Canadian equities case study
ESG in action



Key Points

Engaged with companies like Enbridge Inc. and TC Energy Corp. on the risks and opportunities with the global energy industry’s shift away from fossil fuels.
Tracked gender diversity metrics of our portfolio companies, including CGI, relative to the S&P/TSX Composite Index.
Engaged with CN Rail on the importance of prudent capital allocation and its impact on current profitability and long-term growth.


At Burgundy, we are constantly testing and assessing the long-term competitive positioning of all our holdings. In the case of North America’s two largest energy infrastructure companies, Enbridge Inc. and TC Energy Corp., this process is particularly important given that these businesses invest in and own capital-intensive and long-life assets in an evolving industry.
In an effort to combat climate change, the global energy industry is in the nascent stages of a massive structural transition away from fossil fuels to cleaner sources of energy. Very few companies will be left untouched by these changes, and there will be winners and losers that emerge over time. As such, our engagements with the management teams from both Enbridge and TC Energy have been centred around two key areas. First, understanding the potential risks to demand for services on their existing bases. This is the so-called “stranded asset risk.” Related to this, we have also discussed the mechanisms that will allow these companies to earn an appropriate return on and of capital on the regulated asset bases.
Our second key area of analysis has been centered on developing a better understanding of longer-term opportunities that an energy transition may present for Enbridge and TC Energy. This has included dialogue with the respective companies about new or alternative uses for existing assets, emerging technologies, as well as areas where these companies can leverage their scale, cost of capital, and development and operating expertise.
TC Energy is focused on solutions like its proposed pumped storage project in Ontario."
We are confident that both companies will play leading roles in the renewable energy buildout over time. Enbridge, which is already a significant owner and operator of offshore wind assets in Europe, is poised to grow its renewable power portfolio significantly. TC Energy is taking a slightly different approach with a focus on solving some of the intermittency challenges of traditional wind and solar power generation through solutions like its proposed pumped storage project in Ontario.


One of the social factors we analyze within our portfolios is gender diversity. Over 85% of our portfolio companies report the percentage of women on their board of directors. This rate of disclosure is roughly in line with that of the S&P/TSX Composite Index and results in approximately 30% female representation.
Where our portfolio companies can improve is on disclosure of gender diversity in the broader workforce. Only 25% of our portfolio companies report this figure, compared to 50% for the index. While this is partially a function of the lower-average market capitalization of companies in our portfolio compared to the index, we continue to encourage our portfolio companies to report these statistics so that we can benchmark and track their progress.
Over the last year, one example of engagement on this front has been with CGI Inc., the leading provider of managed (outsourcing) IT, systems integration, and technology consulting globally. The company has a stated gender diversity target of 30% of employees, which is in line with the S&P/TSX Composite Index average. However, in 2021, the company reported that 33% of its workforce was comprised of women. As a result, we believed their target was out of date and too conservative, and we reflected this in the ESG score we gave to management. We encouraged management to increase the target to 50% and believe this is achievable over time.
We encouraged management to increase the target to 50% and believe this is achievable over time.
CGI has a credible long-term strategy to accomplish this goal. By sponsoring STEM (Science, Technology, Engineering, and Math) Camp programs for high school and college students in demographics that are under-represented in the field (including minorities, females, economically disadvantaged students, and those with disabilities), the company is able to address its diversity goals at the ground level. Over 12,000 students have participated in these programs to date. Specifically, the CGI I.T. Girl Challenge, which is a mobile-app building competition for high school girls with the winner receiving post-secondary scholarship funds.


In late 2021, activist involvement in railroad company CN Rail caused us to engage with the company’s management team on their strategic priorities.
While we supported the incumbent management team, their growth strategy, and their technology initiatives, we felt that the pendulum had swung too far in the direction of investing for long-term growth at the expense of current profitability. Based on the points raised by the activist and feedback from meetings like ours, CN announced a 2022 strategic plan that included meaningful improvements in its operating margins, capital intensity, and capital allocation priorities.
CN's 2022 Strategic Plan
CN announced a 2022 strategic plan that included meaningful improvements in its operating margins, capital intensity, and capital allocation priorities.
Sources: CGI 2021 Corporate Sustainability Report, Burgundy research, CGI’s website

About the Author

David Vanderwood
David Vanderwood, CFA
Senior Vice President,
Portfolio Manager
David bought his first stock in 1979 when he was 11. Although he backed up the truck and “averaged down” three years later, the company went bankrupt. That painful experience inspired David to dedicate his professional life to developing an understanding of how to be a successful investor. The fact that this ambition is a never-ending work in progress is one of the things David loves about investing.
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