Canada-China Relations Committee on May 8th, 2023

[Paula Glick, Co-Founder, Honeytree Investment Management Ltd., As an Individual]

Thank you.

I thought I would introduce myself. I'm speaking more as an individual than as a member of my firm, although I think it's beneficial to understand where I'm coming from, which is from the perspective of my investment career and Honeytree today.

I will share that I spent the first years of my investment career working in positions that provided me with a broad understanding of the investment industry, working on the brokerage and capital market side of the business as a licensed adviser and as an institutional trader as well as a retail trader. I worked in the asset management world and portfolio management and operations. This was in the late nineties.

In the early 2000s, I started to look for something that would provide me with more purpose. That's when I started to learn about ESG. At that time, I had applied for a job with what is now one of the leading ESG research providers, Sustainalytics, which has recently been purchased by Morningstar. I spent nine years there, working with pension plans, foundations, endowments and asset managers, helping them to understand the benefits of ESG as well as how to integrate it or consider it in their processes.

I then moved to MSCI, which I think you might be familiar with. I spent five years with them. They were very involved in building up the ESG part of their business in conjunction with their passive index development as well as their risk management platforms. They were looking to expand their index capabilities in relation to various investors who wanted to align with ESG within that passive index context.

After the 14 years of combined time at these two leading ESG research and analytics firms, I developed a real understanding of how asset owners and asset managers consider and integrate ESG. When I started my own asset management firm, Honeytree Investment Management, I was very aware of some of the shortcomings in the ESG space and wanted to create something that would be a bit different.

I also went from the passive world right back into the active, which is the wrong direction for most of the world. Our approach is a bit different from how I was seeing things being done in the past.

To step back, I would say there are three main reasons that investors are interested in ESG, and they're often overlapping. For me, one is that you want to align your values, whether they are institutional values or personal values. Two, you want to make the world a better place. Three is financial performance. As I said, they're often overlapping. I will mention the fourth, which is when government gets involved and there is a forced nature to having to consider ESG whether you care about it or not.

It's in the context of those first three reasons that Honeytree was born. I would explain that our approach to investing is that we believe long-term performance is inextricably linked to making a direct, positive impact on a range of stakeholders. That includes the environment, employees, supply chains, customers and society as a whole.

This is our thesis of responsible growth, which is the idea that stakeholder-governed companies are more purpose-driven, provide more positive impact and ultimately deliver better long-term performance.

As part of this investment approach and this thesis, we are taking a very select approach to how we invest, and we have industries that we avoid. We also look for positive thresholds that companies can meet, obviously on the financial side of the equation, but also including environmental and social considerations.

I'll make it very easy for you here. We avoid dictatorships, so—

[The Chair, Liberal, Ken Hardie]

Thank you very much, Ms. Glick. We've come to the end of your five minutes.

We will now move to Dr. Ari Van Assche. You have five minutes or less, sir.

[Dr. Ari Van Assche, Full Professor, HEC Montréal, As an Individual]

Good evening Mr. Chair and committee members. It's a pleasure to participate in this meeting, and I would like to thank you for inviting me.

I'll be speaking here as an academic, and not as an investor.

My opening remarks will draw on my research on extended supply chain responsibility, which studies the efforts by governments and other stakeholders to increase the responsibility of lead firms for corporate misconduct that occurs in their global supply chains.

The central point I will make is that ending forced labour in global supply chains requires Canadian and Chinese companies to develop sophisticated new organizational capabilities that they currently lack. Creating these capabilities requires important structural changes that should not be ignored in the debates on extended supply chain responsibility policies. It also has implications for our discussions on the investments.

Forced labour continues to be an endemic issue in global supply chains. The committee has already heard testimony that large amounts of goods sold on Canadian markets are made with forced labour originating in, among other places, China’s Xinjiang Uyghur Autonomous Region. You have also heard testimony about the investment of Canadian pension funds in Chinese companies that have been blacklisted by the United States for their complicity in human rights violations.

Recognizing these concerns, the Canadian government has followed the leads of several other western countries and introduced legal frameworks designed to encourage corporations to take responsibility for tackling forced labour in global supply chains and even holding them legally liable for human rights violations.

This includes Bill S-211, which was passed last week. It requires companies to report on the policies they've implemented to reduce the risks of forced and child labour in the supply chains of Canadian firms. Currently there are other bills under discussion that would require companies to adopt mandatory corporate sustainability due diligence.

