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July 24, 2020


Cannabis Situation Changes With Court Ruling

As medically authorized cannabis increases, self-disclosure policies and lawful testing are important to address for safety sensitive positions in fitness for duties policies, says a Fasken ‘HR Space’ in light of a Canadian appeal court overturning a lower court ruling that an employer could refuse to hire a worker with a disclosed use of medically authorized cannabis at a construction project. The Court of Appeal of Newfoundland and Labrador decided in International Brotherhood of Electrical Workers, Local 1620 v. Lower Churchill Transmission Construction Employers’ Association Inc. that the earlier decisions were not “reasonable” because the arbitrator failed to accommodate the worker to the point of “undue hardship.”  In three separate judgments, the court addressed undue hardship limits on the duty to accommodate a worker who uses medical marijuana in a safety-sensitive workplace. A grievor who used cannabis daily for pain management was refused employment at a construction project where he would have been involved in electric tower construction. All positions were designated as safety sensitive. An arbitrator decided that the grievor’s use of medically authorized cannabis created a risk of impairment on the construction project. The arbitrator also said that the employer’s inability to measure and manage that risk of harm constitutes undue hardship for the employer. The court of appeal, however, decided that even though it was accepted that there was no scientific or medical standard of assessing whether the grievor was impaired, that was not enough to establish accommodation. In order to discharge the onus to accommodate the grievor to the point of undue hardship, “… it was necessary for the employer to demonstrate that to assess the grievor for impairment by some other means on a daily or periodic basis would result in undue hardship.” Just because there is no reliable standard does not lead necessarily mean “…there is no means by which to determine whether an employee, by reason of ingesting cannabis, would be incapable of performing a specific job, including a safety-sensitive job.” Although this decision may be appealed, it should not be ignored., says Fasken. Although the duty to accommodate to the point of undue hardship is entrenched in Canadian arbitral and human rights jurisprudence, it continues to be challenging for employers to apply the duty in individual cases. As a result, before any employment related decisions are taken that adversely impact a worker, an employer must carefully conduct the accommodation analysis. As well, individualized duty of accommodation assessment options should be considered and applied consistently with the employer’s occupational health and safety and fitness for duties policies.

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CPP Investments Updates Sustainable Policy

The Canada Pension Plan Investment Board (CPP Investments) has updated its policy on sustainable investing, reflecting its increased conviction in the importance of considering environmental, social, and governance (ESG) risks and opportunities amid an increasingly competitive corporate operating environment. The policy reflects the growing body of evidence that integrating consideration of ESG-related business risks and opportunities are more likely to preserve and create long-term value for companies. The updated policy specifically outlines its support for companies aligning their reporting with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD). As an investor to whom boards are accountable, it asks that companies report material ESG risks and opportunities relevant to their industries and business models, with a clear preference for this disclosure to focus on performance and targets. It also reiterates the importance of asset owners like CPP Investments engaging with the companies in their portfolios, noting employees, customers, suppliers, governments and the community at large have a vested interest in forward-thinking corporate conduct and long-term business performance.

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Equity Helps DB Recover

Strong equity performance in the second quarter of 2020 helped Canadian defined benefit plans recover most of the investment losses experienced during the initial days of the COVID-19 pandemic, says the Northern Trust Canada Universe. Major equity markets responded favourably as economies reopened and stimulus packages gained traction, concluding the quarter with double digit gains. However, Katie Pries, president and CEO of Northern Trust Canada, says “there still remains a heightened level of uncertainty in the current environment as the pandemic continues to run its course” and “plan sponsors continue to persevere as they navigate on a path to sustainability.” Massive fiscal stimulus packages implemented around the globe, coupled with accommodative central bank policies, provided a solid foundation for the markets. During the latter part of the quarter, many countries slowly emerged from lockdowns and economies began to reopen, triggering early signs of improvement in economic activity and fueling investor optimism.

