Analysis of BCI's 2021 ESG Report

The British Columbia Investment Management Corporation (BCI) is the $211-billion investment manager for over 715,000 public sector employees, including teachers, health care workers, college and university staff, and provincial and municipal public servants. BCI’s 2021 ESG Report, released earlier this month, demonstrates that the investment manager is responding to calls from beneficiaries for increased disclosure of how it is handling climate-related risks. But a close read shows that BCI still has minimal investments in climate solutions, remains invested in risky high-carbon assets without credible decarbonization pathways, and continues its futile attempts to engage with fossil fuel companies that are failing on climate action.

Recognition of investors’ role in addressing climate change

BCI’s ESG report and accompanying case studies place considerably more emphasis on climate as a distinct priority rather than just alluding to it under the broader ESG bucket. The investment manager acknowledges that climate change has implications for its portfolio, but also that investors have a role “in supporting the direction, speed, and attention paid to [climate] solutions” (p 5).

Strengthened proxy voting guidelines

BCI’s strengthened climate-related proxy voting guidelines led to the investment manager supporting 80 per cent of climate change proposals brought forward by shareholders in 2021, and voting against directors at 34 companies for “a lack of climate disclosure or poor performance [on climate]” (p 29).

Climate-related disclosures

BCI has added some new elements to its Task Force on Climate-Related Financial Disclosures (TCFD) reporting. 

1.5°C scenario analysis

In 2021, BCI for the first time tested the performance of its portfolio against a 1.5°C global heating scenario, in which the world achieves this critical Paris Agreement goal.

BCI stress tested the performance of its portfolio against a 1.5°C global heating scenario. See BCI 2021 ESG report, pp. 48 and 49.

Metrics for net-zero and science-based targets

While BCI discloses that it now tracks various metrics related to the adoption of net-zero and science-based targets “across select indexes and high emitters” in its portfolio, BCI’s TCFD reporting has yet to include company performance and targets against those metrics (p 54).

Increased detail on sustainable bonds

BCI also provided more detailed disclosure regarding its “sustainable bonds”, revealing that 71.8% of its $2.5 billion historical participation in sustainable bonds has been to “green bonds,” directed to “projects with environmental benefits” (p 36). But unlike its Canadian peers such as CPP Investments, OMERS, the Caisse de dépôt et placement du Québec, Ontario Teachers’ Pension Plan, and PSP Investments, BCI has not published a credible Green Bond Framework that explicitly restricts investments in fossil fuels from green bond issuances. 

Use of proceeds of BCI’s Sustainable Bond issuances. BCI 2021 ESG Report, p. 36

Climate solutions exposure

BCI used a new methodology to calculate its exposure to climate-related opportunities, reporting that it has $2.8 billion invested in climate solutions as of December 31, 2021 (p 52). This amount represents just one per cent of BCI’s assets under management. In contrast, an analysis of BCI’s regulatory filings and known investments suggest that its fossil fuel exposure is at minimum $5 billion, and likely much higher. Without BCI providing a detailed breakdown of the value of its assets, particularly of its Infrastructure and Renewable Resources portfolio (which lumps together integrated utilities and fossil gas pipeline infrastructure alongside renewable energy), it is impossible to know the extent of its fossil fuel holdings. 

Emissions reduction commitments and progress

While BCI has made a modest commitment to reduce the carbon intensity of its public equities portfolio by 30 per cent by 2025 (using a 2019 baseline), to date the portfolio’s emissions intensity has dropped just five per cent (p 53). Meanwhile, the climate commitment of BCI’s real estate subsidiary, QuadReal, to reduce emissions only in its Canadian real estate portfolio by 80 per cent by 2050 (using a 2007 baseline) is inadequate in a world striving to reach net-zero by 2050 at the latest. And BCI has failed to set any portfolio-wide targets for its financed emissions, even as its peers have made public commitments to net-zero by 2050 (or sooner).

Engagement with fossil fuel companies

British Columbia’s investment manager provides more disclosure of its engagement activities and record than many Canadian pension funds. BCI posts its proxy voting intentions online in advance of a shareholder vote, provides an index of companies with which it has engaged on ESG, and in the 2021 ESG report provides select details on some of its engagements with high-carbon companies. 

But BCI’s inexplicable preference for engaging fossil fuel companies on climate without being willing to exercise the critical tool of divestment only serves to highlight how unwilling or unable these companies are to develop credible transition plans. BCI provides some details of its engagement (via Climate Action 100+) with Canadian Natural Resources Limited (CNRL) (p 25), noting that “we have observed a lack of progress on setting GHG emission-reduction targets.” While increased engagement in 2021 led to the tar sands company making a small commitment to enhanced disclosure, this cannot be celebrated as a win after five years of ongoing engagement by BCI. The very week that BCI released its ESG report, CNRL reported quarterly results showing it is increasing capital expenditure on fossil fuels and increasing bitumen production, while arguing against the proposed federal tar sands emissions cap, which is critical to Canada meeting its climate commitments.

