Tuesday, November 13, 2012

bcIMC Slammed Over Unethical Investments?

Kathy Hyslop of The Tyee reports, Teacher Decries Pension Plan's 'Unethical' Investments:
The BC Teachers' Federation prides itself on being a "social justice" union, and in many ways that is true: it's a living wage employer, an advocate against child poverty, an environmental steward, pushes an anti-Northern Gateway pipeline lesson plan, and is a fervent defender of public education, criticizing corporations like Pearson Education for privatizing education.

But the teachers' pension plan tells a different story. Managed by the BC Investment Management Corporation (bcIMC), the Teachers' Pension Plan invests in Pearson, Enbridge, British American Tobacco, Haliburton, and other corporations associated with environmental destruction, sweatshop labour, and weapons manufacturing.

For semi-retired schoolteacher Paul Hutcheson, the BCTF can only call itself a social justice union once "our pension cheques are not arriving in the mail dripping in the blood of the victims of war and they're not soaked in the sweat of child labour," he says.

Teachers like Hutcheson who want to take a stand against investing in companies with questionable practices are pitted against a pension plan board of trustrees that only once divested from companies for their practices. Because the Teachers' Pension Plan is legally bound to remain independent from both the teachers' union and the provincial government, changing it is an uphill battle that's already taken over a decade and promises to take more.

From Africa to BC

Hutcheson started researching the B.C. Teachers' Pension Plan in 1999 after learning the Ontario Teachers' Pension Plan invested in Talisman Energy. At the time Talisman, an oil and gas company, owned Arakis Energy, a company with connections to oil and gas in Sudan. The government of Sudan, when not evicting residents from land for oil and gas development, was conducting a bloody civil war using this fuel to run its war machines.

Disturbed, Hutcheson took a look at B.C.'s plan. He found not only investments in Talisman but in British American Tobacco, which in addition to manufacturing and selling cigarettes had suppliers in Malawi accused of child labour and abuse; Comcast, an American cable, digital phone, and Internet company which sells on-demand pornography; and other corporations he considers unethical.

Although Hutcheson is part of a group of like-minded teachers concerned over the ethics of investing in such companies, the union itself remains divided on the issue.

"I've been accused by members of wanting to reduce pensioners to the point of having to eat cat food -- that's bullshit," he tells The Tyee. "I've been pilloried in the Retired Teachers' Association magazine as having 'my own political agenda.' That's crap, too."

A motion brought to the BCTF's Annual General Meeting in 2005 by another teacher, Jim Pine, to divest from tobacco was passed, but tobacco companies remain on the investment list today.

Hutcheson says he tried to get the issue of mass divestment of unethical companies on the agenda of the BCTF AGM for two years before he was finally successful in 2008. While motions have since been passed in favour of changing the plan's priorities from financial to ethical concerns, again nothing concrete has been done.

BCTF president Susan Lambert counters Hutcheson's story by saying the union itself has been lobbying bcIMC for 15 years to divest from corporations like Enbridge and British American Tobacco. However she tells The Tyee it's been difficult to affect change within the independently-managed corporation.

"BCIMC is very independent: the pension's [board of trustees] is a joint committee of teachers and government. So our ability to influence bcIMC investing decisions are very limited," she says.

Ethical investing, UN style

BCIMC was established by the B.C. government through the passing of the Public Sector Pension Plans Act in July 1999. In addition to the teachers' plan, bcIMC manages the B.C. pensions of all public post-secondary staff and instructors, public servants, employees of WorkSafe BC, ICBC, and BC Hydro, firemen, police officers, healthcare workers, municipal employees, and public servants.

Each plan is invested in the same investment inventory, and governed by an independent board of trustees bound by legislation to remain independent from both government and employee unions. The Teachers' Pension Plan will take investment suggestions from teachers, government, and bcIMC, but all final decisions rest with the plan's board of trustees, equally composed of government and BCTF appointees.

"There can be a risk to acting in the best financial interests of the members if the political objectives become part of the investing," explains Joann Cain, chair of the board of trustees for the Teachers' Pension Plan.

Nevertheless, the Teachers' Pension Plan considers itself an ethical investor because of its adherence to the United Nations (UN) Principles for Responsible Investment through bcIMC. The UN principles boil down to considering environmental, social and corporate governance (ESG) when investing in companies.

Cain says the bcIMC researches companies before they invest, and as shareholders they take an active role in convincing corporations to adopt more environmental and labour-friendly practices. But ultimately ESG takes a back seat to ensuring the financial health of the plan.

"Bottom line is we have to meet the pension promise, which means we have to ensure that the moneys are invested in a manner that would end up in the best financial interests of our members," says Cain.

"It's all around the overall risk and return profile of the entire portfolio, and it has to be balanced or we're not going to meet our objectives."

