CDPQ rejects seven investments based on ‘inadequate’ tax practices

The influential Canadian investor outlined its efforts to promote 'tax best practices' in its 2022 sustainable investing report.

Caisse de dépôt et placement du Québec, the C$401.9 billion ($295 billion; €267 billion) Canadian investor, rejected seven investment opportunities in 2022 due to “inadequate” tax practices, according to its annual Sustainable Investing Report.

The pension and insurance fund investor has made taxation “one of the pillars of its social commitment”, wrote Steve Bossé, vice-president, finance & tax at CDPQ, in an emailed statement to New Private Markets. The investor published its first international taxation commitment in 2017, Bossé added: “We analyse each investment opportunity – in both private and public equity – and across all asset classes to ensure our stringent criteria are met.”

Last year, as well as rejecting seven opportunities, the investor’s tax team intervened in five investment processes “to influence these companies to adopt better tax practices, thus enabling us to approve the investment”, the investor reported. These actions followed the issuance of 136 “pre-investment notices” based on its taxation commitment criteria “to determine whether CDPQ should proceed with a transaction”.

CDPQ is an influential investor in private markets. It has nearly 60 percent of of its assets – around C$182 billion – invested in private equity, infrastructure and real estate. It is not clear, however, whether the opportunities described above were in public or private markets or a mixture of both; CDPQ declined to elaborate.

CDPQ’s taxation commitment, detailed here, can be summarised as:

  • “Investments must be subject to a consolidated tax rate of at least 15 percent, no matter where they are made.”
  • Investment structures must be consistent with BEPS guidelines.
  • Where CDPQ wield’s sufficient influence in a structure, it encourages investment partners to set up outside of “low-tax jurisdictions”.

The investor reviewed its portfolio in 2021, identifying 13 companies paying a tax rate of less than 15 percent. In 2022 it analysed and engaged with these investee companies and found three that did not meet its criteria. CDPQ “therefore decided to proceed with an orderly divestment from one company and to engage in dialogue and continuous monitoring in the other two cases, which are illiquid assets,” it wrote in its sustainability report.

This year it is conducting a review of 11 additional holdings, having conducted another portfolio review in 2022.

It is still unusual for asset owners to treat taxation as a sustainability or ESG issue. “To our knowledge, we are still world leaders in this area, but we also see select peers, principally in Europe, having a growing interest,” said a spokesperson for CDPQ.

Danish public pension fund ATP, which has DKr310 billion (€42 billion; $46 billion) in assets and is active in private equity, real estate and infrastructure, is one such peer. In its tax policy it describes agressive tax planning as “going against what ATP stands for as a responsible investor”.

“Not everybody has welcomed ATP’s tough line against aggressive tax planning,” the policy states. “In some cases this has meant ATP has turned down investment opportunities”.