therefore, a further project was initiated to re-evaluate the potential benefit of using this data for CC&L’s investment processes. The data review was completed in 2018 and the evaluation of the impact on the model was completed in late 2019. The results from this project indicated an improvement in the data and showed a modest improvement in predictive risk forecasts. The team incorporated E, S, and G rankings as systematic risk factors, as well as predictors of stock-specific risk, in the quantitative investment process in July 2020.
- CC&L’s Quantitative Equity team conducted a review of third party carbon data and measurement methodologies for in-house research and carbon measurement. In 2021, the quantitative equity team began incorporating MSCI carbon emissions data to manage carbon exposures for all quantitative strategies.
All of CC&L’s investment strategies incorporate the assessment of ESG factors in their analysis of securities. We do not anticipate disregarding ESG factors at any point in the future, as we believe these factors form an integral part of the analysis and research we undertake for each of our strategies.
7. Describe how you identify, assess, and manage climate-related risks.
At the strategy level, all of CC&L’s quantitative equity strategies utilize carbon data from MSCI to manage carbon exposures. This is in addition to the inclusion of MSCI ESG Ratings, which are integrated into the quantitative investment process as systemic risk factors as well as predictors of stock-specific risk. Portfolio carbon data is also reported to the CC&L Investment Risk Committee on a monthly basis.
CC&L’s broader approach to climate risk is documented in the firm’s Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosure published on our website.
At the firm level we also utilize engagement, both direct and collaborative, to address climate risk. For example, in 2021 CC&L became founding participants in Climate Engagement Canada (CEC) as part of Connor, Clark & Lunn Financial Group. CEC is a Canadian finance-led collaborative initiative to drive dialogue between the financial community and Canadian corporations on climate-related risks, opportunities and transition to a net zero economy.
Finally, in spring 2022, CC&L’s proxy voting guidelines were updated to withhold votes from certain directors if a company has not established appropriate climate-risk oversight.
Please refer to the attached “Appendix IV Climate Related Disclosure”.
8. Describe the climate-related risks and opportunities you have identified over the short, medium, and long term.
CC&L’s strategy towards climate risk focuses on both our integration activities, which tend to reflect a shorter-term time horizon, and our stewardship activities that reflect longer term advocacy. Integration of climate risk in the quantitative equity team’s strategies involves use of carbon data from MSCI to manage carbon exposure as well as integration of ESG Ratings from MSCI as systemic risk factors as well as predictors of stock-specific risk. MSCI’s ESG Ratings take into account key issues such as carbon footprint, product carbon footprint, financing environmental impact and climate change vulnerability.
9. Describe the resilience of your investment strategy, taking into consideration different climate-related scenarios.
Within our quantitative strategies a disciplined risk management process is critical in our endeavor to deliver consistent excess returns for our clients. Our risk management framework ensures that we take investment risk only when warranted by an attractive investment return, and we otherwise minimize uncompensated risk exposure in portfolios. Within our process, risk management involves not only the monitoring of portfolio holdings but, more importantly, the direct integration of risk assessments into portfolio construction, ensuring that portfolio risk is calibrated to operate within mandate constraints in the context of the prevailing capital market environment.
To date, the team has found that ESG factors are effective at explaining systematic risks however are not meaningful at explaining persistent out/under performance of securities. As a result, environmental, social, and governance factors are currently included in CC&L’s risk model both as systematic risk factors as well as contributors to stock-specific risk forecasts but do not contribute to CC&L’s return forecasts. The proliferation of ESG aware strategies over the past several years has contributed to ESG factors becoming increasingly important systematic risks going forward. This management of risk is an important aspect of our process that enables portfolios to add value through different environments.
At a firm level, we do not take into consideration different climate-related scenarios for our portfolios, including a 2° Celsius or lower scenario.
That said, CC&L’s Investment Risk Management Committee is responsible for risk oversight of the firm’s investments. This committee reviews portfolio carbon metrics and ESG scores on a monthly basis.