The same week BCI touted its Canadian Natural Resources in its 2021 ESG Report as an example of climate-related engagement, the tar sands producer reported increasing capital expenditure on fossil fuels and increasing bitumen production, while arguing against the proposed federal tar sands emissions cap, which is critical to Canada meeting its climate commitments. Source: Globe and Mail

BCI also spotlights its five-year long engagement (also via Climate Action 100+) with Marathon Petroleum (p 25). While the engagement has led to the company setting some emissions reduction targets, Climate Action 100+ itself reports that Marathon is failing to meet high-level climate goals, finding that Marathon “does not meet any criteria” on five of ten key actions companies can take to align themselves with Paris Agreement goals, and only meets “partial criteria” in other actions.

International investor engagement group Climate Action 100+’s 2022 assessment of Marathon Petroleum. Source: Climate Action 100+

If five years of engagement yields such inadequate results, British Columbians should demand that their investment manager explain how continued investment in fossil fuel companies squares with BCI’s statements that “climate change threatens long-term growth and prosperity” and that “addressing climate change is aligned to acting in the best financial interests of our clients and presents both opportunity and risk for our investments” (p 6).

Members of BCI’s client pension funds, including those who have been calling for the fund to divest its fossil fuel assets, will be interested to note that BCI is additionally leading or co-leading such engagements with tar sands producers Imperial Oil and Suncor Energy, oil and gas supermajors ExxonMobil and Chevron, coal producer Teck Resources, and US-based coal- and gas-fired power generators American Electric Power Company, Duke Energy and Southern Company (p 25). The ESG report also reveals six additional energy companies with which BCI is engaging on environmental issues (p 61-62). If BCI is serious about investing in a safe climate future, it needs to rapidly demonstrate how its engagement is effective, as these massive carbon polluters prolong the use of fossil fuels and lobby to block, delay, dismantle and weaken government climate policies.   

“Developing Infrastructure & Renewable Resources decarbonization strategy”

A textbox in BCI’s case studies document (p 4) implies that BCI may be in the process of setting a net-zero target for its Infrastructure & Renewable Resources portfolio. This portfolio will be particularly important to a credible climate action plan, as it includes BCI’s ownership stakes in fossil gas pipeline networks in Germany, the United Kingdom, Czechia and Washington state, as well as Australia’s largest transporter of coal-by-rail and a coal- and gas-fired electric utility in Louisiana and Texas. BCI has a critical role to play in ensuring these companies have a credible, science-based pathway to decarbonization, yet these investments are barely mentioned in the 2021 ESG report. 

BCI’s high-level commitment to develop a decarbonization strategy for its Infrastructure & Renewable Resources Portfolio. Source: BCI 2021 ESG Annual Report Supplementary Case Studies.

Lack of Indigenous rights policy

BCI’s ESG report notes that BCI staff, clients and board members received training on ESG topics including climate change, Indigenous reconciliation, and labour relations (p 40). Portfolio company Mosaic Forest Management is spotlighted under the heading “Prioritizing Indigenous Relations” (p 31). However, it is unclear how BCI is considering Indigenous rights in regards to other investments, such as its $122 million in shares in TC Energy, which continues to push forward construction of the Coastal GasLink pipeline despite the lack of free, prior and informed consent from Wet'suwet'en hereditary chiefs. The province of British Columbia itself is aligning its laws to implement the United Nations Declaration on the Rights of Indigenous Peoples, yet BCI, a Crown corporation that invests retirement savings and other funds on behalf of British Columbians, has no Indigenous rights policy.

Updated Climate Action Plan due in 2022

BCI’s ESG report reiterates that an updated Climate Action Plan will be released this year. Beneficiaries from across the province have clearly outlined how BCI can improve its policies on climate risk and fossil fuel investments, and we look forward to continuing to engage BCI on protecting the retirement savings of BC workers in the face of a worsening climate crisis. 

Summary

While BCI’s 2021 ESG report provides expanded disclosure regarding its handling of climate-related risks, the investment manager shows little progress on reducing its emissions intensity and has yet to set a portfolio-wide emission reduction target. Just one per cent of BCI’s portfolio is invested in climate solutions, while BCI continues to hold billions of dollars in the high-risk, high-carbon fossil fuel industry. BCI’s ongoing attempts to engage with oil and gas companies- including the significant fossil fuel assets that BCI owns- have failed to set these companies on a credible climate-aligned pathway.