This is apparent in the recently announced 1.3 per cent increase to employer and employee contributions to the pension plan, effective next July. It's due to what Cain says is a combination of a market still recovering from the global recession, an aging teacher population that's living a year-and-a-half longer than the pension planned for, and a drop in members contributing to the pension by three per cent.

The plan did divest from two companies in 2010 -- Alliant Techsystems and Textron -- for their production of cluster bombs and landmines. As a signatory to the Ottawa Treaty and the Convention on Cluster Munitions, international agreements banning the production, use, and stockpiling of such devices, the Canadian government's renouncing of landmines and cluster bombs was part of the reason for bcIMC's divestment. Cain tells The Tyee the other part was with international treaties banning landmines, investing with these companies no longer made financial sense.

She says the plan, which collects 80 per cent of its profits from investments and 20 per cent from teacher and school district contributions, couldn't survive without huge investments in companies deemed by many to be unethical, like tobacco.

"At the moment those tobacco companies, they do return high yields, and they are helping the pension plan meet its obligation to meet the pension promise," she told The Tyee.

"If you go to some of those tobacco companies, like British American Tobacco, which we've invested in, and look at their website, they actually are pursuing a lot of efforts on trying to improve the non-health aspects of tobacco."

Discussion needed at least: Hutcheson

Hutcheson recognizes getting everyone to agree on what is and isn't ethical investing will be difficult. But he says that isn't a good reason to not talk about it, adding the Norwegian Government Pension Fund seems to stay financially healthy while divesting from all tobacco and arms-producing corporations.

"It's going to take a united front. That is, we're going to have to join with the other groups," he says, adding he approached the BC Federation of Labour, whose workers' pensions are also managed by bcIMC. But Hutcheson says BC Fed president Jim Sinclair wasn't interested.

"I hate to say it, but my brothers and sisters in the union talk a good social justice talk, but my god, when it comes to doing something about it, their commitment is severely lacking."

The Tyee contacted the BC Fed for comment but did not hear back by press time.

Despite his hard line stance, Hutcheson, who retired but works as a teacher on call for the Gulf Islands School District, isn't giving up his pension.

"No, I need my pension to live. If I refuse my pension, what would I eat?" he asks.
Let me give you my take on all of this. While I understand Paul Hutcheson's concerns and admire the fact that he's actually engaged in understanding how his pension contributions are being invested, I think he's barking up the wrong tree and going down a slippery slope of what constitutes ethical investing.

First, let me state flat out, bcIMC is one of the best, most ethical pension funds in Canada with first-rate governance which ensures alignment of interests between their managers and stakeholders.

Second, they already take responsible investing seriously and have an entire section on their website devoted to corporate governance and responsible investing.

Third, while it's true that the Norwegian Government Pension Fund has divested from tobacco and arms-producing corporations, it too is having a hard time keeping up with its own rules on responsible investing. In February, it was revealed that Norway invested over $2 billion in 15 companies that manufacture and sell surveillance technologies - and that the government has no plans to divest investments in companies that are complicit in human rights abuses abroad.

More importantly, despite its name, Norwegian Government Pension Fund isn't a pension fund. It's the world's largest sovereign wealth fund and as such, it is in an enviable position because it doesn't have to match assets with liabilities. What it is struggling with is how to manage its explosive growth, a point Richard Milne of the Financial Times discussed in his excellent article (reprinted by the Globe and Mail),  Norway’s massive nest egg spurs investment debate.

Finally, to all those tree-hugging, vegetarian environmentalists from British Columbia fighting for social justice in their Birkenstock sandals, it's time to grow up and realize that the world is a sewer and if you push responsible investing to its limits, the first companies you should divest from are big banks speculating on commodity and food prices. How come you're not hopping mad about pensions gambling on hunger? I'm way more concerned about banksters engaging in financial speculation than tobacco and arms-producing companies. 

The reality is that once you push the envelope on responsible investing, you quickly divest from many companies in all industries, including Big Pharma which some claim thrives on perpetual sickness and slavery, as well as everyone's beloved Apple whose Chinese mega-plant, Foxconn, admits having child laborers in its factories.

Another example is the coal industry, which Harvard students demanded its endowment divest from. I said this was a dumb idea and note that with China and India ravenous for energy, coal’s future seems assured (take it from someone who got scorched last year investing in environmentally friendly Chinese solars!!!).

I'd much rather see large pension funds and sovereign wealth funds invest in these companies and use their clout to bring about important change, ensuring that labor, health, environmental and governance standards are respected while they deliver on performance.

Below, at this year's Sustainable, Responsible Investing (SRI) Conference, Rinaldo S. Brutoco, president of the World Business Academy, spoke with Mindy S. Lubber, president of Ceres, about the state of the world economy, sustainable investing and the practice and politics of aligning business interests with human interests.