The CPPIB drama over CoreCivic and Geo Group comes to a close

The Canada Pension Plan Investment Board (CPPIB) is selling stakes in two American prison companies. ESG expectations and concerns about reputational risk fueled the divestitures.

Canada’s largest pension fund had sold stakes in CoreCivic and Geo Group. Even though it had kept both prison firms in their passive portfolio, the $304 billion fund elected to sell them after a review of their holdings and strategy.

Bloomberg interviewed Deborah Orida, global head of active equities for CPPIB, earlier this week.

“We recognize that when it comes to reputation risk, it doesn’t matter how big or small the investment is,” Orida said. “For a long time, we’ve tried to incorporate reputational risk assessments into our due diligence process for investments, and after that controversy, we did take advantage of new tools and ways to broaden our processes.”

Reputational Risk for the Canada Pension Plan Investment Board

The Canada Pension Plan Investment Board has taken hits from the media after it invested in the two prisons. Last year, Canadian activists expressed outrage that the CPPIB had invested $5.9 million into the two largest private prison firms in the U.S. Those firms had detained migrants attempting to enter the United States illegally.

Activists argued that the pension board had made roughly 20 million retirees complicit in the detention centers’ practices.

The CPPIB responded that its investment in the two companies represented just 0.001% of its holdings. That said, criticism against the pension plan accelerated from public leaders.

Canada Pension Plan and ESG Standards

While public pressure centered on the ethics of the prison industry, performance has come into focus.

Orida told Bloomberg this week that the CPPIB is seeking strong returns. Sustainable investments – with a focus on ESG standards – have beaten their non-ESG equivalents this year. Furthermore, Morningstar data cites an outperformance for 73% of its ESG indexes.

“We are not looking to sacrifice returns, but rather to make the best decisions about risk-adjusted returns,” Orida said. “Investing in ESG strategies and doing climate-change risk opportunity assessments is not a trade-off with the return; it’s part of what we need to do to make good long-term investments.”

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