10. Do you track the carbon footprint of portfolio holdings? If yes, please describe the methodology and metrics used, and whether you have a set target for reducing the portfolio's footprint.
Yes, CC&L sources carbon emission data from two different vendors. We measure portfolio level carbon intensity, among other metrics, using a reporting tool from Institutional Shareholder Services (ISS). We also subscribe to raw carbon emission data from MSCI to manage carbon exposures for all quantitative strategies. CC&L Investment Management will provide carbon footprint reporting against the QEM benchmark based on MSCI data on a quarterly basis, if desired.
CC&L subscribes to raw carbon emission data from MSCI to manage carbon exposures for all quantitative strategies. The Quantitative Equity team manages portfolio carbon exposure such that it is not materially over that of the benchmark long-term, though there may be fluctuations (positive or negative) over the shorter term. The carbon footprint is measured against the QEM benchmark based on MSCI data on a quarterly basis.
11. What are your firm's emissions? Please demonstrate how/whether you are taking steps to reduce these emissions.
CC&L does not currently have its firm level GHG emissions. That said, in December 2021, CC&L Financial Group retained an external consultant to assist with the measurement of our corporate carbon footprint. The initial aim of this project is to establish an understanding of the GHG emissions associated with our operations. With that understanding, we are looking forward to developing strategies to implement changes and initiatives that will help lessen our impact on the environment, and in particular, our carbon emissions. We expect to continue measuring our corporate GHG emissions on an ongoing basis as part of this initiative.
12. For the mandate you manage for Queen’s, what percentage of equity holdings (if applicable) have credible net zero commitments?
CC&L does not have current statistics on the number of issuers that have made net zero commitments in our portfolios.
13. How do you assess the credibility of a company’s emission reduction targets?
Assessing the credibility of individual company’s emission reduction targets is not part of our quantitative investment process.
14. What forward-looking metrics do you use to assess an investment’s alignment with global temperature goals?
As noted, CC&L’s Quantitative Equity team integrates ESG factors using MSCI data into its investment process as systematic risk factors as well as predictors of stock-specific risk. MSCI’s ESG ratings include forward looking assessments such as whether an issuer has made carbon reduction targets.
15. Please provide the composition of your senior leadership team and board of directors, including women and visible minorities. How do you encourage diversity of perspectives and experience?
- Currently 33% of CCLIM overall are female. CC&L Investment Management currently does not track minority, legally protected racial or ethnic groups, disability or protected veterans.
- Currently 23% of CCLIM’s owners are female. CC&L Investment Management currently does not track minority, legally protected racial or ethnic groups, disability or protected veterans.
- Currently 11% of the board of directors are female. CC&L Investment Management currently does not track minority, legally protected racial or ethnic groups, disability or protected veterans.
- Currently 33% of CCLIM’s Q Investment Team are female. CC&L Investment Management currently does not track minority, legally protected racial or ethnic groups, disability or protected veterans.
CC&L’s approach to Diversity & Inclusion (D&I) is documented in the attached “Appendix VII CC&L Financial Group and Affiliate’s Diversity and Inclusion Policy”. The Policy aims to promote diversity across the entire organization, including through hiring and promotions, the composition of committees, decision-making, and in management composition. In line with this commitment, CC&L embraces the diverse perspectives of everyone who works at the organization. Across CC&L Financial Group, diversity means that the firm understands, accepts and values differences between people, including those of different ethnicity, genders, ages, religions, disabilities and sexual orientations as well as differences in education, personalities, skill sets, experiences and knowledge. Inclusion means that the firm endeavors to create a collaborative, supportive and respectful environment that promotes the participation and contribution of all people who work there. Through fostering an environment that focuses on diversity and inclusion, we want people to feel comfortable to be themselves and to contribute ideas, without fear of judgment or reprisals. It requires treating individuals in the same way, not more or less favorably because of any particular characteristic. This means that decision making about professional opportunities is matched to merit, unclouded by overt or unconscious bias.