The young age of these extended supply chain responsibility policies in Canada and elsewhere implies that we still have limited information about their effectiveness. My own research on private governance programs suggests policies that impose a high supply chain liability on Canadian companies will compel critical structural changes in their supply chain models that are costly and require time to be developed.

Academic research on voluntary private governance programs highlights that it is difficult for well-intended companies to rule out labour violations throughout their global supply chains. In private governance programs, lead firms—big firms—generally impose supplier codes of conduct on their tier 1 suppliers that identify the ESG standards to which they need to adhere and explain the penalty for non-compliance. They next use social auditing to verify suppliers’ compliance to these standards and impose penalties if violations are uncovered. To ensure the standards cascade down to lower-tier suppliers, lead firms require their tier 1 suppliers to use the same private governance mechanisms on lower-tier suppliers, and this goes on and on.

Evidence shows that private governance programs work relatively well for detecting and dealing with labour violations among tier 1 suppliers with whom lead firms have long-standing contractual relationships. However, they fail to make a real change among lower-tier suppliers with whom lead firms have no direct contractual relation; these are often difficult to monitor by lead firms and sometimes even unknown to lead firms. It is unfortunately in these lower tiers of global supply chains that most human rights abuses happen.

Developing lead-firm interventions that can prevent labour violations in lower-tier suppliers is complicated and remains under-studied. However, what is known is that it requires lead firms to develop new capabilities that enable them to improve transparency, traceability, inclusiveness and, ultimately, control throughout global supply chains. This includes the development of supply chain mapping capabilities to improve their awareness of who is involved in their supply chains and where labour violations are most likely to sprout. It also includes the capability of supporting tier 1 suppliers to improve their monitoring of labour conditions among sub-suppliers and acting upon violations.

It also includes a capability of building new partnerships with NGOs and competitors to develop best practices on detecting and tackling forced labour—

[The Chair, Liberal, Ken Hardie]

Thank you very much, Mr. Van Assche. We've come to the end of your five minutes, but you'll have a chance to add to your comments when you're answering the questions from our members.

We'll now go to Ms. Coulson or Mr. Garant. Will you be splitting your time?

[Daniel Garant, Executive Vice-President and Global Head, Public Markets, British Columbia Investment Management Corporation]

No, I'll deliver the opening statement.

Thank you.

[The Chair, Liberal, Ken Hardie]

Very good, sir. Go ahead for five minutes.

[Daniel Garant]

Thank you.

Good evening, Hon. members of the Special Committee on the Canada–People’s Republic of China Relationship (CACN).

My name is Daniel Garant, and I'm the Executive Vice-President and Group Head, Public Markets at the British Columbia Investment Management Corporation, or BCI. I'm here with my colleague, Jennifer Coulson, who is the Senior Managing Director and Global Head, Environmental Social and Governance, or ESG.

We are joining you from the traditional territories of the Lekwungen people and the Songhees, Esquimalt and W_SÁNEC first nations, where we are happy to work, live and play.

We welcome this opportunity to appear before you to answer your questions and to share insights on how BCI responsibly builds financially secure futures for our clients. We thank you for your patience as we gathered the necessary information to give the committee a thorough and transparent picture of our industry before confirming our appearance.

We are based in Victoria, B.C., and support 32 public sector clients, which include 11 public sector pension plans, three insurance funds and various special purpose funds. BCI is one of the largest institutional investors in Canada, with approximately $215 billion currently under management.

BCI takes our responsibility as fiduciaries very seriously. We support more than 715,000 pension beneficiaries and 2.5 million British Columbia workers. We focus on the long term, looking 70 years ahead and beyond, to try to sustain those values for our clients. BCI is proud of our level of accountability, demonstrated through our unique governance structure as an agent of the B.C. Crown, including the majority of our board being client representatives and our sole share being held by the Minister of Finance for the province.

My role at BCI is to manage a diversified portfolio of global investments that include index and active management strategies with respect to fixed incomes, shares, derivatives, currencies and absolute return investment strategies. I have been involved in investment management for more than 30 years and have acquired experience in public and private assets.