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Canadian Earnings Contract

The earnings season kicked off last week and, unsurprisingly, many firms faced steep contraction in revenues and earnings because of COVID. But investors probably won’t be intimidated unless there are negative surprises for the mega tech kings which have been driving the equity performance post-COVID, says BMO Global Asset Management. Across regions, the steepest earnings downgrades were found in Canada and (Europe, Australasia, and the Far East (EAFE) as earnings season kicked off. In ‘Bracing for bad earnings, not necessarily bad news,’ it says U.S. and emerging markets (EM) equities have held up relatively better. Underweighting in Canada and EAFE is based on expectations of greater economic and earnings damages from COVID. It expects this trend to continue over the remainder of the year as the economic normalization proves uneven across regions where the U.S. tech leadership continues. While stock prices have recovered much earlier than the economy, interest rates on U.S. treasury yields have remained well anchored. With many investors unconvinced of the sustainability of the ongoing market rally, coupled with central bank buying, demand for safe haven government bonds has been strong. The divergence between stock prices and treasury yields has been persistent since April and could continue until investors have greater conviction that the degree of long-lasting economic damages is minimal.

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ESG Now Considered Safe Haven

Sustainable and responsible investments are now regarded as ‘safe havens’ by the majority of investors, says Nigel Green, deVere Group’s CEO and founder. His group has found that 56 per cent of clients who seek to include environmental, social, and governance-orientated investments into their portfolios do so citing that such sustainable funds offer financial protection in times of uncertainty. A safe haven asset is a financial instrument that is expected to retain, or even gain value during periods of economic downturn. “It’s a phenomenon that’s particularly prevalent with millennials, with eight out of 10 putting ESG (environment, social, and governance) credentials at the heart of their investment decision-making process,” he says.

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‘Living Well’ Podcast Launching

Morneau Shepell will launch a weekly podcast. ‘Living Well.’ It will discuss an array of wellbeing topics with thought leaders and subject matter experts who will explore the physical, mental, social, and financial aspects of living well in this new normal. The weekly episodes are available for free on Apple iTunes, YouTube, Morneau Shepell’s website, through the WellCan app and websites, and more. The first three episodes of Living Well will centre on introducing the podcast, LGBTQ experiences, and the emotional toll of anti-racism advocacy.

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CDPQ Acquires Remaining Stake

ENGIE’s joint bid with Caisse de dépôt et placement du Québec (CDPQ) will see them acquire the remaining 10 per cent stake in Transportadora Associada de Gás S.A. (TAG), as part of the divestment process conducted by Petrobras. With this acquisition, ENGIE’s total equity holdings in TAG increase to 65 per cent (of which 32.5 per cent is held by ENGIE Brasil Energia) while CDPQ will hold the remaining 35 per cent. TAG is the largest natural gas transporter in Brazil with a gas pipeline infrastructure of approximately 4,500 kilometres. The network represents 47 per cent of the country’s entire gas infrastructure and has further development potential such as network extension, additional connections, gas storage development, and green gases transport.

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Zvan Heads UPP

Barbara Zvan is the inaugural president and CEO of the UPP. Trained as an actuary, she joined the Ontario Teachers’ Pension Plan (OTPP) in 1995. Most recently, she was chief risk and strategy officer. Established on January 1, 2020, the UPP is a defined benefit jointly sponsored pension plan (JSPP) designed to enhance the long-term sustainability of Ontario university pension plans.

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July 23, 2020


Antidepressant Claims Rising

Claims for mental health antidepressant medications have gone up in Canada with the highest numbers in Quebec with a 20 per cent increase, says an Express Scripts data analysis. Overall, its data shows Canadians are increasingly turning to prescription drugs for relief from mental health conditions. Across Canada, there was an average increase of 11 per cent in people making claims for antidepressants between January and June 2020 – compared to the same period in 2019. During this time, claims involving antidepressants rose across all provinces. As well, 23 per cent more people between the ages of 19 and 35 are making claims for medications typically used to treat depression. Claims from female plan members were up 24 per cent, while claims from males rose 21 per cent. The data also suggests that there was an increase of new users for medications used to treat depression and these claims continue to climb.

