BCI Sets Climate-Related Targets for Public Markets
Today, British Columbia Investment Management Corporation (BCI) announces a commitment to five-year climate-related targets for its public markets program. The near-term targets represent a significant step by the leading provider of investment management services to British Columbia’s public sector to further benefit from the opportunities and address the risks associated with climate change.
BCI will target a cumulative $5 billion investment in sustainability bonds by 2025 (based on initial participation) and reduce the carbon exposure in its global public equities portfolio by 30 per cent by 2025 (using 2019 as a baseline).
“BCI always works in the best financial interests of our clients. Assessing and managing the opportunities and risks presented by climate change is core to that responsibility. These targets will help ensure our clients benefit from the shift to a low-carbon economy,” said Gordon J. Fyfe, BCI’s chief executive officer / chief investment officer.
“Importantly, they set concrete near-term goals that will help us track our progress as we continue to champion long-term and sustainable growth.”
The setting of these targets represents a carefully considered evolution of the objectives set out in BCI’s 2018 Climate Action Plan, and further complements BCI’s strategic approach of leveraging environmental, social, and governance (ESG) for both value creation and risk management.
As a growing number of governments, companies, and institutional investors establish strategies to help achieve the Paris Agreement objective of limiting global warming, BCI believes that it is in its clients’ best financial interests to set carbon-related targets that align with this international treaty. The goals are consistent with the guidance of the Task Force on Climate-related Financial Disclosures (TCFD).
“These targets balance ambition with feasibility and provide a clearly defined pathway for BCI to seize on climate-related investment opportunities and reduce the climate transition risk of our public markets portfolio,” said Daniel Garant, executive vice president & global head, public markets.
“BCI believes that gradually lowering exposure to carbon-intensive companies and engaging with companies and regulators to adapt to the low-carbon economy will lead to better financial outcomes for our clients.”
The commitment marks another milestone in BCI’s climate-related work, including becoming a founding signatory to the Principles for Responsible Investment (PRI) in 2006, supporting the TCFD recommendations, actively participating in Climate Action 100+ since 2017, and publishing its Climate Action Plan in 2018.
“BCI is committed to continuously improving and adjusting our approach to climate change to benefit our clients and their investments,“ said Fyfe.BCI will report on progress in meeting these targets through its TCFD reporting, on its corporate website, BCI.ca, and in its ESG Annual Report.
With $171.3 billion of managed assets as at March 31, 2020, BCI is the leading provider of investment management services to British Columbia’s public sector. We generate the investment returns that help our 31 institutional clients build a financially secure future. With our global outlook, we seek investment opportunities that convert savings into productive capital that will meet our clients’ risk and return requirements over time. We offer investment options across a range of asset classes: fixed income; public and private equity; infrastructure and renewable resources; real estate and mortgages.
About BCI’s Public Markets Program
BCI’s public markets program manages a global portfolio of fixed income and public equity investments representing $112.8 billion and totalling 65.9 per cent of BCI’s assets under management (as at March 31, 2020). The program invests in Canada, the U.S., and internationally in developed and emerging markets utilizing index and active management strategies. More than 80 per cent of the program’s assets are managed internally using a diverse mix of financial instruments.
About BCI’s Climate-Related Targets
- The investment target of $5 billion builds on BCI’s historical participation in sustainability bonds of $887 million (as at December 31, 2020).
- The setting of transition finance targets aligns with best practice on financing the transition and contributing to a net-zero economy.
- The target will help BCI increase allocations to sustainable issuances of interest and leverage our competitive advantage in this space.
- The 30 per cent reduction target will be measured using Weighted Average Carbon Intensity (WACI) as recommended by the Task Force on Climate-related Financial Disclosures (TCFD).
- The 2019 baseline aligns with best practices among global investors and closely reflects BCI’s current investment strategy based on more active, internally managed mandates.
- BCI began measuring and publicly reporting the carbon footprint of the public equities portfolio in our ESG Annual Report in 2017.
I've been meaning to get around to BCI and its climate-related targets for public markets.
BCI's climate-related targets are specific to its Public Markets, not Public and Private Markets.
This left me a little confused and late today, I reached out to Gordon Fyfe, BCI's President and CEO and he was kind enough to call me back.
Gordon confirmed these climate-related targets are for Public Markets but he doesn't really like the term "targets" because the way he explained it to me, BCI implemented a strategy and "what you're seeing now is the residual of the strategy."
He also stated: "The reason why we put a five year period is because we implemented the strategy and are confident we can achieve it in a short period and this way our employees and members can see and feel the progress."
Gordon spoke very highly of Jennifer Coulson, BCI's Vice President of ESG and told me I should read the articles and press releases where she discusses BCI's ESG approach.