My colleague, Ms. Coulson, has extensive professional experience in environmentally responsible investment and resource management at BCI, as the Global Head of ESG. Ms. Coulson and her team of 16 ESG experts ensure that these factors are incorporated into the organization's operations and our investment processes. Our global ESG factors strategy includes integrating ESG practices into investment decisions, promoting positive change through engagement and interventions with the responsible authorities, investing in sustainable opportunities and sharing knowledge with a view to well informed decision-making.

We go above and beyond in our reporting obligations and provide audited financial statements for all investment pools, proxy disclosure for all of our public equities, and annual reports that are available on our website. We believe taking ESG matters into account enables investors to better understand, manage and mitigate risk and take advantage of opportunities associated with long-term investments.

In our due diligence, we simply do not invest until and unless a complete ESG and risk review is done. There are no exceptions.

To assist the committee with its study, we have proactively submitted our inventory of investments, which is available on our website, along with our 2022 annual report on ESG factors, and our guidelines on proxy voting, which explain investor expectations. These documents illustrate the transparency we provide every year to ensure that clients, recipients and…

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Mr. Chair?

[The Chair, Liberal, Ken Hardie]

Mr. Garant, are you concluding...?

Oh, I'm sorry. Go ahead, Mr. Trudel.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

I'd like to point out that the interpreter has said the microphone is faulty and that she is going to stop working. That's a problem.

[The Chair, Liberal, Ken Hardie]

We are continuing to have some audio difficulties, Mr. Garant, and we're unable to proceed with the French translation.

If you conclude your remarks en français that will be, I think, helpful. Can you speak a little louder too, please, sir?

[Daniel Garant]

I will do that. Thank you.

We know that the committee is focusing on institutional investments in China, but we also hope to be able to give a summary of our diversified global investment strategy, which to some extent includes China.

BCI's strategy emphasizes an active management investment approach.

[The Chair, Liberal, Ken Hardie]

I'm sorry, Mr. Garant. Your audio difficulties have now extended to the English translation. I'm afraid we'll have to tidy things up here.

We'll go to Mr. McLennan with the Ontario Teachers' Pension Plan.

Sir, you have five minutes.

[Stephen McLennan, Executive Managing Director, Total Fund Management, Ontario Teachers' Pension Plan]

Good evening.

Thank you for inviting me here this evening. We believe the work of your committee is very important.

I'll be giving my presentation in English, my first language.

Thank you for inviting Ontario Teachers' to appear before this committee. I value the opportunity to be here today.

My name is Stephen McLennan. I am the executive managing director of total fund management. I have been with Ontario Teachers' for 20 years. My role at Ontario Teachers' is to oversee the total fund management department, which, among other things, coordinates the plan's asset allocation and top-down portfolio construction.

I would like to use my opening remarks, given the committee's focus, to introduce the Ontario Teachers' Pension Plan and describe how and where we invest.

The Ontario Teachers' Pension Plan was established in 1990 as an independent pension plan. We are a non-share capital corporation governed by the Teachers’ Pension Act in Ontario. The pension plan is jointly sponsored by the Government of Ontario and the executive of the Ontario Teachers' Federation. Together they ensure that the plan remains appropriately funded.

Our professional board members are appointed by our two sponsors. Our board oversees the management of Ontario Teachers'. Our board members are required to act independently of both the plan sponsors and management, and they must make decisions in the best interests of all plan beneficiaries. Day-to-day activities are delegated to the professional staff of Ontario Teachers', who are responsible for investing assets and administering plan benefits. As an Ontario-based pension plan, we are regulated by the Financial Services Regulatory Authority of Ontario.

As at December 31, 2022, we had $247.2 billion in net assets. We have been fully funded for 10 straight years and have a $17.5-billion funding surplus. Since inception, we have earned a net fund return of 9.5% per year.

We are a long-term investor with an investment horizon measured in decades. A key tenet of our investment approach is diversification. This includes diversification by asset classes, such as equity and debt, as well as by regions, sectors and time horizons. This allows us to create a balanced portfolio that is designed to be resilient across a number of different economic environments and circumstances.

As such, we have a global portfolio spanning multiple asset classes. At the end of 2022, we had investments in over 50 countries, with 85% of our investments in developed markets, such as North America and Europe. The remaining investments are in developing markets, primarily within the Asia-Pacific and Latin America regions. Here in Canada we invest in assets from coast to coast, in such companies as Atlantic Aqua Farms in P.E.I. and Global Container Terminals in British Columbia.