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Active Membership Maintained In Supplemental Plans

Quebec employers can now maintain active membership in supplemental pension plans, despite the temporary suspension of accrued benefits, says a Blakes ‘Insight.’ A draft regulation on supplemental pension plans to reduce the consequences of the public health emergency also eliminates the requirement to file actuarial valuations by December 31 for defined benefit pension plans whose funding levels were below 90 per cent on December 31, 2019. It allows active members of a supplemental pension plan for whom the accrual of benefits has been temporarily suspended to maintain their active membership if such suspension begins in 2020 and ends no later than within 12 months after the date on which benefits ceased to be accrued; and if such suspension applies only to the accrual of benefits occurring as of July 15. This measure applies to all supplemental pension plans, as well as simplified pension plans. It does not apply to voluntary retirement savings plans. An application for the registration of the amendments made to the text of a pension plan regarding the suspension of new accrued benefits must be filed with Retraite Québec. For members who no longer accrue benefits, the part of their contributions that pertains to the payment of service contributions must not be made to the pension plan. However, amortization payments must be maintained. The elimination of the requirement for DB plans to file an actuarial valuation by December 31 if their funding level was below 90 per cent according to the most recent actuarial valuation requires them to undergo an actuarial valuation no later than the end date of the following fiscal year and at the end date of each subsequent fiscal year, until the funding level reaches at least 90 per cent.

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‘V-Shaped’ Recovery Talk Misplaced

Increased talk of a “V-shaped” recovery is misplaced, says an AB ‘Global Economic Outlook.’ Given the unprecedented restrictions placed on activity, growth was always going to rebound strongly as countries emerged from lockdown, but the level of output is still well below “normal” and closing the gap won’t be easy, particularly as restrictions on some forms of business activity are here to stay. As well, virus outbreaks look inevitable and while few countries are likely to shut down their economies again, even local lockdowns are likely to be disruptive. Instead, the overall shape of recovery is likely to be slow and uneven rather than “V-shaped.”

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Brokers Join Navacord

Navacord Corp. has added two Ontario-based brokers ‒ Selectpath Benefits and Financial Inc. and ProBenefits Consulting Inc. The two deals strengthen its position in the Canadian benefits space, which the company has set as a priority growth area. The additions more than double its benefits revenue, while adding market share, capabilities, and product and service options for clients.

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OMERS Adds To Stake

OMERS has acquired an additional seven per cent stake in ESR Cayman. It bought the parcel of 213 million shares from an associated entity of Warburg Pincus, the original and ongoing backer of the Asia-Pacific logistics group. Warburg Pincus remains “a significant shareholder” after the sale with an approximate 9.1 per cent holding of the company.

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Canadian ETFs See Inflows

ETFs listed in Canada saw net inflows of US$2.37 billion during June, bringing year-to-date net inflows to US$16.81 billion, says ETFGI. This is significantly higher than the US$7.57 billon gathered at this point in 2019. At the end of the month, Canadian ETF assets increased by 4.1 per cent, from US$153.29 billion at the end of May to US$159.58 billion, a new record high at the end of June.

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Lachance Joins Industrial Alliance

Simon-Alexandre Lachance is a senior consultant at Industrial Alliance Insurance and Financial Services. He joins the firm from Willis Towers Watson where he was, most recently, a senior associate retirement.

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July 22, 2020


Lobbying On Climate Should Be Compatible

Companies addressing the systemic risk of climate change should make sure their lobbying activity is compatible, says a Ceres action plan. Its ‘Blueprint for Responsible Policy Engagement on Climate Change’ builds on a 2019 open letter to American corporate CEOs that called on them to adopt a science-based climate policy agenda in line with the 1.5-degree goal of the Paris Agreement and to achieve net-zero emissions by 2050. The blueprint calls on companies to assess their climate-related risks and how lobbying efforts exacerbate or mitigate these risks; to systematize decision-making on climate change across the company including direct and indirect lobbying; and to align both direct and indirect lobbying with science-based climate policies. Anne L. Kelly, vice president of government relations at Ceres, says, “If companies are truly going to be advocates for change, they must use their voices inside and outside their walls to call for effective science-based public policy at the state and federal levels ‒ policies that match their science-based climate goals.”

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Full Impact Of Lockdowns Still Unknown

COVID-19 has had an extraordinary impact on the global economy and markets, including Canadian fixed income, says Robin Marshall, director of fixed income research at FTSE Russell. However, “despite a risk rally in recent months, we still don’t know the full impact of the global economic lockdowns.” Speaking at its ‘Looking through the apocalypse: Canadian fixed income, QE and economic recovery’ program, he said while there has been a powerful risk recovery, there are “obvious concerns about longer term impact on trend growth from the change in work practices and the effect of social distancing.” As well, potentially weaker long-term trend growth is important to consider given the real impact it has on factors like valuations and revenue growth. The two biggest factors driving the recovery in risk assets since late March have been the aggressive central bank response and expansion of their balance sheets, including the Bank of Canada, and the substantial investor response to these moves. “While we still need to see validation in corporate earnings to justify the risk rally, the good news for Canadian investors is that Canadian policymakers have more room left for fiscal stimulus than most countries, due to low debt to GDP.” Even after recent fiscal support programs, the Canadian debt/GDP ratio is forecast at about 50 per cent. If the economy and employment do not recover adequately, the government could also resort to helicopter money, whereby fiscal stimulus is financed by the Bank of Canada creating reserves.”

