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 Risk Management |
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The CPP Investment Board’s investment activities and business transactions expose us to a broad range of risks. The board of directors is responsible for ensuring that management has identified the principal ones and established appropriate plans to address them. Our Enterprise Risk Management (ERM) framework is the basis for managing the principal categories of risk.
ERM is an interactive and disciplined process. We apply it to each risk category in order to identify, assess, and determine appropriate mitigation. The ERM framework also calls for monitoring to provide a comprehensive understanding of the risks we must manage.
The risks inherent in our business are grouped into five principal categories:
Strategic Risk: This is the risk that CPPIB or one of its business units will make inappropriate strategic choices or be unable to implement selected strategies. Management conducts an annual review of our strategy and comparative advantages. This provides direction for our annual business plan. The strategy review and the business plan are approved by the board of directors, and management reports to them quarterly on progress against plan.
Investment Risk: This is the risk of loss inherent in pursuing investment objectives. It includes market, credit, counterparty and liquidity risks. Managing investment risk is a firm-wide, collaborative effort. We have rigorous investment decision-making protocols and independent measurement based on established benchmarks and practices. An active risk limit, approved annually by the board of directors, governs our ability to take additional risk to earn value-added returns. As well, investment program compensation benchmarks are adjusted for the degree of risk taken so there is no incentive to add undue risk.
Legislative and Regulatory Risk: This is the risk of loss due to non-compliance with laws, regulations and mandatory industry practices. Our Legal and Finance groups maintain oversight to ensure full compliance. There is a rigorous compliance framework in place and input is regularly sought from external counsel to ensure it reflects changes in laws and regulations.
Operational Risk: This is the risk of loss from inadequate or failed internal processes, people and systems. We manage operational risk through internal controls supporting an Operational Risk Management framework. These controls are subject to internal audit reviews and extensive analysis as part of the CEO/CFO certification of internal control over financial reporting. There are also rigorous protocols for implementing new technologies, and continuity plans for potential business interruptions.
Reputation Risk: This is the risk of loss of credibility or image due to internal or external factors. Reputation risk is often related to the risks cited above. The CPP Investment Board has established a culture based on strong ethics, which guide our decisions and activities. There is a comprehensive code of conduct, which, as an example, requires all employees and directors to disclose any personal trading or business interests that might lead to a real, potential or perceived conflict of interest.
We believe that a strong risk-aware culture underpins a successful ERM framework, and our ERM practices evolve with the growth of, and changes in, our organization.
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