In addition to diversification, another key to our investment approach is a keen focus on risk management. Our board, with the support of the executive team, establishes our risk appetite, which in turn guides management actions, including those relating to overall risk parameters, as well as underwriting various types of risks, including geographic and country exposures. We actively monitor and assess geopolitical developments as a core input into the investment process.

As part of our underwriting process, we perform a variety of ESG-related risk and opportunity analyses to ensure that the businesses we invest in are built for long-term sustainability and success. This analysis is conducted by internal staff with support from time to time from investing partners and consultants.

Turning to Asia, we first established an on-the-ground presence in Asia through the opening of an office in Hong Kong, which gave us boots on the ground to manage investments in the region. Since then, we have established offices in both Singapore and Mumbai.

Today, while China is the world's second-largest economy and Canada's second-largest trading partner, it represents a relatively small proportion of assets, at 2.3% of the fund. In recent months, as we assessed the changing post-COVID economic environment, recent regulatory changes in China and the continued deterioration of U.S.-China and Canada-China relations, we reduced our investment activities in China and paused further private investments. We will continue to responsibly manage our existing investments in the country as well as in other countries in the region.

Thank you very much. I welcome any questions you may have.

[The Chair, Liberal, Ken Hardie]

Thank you very much, Mr. McLennan. We'll get to those questions right now.

We'll begin with Mr. Genuis for six minutes or less.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Chair.

Mr. Garant, you represent the British Columbia Investment Management Corporation, or BCI, which invests on behalf of major public sector clients in British Columbia, such as teachers, university employees, municipal employees, etc. I was struck by the fact that you began your statement with an indigenous land acknowledgement. I was struck by it because of how discordant it is with the complete disregard your investments show for the dignity and rights of the indigenous peoples of East Turkestan.

Your company, according to a report from Hong Kong Watch, invested about $35 million in Hikvision, as one example. Hikvision is directly complicit in the persecution and genocide of Uyghurs. Hikvision actually has developed ethnic facial recognition technology with cameras that identify Uyghurs and marks them out for particular persecution.

Mr. Garant, do you acknowledge your investments in Hikvision? How do you feel about those decisions?

[Daniel Garant]

We do invest both actively and passively, so I cannot speak specifically about this company, but in the broad index we're using for—

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

I'm sorry you can't speak specifically about that company, because that was my question. You must have expected it, coming before the special committee on Canada-China relations of Canada's Parliament.

Are you telling me you're unaware of whether your company has invested in Hikvision? I asked you to confirm that the information from Hong Kong Watch is correct. Are you invested in Hikvision?

[Daniel Garant]

We invested in broad index replication, so this is what it means when you buy pieces of a broad index. We don't make the specific choices of the underlying company. The index provided that.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Are the figures correct that you own $35 million of Hikvision stock? I mean, you choose to buy an index knowing what's in it, right?

[Daniel Garant]

Well, actually, when you buy an index, it's because you need to have broader exposure and you need liquidity for portfolio balancing purposes, so—

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

With all due respect, members of this committee know what an index is. They know why people buy indexes, but there should also be moral principles that underlying those decisions.

Are you prepared to acknowledge that you're invested to the tune of $35 million in Hikvision? It may be through an index or not, but that's not really the point. Do you think that's acceptable?

[Daniel Garant]

We're working with the index providers to improve what is in the underlying index for the benefit of our plan's beneficiaries. We need to have broad investments that are liquid for portfolio balancing purposes and liquidity, and—

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

But, sir, there's a genocide going on. Parliament has unanimously recognized a genocide targeting Uyghurs, and Hikvision cameras, which deploy race-based facial recognition technology, are an instrument of that repression.

Do you think that the people you invest on behalf of—teachers, university employees and municipal employees in British Columbia—think it's acceptable that you are defending investments in a company that is complicit in a genocide on the basis of, “Well, you need to diversify your portfolio.”

I mean, if you were investing on my behalf, I would take slightly less return in exchange for knowing that you're not invested in companies that are complicit in genocide. I don't think that's necessarily the trade-off, but I would accept that trade-off if that's what it was.

Do you think the people you're investing for would find this acceptable?

[Daniel Garant]

We're not very happy with some of the components of the index, and we're doing something about it, but—