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Rexall Named Preferred Provider

The Benefits Alliance Group has selected Rexall Pharmacy Group as a preferred retail pharmacy partner. Rexall operates over 400 pharmacies across Canada. This preferred pharmacy arrangement is not available in the province of Quebec. It supports whole health by offering a number of pharmacy services, including auto prescription refills, home health care, medication refills, and the administering of vaccinations. It also provides diabetes management consultation services, as well as blood pressure kiosks and screenings.

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OMERS Acquires Energy Stake

OMERS has acquired a 19.9 per cent stake in Australian energy company Transgrid from Wren House, a subsidiary of the Kuwait Investment Authority. This is the Canadian pension fund’s second commitment in Australia, after its investment in the Port of Melbourne. It also represents an increasing role for OMERS in the growth and development of New South Wales (NSW), including an investment by OMERS-owned Oxford Properties in the Sydney Metro Pitt Street over-station development.

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Mather Joins Wavefront

David Mather is director and strategic advisor at Wavefront Global Asset Management. Most recently, he was president of the Weathermark Group, a company he founded after spending 20 years with Integrated Asset Management.

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July 21, 2020


Options To Fixed Income Needed

If clients still believe in the long-term benefit to holding fixed income, says Jay Kloepfer, executive vice-president and director of capital market research at Callan, they may now be forced to look at other options. Speaking at the National Academy of Social Insurance and Callan ‘Setting Expectations for the Capital Markets in a Post-COVID Environment’ session, he said monetary and fiscal policy intervention is definitely changing the landscape for fixed income as there’s a new yield environment and “we’re back to zero interest rates.” Since they need to get some kind of return on that part of the portfolio, “you’ll see different, and higher risks, if you move away from traditional investment grade.” These include credit and implementation risk as well as illiquidity. More active management is one option that comes with its own set of attendant risks. Leverage is another option. “It’s not magic, it’s not a free lunch. It magnifies the results,” he said.

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Sovereigns Well-Prepared For COVID Crisis

Many sovereigns were well prepared for the COVID-19 crisis, with a drop in valuations and plenty of dry powder making the crisis an unprecedented buying opportunity, says Invesco’s eighth annual ‘Global Sovereign Asset Management Study.’ As custodians of long-term capital, most also benefited from the lack of an imperative to sell to meet withdrawals. Sovereigns were also better prepared due to changes they implemented and lessons they learned from the global financial crisis (GFC). This included building large cash reserves and making organizational improvements for the management of liquidity. Before Covid-19 affected markets, sovereign’s average equity allocations at the end of 2019 were at their lowest level since 2013 both relative to fixed income and as an overall proportion of asset allocation: 26 per cent (equities) versus 34 per cent (fixed income). The movement away from equities was motivated in part by end of cycle concerns that led to decreasing strategic allocations. The study found 37 per cent of sovereigns aim to decrease equity allocations, with half of these doing so by more than five per cent. Just 22 per cent of sovereign investors aim to increase their equity allocations over the next 12 months and those that do will proceed cautiously. Over the next 12 months, sovereign’s plan to continue allocating to fixed income; 43 per cent aim to increase their fixed income allocations, 43 per cent to private equity and infrastructure, and 38 per cent to real estate. “Traditionally fixed income is seen as a defensive anchor and this was tested by the crisis with even U.S. government debt caught up in a broad sell off as investors rushed into cash. However, government interventions including rate cuts and global quantitative easing forced down yields and had a positive impact on many fixed income portfolios,” says Rod Ringrow, head of official institutions at Invesco.

