South African prison scandal raises concerns over Caisse’s G4S connectionsGeoffrey York and Nicolas van Praet | The Globe and Mail
Even before this latest scandal, questions were being raised about why a Canadian corporate pillar like the Caisse would jump into the security industry and, later, associate itself with a company like G4S, which has a checkered recent history. Critics say the pension giant, which administers the retirement funds for thousands of public-sector employees, has no business being in the security sector and that the risks outweigh the returns. Others say it should use its muscle to push Allied harder on cleaning up G4S – and be fully transparent about its concerns.
“Doing something means either leaving or trying to be an agent of change,” said Yan Cimon, a specialist in corporate strategy and governance at Quebec City’s Laval University. “It’s clear that the status quo is not enough. You cannot sit back and wish for that G4S experience in South Africa to go away.”
Pension fund investments around the world are coming under increased scrutiny as environmental, social and governance (ESG) standards gain importance. Observers are asking whether it’s appropriate to direct retirees’ money into shares in gun manufacturers, oil and gas producers, and other companies often seen as offside on human progress efforts.
The Caisse has a policy on responsible investment in which it cautions it might invest in sectors that “may appear problematic from the standpoint of social responsibility.” It says it approaches those investments in part by taking a “collaborative approach” with the companies it holds in its actively managed portfolios, which includes communicating directly with a company’s executives or directors to discuss concerns.
The Globe and Mail sent the Caisse a series of questions about the South African controversy, and Allied’s ownership of G4S. The fund manager did not directly answer those questions but spokesman Conrad Harrington said it was following the situation in the country closely and takes any human-rights allegations “very seriously.”
Caisse “is one of the world’s most respected investors when it comes to ESG criteria – which we apply rigorously and consistently,” Mr. Harrington said in an e-mailed response. “There is no exception with this investment and we have an active ongoing dialogue with the company across a number of strategic matters. When Allied acquired G4S, they communicated plans to evaluate options for certain non-core businesses and these conversations are ongoing.”
The Caisse bought into Allied Universal in 2019 in a deal that valued the security company at US$7-billion, citing the industry’s organic growth and consolidation potential. It held a 27.7-per-cent stake in the company as part of $402-billion in assets under management at the end of 2022, according to its latest annual report; and it has two directors on Allied’s 11-member board. The largest shareholder in Allied is a group of funds controlled by New York-based private equity firm Warburg Pincus LLC.
Some say the Caisse should consider selling its investment in Allied. They argue staying in reflects poorly on the pension fund’s own reputation, particularly if the U.S. company remains in the business of private prisons through its G4S ownership.
Caisse has a responsibility to ensure that its investment complies with laws and international standards on corruption, Mr. Baker said. “Given controversies like the one G4S is currently facing in South Africa, and the poor investment performance for the private prison industry, it is unclear why CDPQ, Allied Universal and G4S are still in the private prison business,” he said.
Others have a different view. Pulling out of Allied altogether is the “easy” route, said Patric Besner, vice-president of Montreal’s Institute for Governance of Private and Public Organizations, a think tank. Staying in and pushing to influence the company to have better metrics and better governance is a harder path but the one that might yield better outcomes in the long term, he said.
“The problem is that if they pull out, there will be no force to encourage these corporations to act better and improve their ESG and improve their environmental rules and regulations,” Mr. Besner said.
Pension funds in Norway and New York have divested themselves from G4S in recent years. Norges Bank Investment Management, which manages Norway’s government pension funds, sold its shares in G4S after its ethics council decided there was an “unacceptable risk” that the company is responsible for “serious or systematic human-rights violations.”