MPs call for new measures to rein in Canadian pension investments in China

The House of Commons special committee studying Canada-China relations is urging the federal government to introduce new measures to prevent Canadian pension funds from investing in Chinese companies implicated in human rights abuses, corruption or threats to national security.

The committee’s report, tabled in the House of Commons this week, calls on Ottawa to, in partnership with provinces, look at drafting a list of companies in China that Canadian public pensions plans are prohibited from investing in, and push for greater reporting transparency for pension plan holdings.

“The Special Committee believes that Canadian pension plans should not be investing in companies in the PRC [People’s Republic of China] that engage in human rights abuses,” says the report. “Research and reporting from non-governmental organizations, journalists and academics has revealed that some Canadian pension plans are investing in such companies through passive investments, running contrary to the values of Canadians.

“There are currently no enforceable measures which prevent Canadian public pension plans from investing in companies committing or complicit in human rights violations.”

The committee heard from Sam Goodman, director of policy and advocacy at Hong Kong Watch, a U.K.-based charity that tracks violations of human rights, basic freedoms and the rule of law in Hong Kong and mainland China.

Goodman told the committee about potential links between major Canadian pension funds and Chinese companies associated with human rights violations against Uyghurs and other Turkic Muslims in Xinjiang.

A separate House committee reported in 2021 that China’s government was persecuting and repressing Uyghurs and other Turkic Muslims through pervasive state surveillance, the prohibition of religious practices, unlawful detention, forced labour, enforced disappearances, family separation, forced birth control and sterilization. That committee concluded these oppressive measures amount to genocide.

China denies it is engaged in any human rights violations against Uyghurs or other minority groups in China.

While many Canadian pension funds have divested themselves from direct investments in companies linked to Uyghur forced labour, Goodman told the committee last year that some pension funds invest passively in index-tracking funds, such as Morgan Stanley Capital International’s (MSCI) China Index and Emerging Markets Index, which include companies implicated in Uyghur forced labour.

Goodman told the committee last year that MSCI China and MSCI Emerging Markets hold 12 and 13 companies respectively that are linked to Uyghur forced labour.

In 2022, the Canada Pension Plan Investment Board (CPPIB) reported it had $6.4 billion exposed to MSCI China and $7.7 billion exposed to MSCI Emerging Markets.

In 2023, however, the CPPIB reported no exposure to MSCI China, but its exposure to MSCI Emerging Markets had grown to $16.1 billion.

“Sadly, the current information these funds provide publicly is far too opaque for the ordinary lawmaker, let alone the ordinary Canadian citizen, to have a proper understanding of their pension fund’s exposure to China,” Goodman testified.

“Most of the provincial and federal pension funds I’ve looked at do not publish a regular and up-to-date list of their full holdings. In some cases, the holdings listed are out of date by a year.”

The special committee recommends in its report that the federal government “request that pension pension plan regulators, including the Office of the Superintendent of Financial Institutions and provincial counterparts, consider creating a standardized transparency reporting regime for pension plans and institutional investors for active and passive investments.”

The committee said that, during the course of its study, it met with officials from several Canadian pension funds to discuss their exposure to investments in China, which range from 2 per cent to 10 per cent of investments under management.

Michel Leduc, senior managing director and global head of public affairs and communications at the CPPIB, told the committee earlier this year that just under 10 per cent of the fund’s investments are in China, but that includes investments in Alibaba and Tencent.

Those two companies, which are among China’s largest, have faced accusations that their technologies are used in censorship, mass surveillance and repression campaigns inside China.

Leduc told the committee the investment in Tencent was made nearly a decade ago but the fund is now monitoring developments with the company.

“We recognize that the organization has evolved and changed along with the issues associated with their operations. One example might be dual-use technologies. They were built for a particular intention, and then over time they may be used for intentions that were not contemplated at the time,” said Leduc.

“It is something that we are seized with and are monitoring very, very closely.”

As of March 2023, the CPPIB reported it held shares in Alibaba worth about $900 million and shares in Tencent worth about $1.7 billion. 

“Since the conclusion of hearings for this study, the Special Committee has learned from media reports that certain Canadian pension funds are pausing new investments in the PRC,” says the committee’s report.

“However, based on the suggestions of witnesses over the course of this study, there are additional tools that the federal government should consider to ensure that Canadian public pension funds are not complicit in human rights abuses.”

The report was tabled in the House of Commons on Wednesday. The federal government has 120 days to respond.