While CC&L does not currently use fixed targets, as a part of CC&L Financial Group, CC&L has established five formal D&I objectives.
- Measure where the firm stands today and track progress over time
- Ensure awareness that D&I is integral to the firm’s culture and business goals
- Create a process to continually identify opportunities for improvement and prioritize solutions
- Enable people to be themselves at work to facilitate their happiness and productivity, and also foster better teamwork, collaboration and innovation
- Support D&I outside of the workplace through CC&L Foundation philanthropy and volunteerism
With regards to diversity and inclusion examples of initiatives include:
- In March 2021, the CC&L Foundation proudly announced the launch of a scholarship program for students from diverse backgrounds. To date, we’ve established several scholarships in partnership with Indspire, the Black Business and Professional Associate (BBPA), and the National Educational Association of Disabled Students (NEADS).
- Offered training to all staff on Indigenous Awareness and Unconscious Bias.
- Held various webinars and discussion groups about issues facing minorities and women in our industry.
16. What proportion of the time do you vote with or against management on shareholder resolutions, board appointments, and auditor appointments? What proportion of the time do you vote with or against management on ESG issues? How does this break down for climate, diversity, and remuneration issues?
CC&L QEM Strategy voting statistics for the reporting period 07/01/2021-06/30/2022:
17. What proportion of all independent ESG shareholder resolutions do you support?
CC&L QEM Strategy voting statistics for the reporting period 07/01/2021-06/30/2022:
18. What proportion of remuneration packages do you vote in favour of? In your view, is the current level of executive remuneration too high, too low, or about right? How is this view reflected in your voting record on remuneration?
CC&L QEM Strategy voting statistics for the reporting period 07/01/2021-06/30/2022:
19. Have you ever co-filed an ESG-related shareholder resolution? If so, how many and with what frequency?
CC&L has not yet filed any shareholder resolutions.
20. Have you ever voted against a director for explicitly ESG-related reasons? If so, why? If not, would you consider doing so in the future?
Yes, CC&L has customized proxy voting guidelines that reflect its views on ESG issues such as board diversity, board independence, auditor independence, climate risk, and more. For example, since the implementation of CC&L’s updated guidelines in April 2022, the QEM strategy voted against 19 proposals due to climate risk oversight failures and 50 proposals due to lack of gender diversity.
21. How many companies do you engage with? What proportion of your engagements focus on environmental and social issues? What are your engagement goals? Are these goals outcome/action-based (e.g. decreases in emissions or increases in number of women on the board) or means-based (reporting on emissions or number of women on the board)?
While not specifically part of CC&L’s quantitative equity process, the Stewardship and Engagement team provides support to CC&L’s fundamental equity analysts and portfolio managers to more proactively engage with investee companies, collaborate with like-minded investors and facilitate proxy voting. CC&L’s engagement activity focuses on the Canadian universe where they believe they have the largest influence given their holdings across their fundamental and quantitative mandates. The outcomes benefits all of CC&L’s Canadian strategies, including their Canadian quantitative mandates.
In recent years, CC&L’s engagement activity has increased its focus on climate and D&I issues. These themes align with our collaborative engagement activity, such as our endorsement of the TCFD recommendations, status as founding members of Climate Engagement Canada and our support for the Responsible Investment Association’s (RIA) Canadian Investor Statement on Diversity & Inclusion.
22. What is your policy around the escalation of engagement; how and why might this happen and what is the ultimate tool you might use (e.g. voting against board re-election, etc.)?
Where the outcome of our engagements do not satisfy the portfolio manager, various escalation steps may be considered including using the firm’s proxy voting rights in support of these engagement goals. Escalation activities will be undertaken at the discretion of the portfolio manager when the issue is deemed to be material and prior engagement efforts have not been successful. CC&L does not have any restrictions on the escalation measures that can be used.
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