British Columbia’s public-sector fund manager will commit $5-billion to sustainability bonds and cut the carbon exposure in its stock-market holdings by nearly a third within four years in the latest move by a major investor to deal with the financial risks of climate change.
British Columbia Investment Management Corp. (BCI) said on Friday the commitments help it align with the principles of the Paris Agreement on cutting emissions, a pact that aims to limit the world’s average increase in temperature to between 1.5 and 2 degrees Celsius. BCI manages $171-billion on behalf of the province’s public pension, insurance and special-purpose funds.
BCI is not setting a specific target to achieve net-zero carbon-dioxide emissions in the coming decades, as some other large fund managers have done. Ontario Teachers’ Pension Plan, for example, said last month it aims to get to net-zero, where emissions are simultaneously reduced and offset, by 2050 in line with Canada’s national target. Rather, BCI plans systematic moves.
“We’ve really focused on these short-term targets, feeling that they are very tangible and really show that we are taking action today, and will continue to monitor on a more long-term basis, and review those targets every five years,” Jennifer Coulson, BCI’s vice-president, ESG in public markets, said in an interview.
The new goals build on the organization’s climate action plan, which it released in 2018, Ms. Coulson said. The plan addressed how BCI will manage risk and seek investment opportunities in the fight against climate change, as well as compel companies in its portfolio to achieve its environmental ambitions. It also committed to aligning its disclosure and reporting with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), now being adopted widely as a global standard.
BCI is one of eight Canadian pension investment managers, representing $1.6-trillion of assets, that have called for consistent corporate reporting standards, using the TCFD template as well as another set by the Sustainability Accounting Standards Board.
The rise of climate-related investing and risk-management has been an overarching theme over the past year as economies have struggled to recover from the global downturn that accompanied COVID-19. The pandemic has exposed numerous economic and social vulnerabilities, and climate change had been a growing risk long before.
The world’s largest fund manager, BlackRock Inc., has accelerated its push for companies to deal with the issue, demanding those in its portfolios to disclose how they will fare in a net-zero world. Companies that don’t show progress face proxy votes against management or potential divestment, BlackRock CEO Larry Fink said in January.
Market signals, along with climate policy developments, influenced BCI’s move to apply more environmental, social and governance metrics to its investments, Ms. Coulson said. The fund manager also will use its proxy voting to influence change at the corporate level.
At more than $55-billion each, BCI’s fixed-income and public-equities portfolios make up the largest portions of its investments, which also include real estate, mortgages, infrastructure and private equity.
Sustainability bonds are debt instruments in which proceeds go to finance environmentally or socially beneficial projects. BCI had $887-million invested in such securities at the end of 2020.
In terms of public equities, the fund manager plans to reduce its CO2 exposure by 30 per cent from 2019 levels by 2025. But the effort will not include wholesale divestments from more carbon-intensive companies and industries such as oil and gas.
“We firmly believe that broad-based divestment is really not a great tool for managing risk, and it doesn’t allow us to capture the opportunities as companies are making the transition,” she said. “We really do believe that embedding it into our investment process is the best way, combined with very active stewardship and having those important conversations with companies to encourage them on the right path.”
Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. Email him at email@example.com.