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Proactive Disability Solution Offered

With Canadians’ stress levels doubling since the beginning of the COVID-19 pandemic, iA Financial Group is launching a new mental health service. ‘Mental Health Coaching’ is intended to be a proactive disability prevention solution as it targets the major mental health issues – depression, stress, and anxiety – that affect plan members’ productivity and contribute to absenteeism. The partnership with Novus Health allows for early intervention with at-risk plan members to encourage them to take charge of their psychological health problems in order to improve their quality of life. Plan members will have access to online tools and personalized coaching by telephone with health professionals (nurses, social workers, psychologists, etc.) to help them better manage their mental health conditions by following a personalized action plan. It will launch August 1 and be offered free of charge until July 31, 2021, to all plan members in groups meeting the eligibility criteria.

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Delisle Joins CDPQ

Vincent Delisle is head of liquid markets at the Caisse de dépôt et placement du Québec (CDPQ). He has 25 years of experience in asset allocation strategy, global equity markets, and portfolio management. Most recently, he was co-chief investment officer at Hexavest.

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July 20, 2020


ACPM Calls For Auto Features

The Association of Canadian Pension Management (ACPM) wants Ontario to amend its Pension Benefits Act (Ontario) to allow employers to deduct employee contributions from payroll automatically to facilitate auto-enrolment and auto-escalation features in capital accumulation retirement plans(CAP). It says with the shift from defined benefit (DB) plans to CAP plans over last generation, the burden of providing adequate income has shifted from employers to employees. Many employees do not understand how much money they will need to retire comfortably or how critical it is under a defined contribution pension plan to save as much as possible as early as possible. Employers have recognized that these issues are causing a lack of retirement readiness for employees and, in many cases, have amended their CAP design to auto-enroll new hires in the plan as part of the employee’s new employment contract, but are restricted from applying auto-enrolment or auto-escalating contributions for current employees due to the requirement in the ESA that an employee give explicit consent for employers to make deductions from their wages. This prevents introducing automatic features for existing employees, which essentially defeats the purpose of the features. Auto-features are well known plan design strategies in U.S. DC plans, it says, and have been adopted by many employers to improve retirement outcomes for their employees. Studies show the positive results of implementing auto-enrollment and auto-escalation design features, with opt-out options, in DC plans.

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Asset Servicing Alignment Needed In ‘New Normal’

While the similarities to COVID-19 and the 2008 market downturn likely end here, given the unpredictability of whether there will be second or subsequent waves – which could wreak havoc on financial markets, Sabeen Purewall, director of business development at CWB Trust Services, says we now must accept that there will be a ‘next normal.’ This also means, he says in the article ‘Asset Servicing – Identifying The Importance Of A Tailored Custodian Partnership In Unprecedented Times’ at the ‘Benefits and Pensions Monitor’ website, institutional investors should align themselves with a custodian partner that offers fully integrated and automated systems with real-time reporting; is flexible in its service delivery; and has rigorous internal controls to provide accurate and timely reporting.

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Bond Yields Make Pensions Unsustainable

Company pensions are becoming increasingly unsustainable due to the plunge in government bond yields and low interest rates, says Nigel Green, CEO of Devere. The warning comes as the yields of government securities ‒ in which pension funds heavily invest  ‒ have fallen dramatically since the coronavirus crisis. “Institutional investors, such as pension funds, have always traditionally invested in government bonds, as they’re widely regarded as a safe-haven,” he says. “However, the world has changed considerably in six months.” Government bond yields are plunging as a direct result of the record-breaking asset purchase schemes introduced by central banks to help ease a severe worldwide economic slump due to the pandemic. And as this historic stimulus is set to remain, or even be expanded, the pressure on bond yields is expected to intensify.”

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Unlisted Infrastructure Impacted By COVID

COVID-19 began to impact significantly on the unlisted infrastructure industry in the second quarter of the year, says Preqin. Fundraising activity slowed, with the $12 billion secured by infrastructure funds representing a fall of 70 per cent compared to the previous quarter. However, the last quarter in 2019 and the first quarter of 2020 were the biggest quarterly fundraising totals ever seen and the second quarter is on par with the third quarter of 2019. Deal activity also dropped dramatically in the second quarter, as only 396 infrastructure deals were completed, for an aggregate value of $47 billion. This makes it by far the slowest quarter in the past five years in terms of deal-making. Looking ahead, investors are taking a selective approach to their fund commitments in the months ahead: 92 per cent are planning to commit to only one fund over the next 12 months and, with a crowded market – 246 funds in market as at July 2020 – competition will be fierce.

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