Pension investments fuel the climate change crisis, new report reveals

June 25, 2018

The British Columbia Investment Management Corporation is a little-known financial institution, however, its actions are vital to BC’s and Canada’s ability—or inability—to address the climate change crisis, says a new Canadian Centre for Policy Alternatives and Corporate Mapping Project report.

As the steward of BC’s public pensions, it is unacceptable that the Corporation (BCI) is bankrolling companies whose current business models exceed the climate change targets agreed to in the Paris Agreement, say the report authors.

In April 2016, Canada was among 195 countries that signed the Paris Agreement, which stipulated that global warming must not exceed two degrees C above pre-industrial levels with a further goal of working toward a 1.5 degree C limit.Both targets require urgent, sustained action to create net zero emissions across the global economy.

The pensions of some 525,000 British Columbians are managed by BCI. As the fourth largest pension fund manager in Canada, BCI manages $135 billion worth of assets - one of the country’s largest consolidated pools of wealth.  The report, Canada’s Fossil-Fuelled Pensions: The Case of the British Columbia Investment Management Corporation, asks is BCI investing funds in ways that support the shift to a two degree C global warming limit.

“Unfortunately, the answer is no,” said Zoë Yunker, a University of Victoria graduate student who co-authored the report with professors Jessica Dempsey and James Rowe.

“Our research indicates that BCI’s claim of responsible investment is more talk than walk as its actions are not consistent with the risks posed by climate change to their portfolios, beneficiaries or broader society,” she explained.

Instead of curbing investments to align with the Paris Agreement, many of BCI’s oil and gas investments are on the rise, the report finds. For example, BCI’s investments in Kinder Morgan rose to $65.3 million in 2017, nearly doubling its $36.7 million 2016 investment.

“BCI argues that engagement with its investee companies will drive the change needed to address climate change, but our research shows this is simply not the case,” says Rowe, a University of Victoria environmental studies professor. “BCI’s various shareholder engagement strategies are not leading to the concrete emissions reductions that the two degree limit demands”. 

As energy systems shift away from fossil fuels, investors who do not respond could be left with “stranded assets” or investments that are no longer profitable, the report explains.

“BCI’s duty is to act in the best financial interests of plan members. Its carbon-heavy holdings, however, raise questions about BCI’s management of these interlinked climactic and financial risks,” says Rowe.

The devastating impacts of climate change are being felt around the world and this report emphasizes BCI’s ethical imperative to act by:

  • undertaking a risk analysis to determine the impacts of their fossil fuel investments in the context of the two degree C limit and disclose all findings to pension beneficiaries.
  • divesting in order to address the financial and moral risks associated with investments in the fossil fuel industry.
  • reinvesting divested funds in more sustainable stocks.

Avenues for pension holders to influence BCI are limited. Each public pension plan appoints one representative to the BCI Board of Directors and BC’s Minister of Finance appoints three. Board members are prohibited from becoming involved with investment decisions, which provides BCI the exclusive power to decide how BC’s public sector pensions are invested.

“Pension fund managers like BCI often operate ‘out of sight, out of mind,’ but because they control a significant portion of BC’s economy their choices play a crucial role in BC’s and Canada’s responses to climate change,” said Yunker.

Change is possible, which the central bank of Norway demonstrated when it advised the Norwegian government — which control’s the world’s largest state-owned investment fund — to divest from fossil fuel investments.

“Our findings indicate that by continuing to invest heavily in fossil fuels, BCI’s strategy does not reflect the urgency of the climate crisis and is avoiding the strong action needed to forestall two degree C warming,” Yunker said. 

 

For more information, please contact Jean Kavanagh at jean@policyalternatives.ca, 604-802-5729.

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