So I did, one of them was about how BCI raises expectations on board diversity and addressing climate change risk in new Proxy Voting Guidelines:
Today, British Columbia Investment Management Corporation (BCI) published new Proxy Voting Guidelines detailing our evolving expectations regarding the governance practices of the publicly-traded companies in which we invest. The new guidelines raise our expectations on increasing board diversity, addressing climate change risk, and reviewing executive compensation in the context of COVID-19 and its impact on human capital.
BCI updates the guidelines every two years. They reflect ongoing research of corporate governance best practices and BCI's understanding of evolving risks facing publicly-traded companies as represented in shareholder proposals.
Significant changes made to the guidelines include:
Diversity and Inclusion: BCI advocates for the 30% Club's target of 30 per cent women on all boards and c-suites globally, including at all S&P/TSX composite index companies by 2022, where 110 of 224 companies still do not meet that threshold.
- BCI now expects that women directors will comprise at least 30 per cent of a company's board of directors.
"Boards and executive management have an important role to play in promoting and fostering diversity and inclusion," said Jennifer Coulson, vice president, ESG, public markets.
"We expect boards to adopt and disclose a formal diversity policy that includes targets and timelines to increase levels of diversity at the board and senior management level."
Events of the past year have further reinforced the need for companies to also focus on diversity among other underrepresented groups. BCI will consider diversity more broadly as disclosures permit.
Climate Change: BCI believes companies that do not carefully consider issues of environmental and social responsibility risk failing to create shareholder value. There is also increasing regulatory and investor pressure on companies to provide climate-related disclosure.
- BCI will consider supporting more prescriptive shareholder proposals on climate change to publicly signal our expectation that companies must act immediately.
- BCI will escalate the targeting of directors for weak responses to climate change risk.
"We expect directors to oversee management's efforts to manage climate change-related risk," said Coulson.
"BCI will consider supporting more prescriptive proposals, including those asking companies to align emission reduction targets with best practices such as net-zero by 2050."
Executive Compensation: BCI believes pay decisions are one of the most direct and visible ways for shareholders to assess the performance of the board of directors. Compensation plans must align with pay for performance and be sensitive to the broader workforce and societal context.
- BCI will escalate votes against company directors for poor compensation practices as part of a more holistic review of compensation considering the impact of the COVID-19 pandemic.
"While we have seen progress in compensation plan design, we remain concerned that total pay continues to increase rapidly, especially in the U.S. market," said Coulson.
"COVID-19 presents additional concerns about employee safety, layoffs, and capital allocation decisions relating to dividends and share buybacks."
BCI expects that implementing these guidelines will assist and encourage boards to remain focused on building shareholder value while holding them accountable for actions taken.
A searchable database on our website provides an account of all our proxy voting, including the rationale for when we vote against a management proposal and all shareholder proposals.
You can read our complete Proxy Voting Guidelines here: https://uberflip.bci.ca/i/1337653-bci-proxy-voting-guidelines-2021/0
The way Gordon explained it to me, Jennifer has an important role not only in actively engaging with public companies they invest in but also in shaping BCI's entire ESG strategy across public and private markets.
In another article, Paula Sambo of Bloomberg News reports B.C. pension seeks $5B in green bonds by 2025:
I already covered Ontario Teachers' goal of achieving net zero emissions by 2050 and in my last comment, I went over how Ontario Teachers' is investing in Finland's power grid.
The British Columbia Investment Management Corp. plans to significantly increase its holdings of sustainability bonds as part of five-year goals for its public markets program.
BCI is targeting $5 billion of cumulative investments in sustainability bonds by 2025, compared with $887 million at the end of last year, according to a statement on its website. It will also reduce the carbon exposure in its global public equities portfolio by 30 per cent, using 2019 as a baseline.
A growing number of governments, companies, and institutional investors are establishing environmental, social and governance strategies. It’s in BCI’s clients’ best financial interests to set carbon-related targets that align with the Paris Agreement to limit global warming, Jennifer Coulson, vice president for ESG in public markets at the pension fund, said in an interview.
“We are already integrating ESG quite deeply into our active mandate, so we will continue to do that,” she said. “We’ll also continue to engage with companies to encourage them to align with the Paris Agreement and allocate to more sustainable assets.”
BCI is a pension fund for public sector workers in the western province of British Columbia, with $171.3 billion in assets.
Last month, the Ontario Teachers’ Pension Plan committed to reaching net-zero emissions across its investment portfolio within three decades.
Ontario Teachers’ will increase investments in climate-friendly projects, ensure companies in its portfolio manage and report their emissions every year and work with them to reach carbon neutrality by 2050, according to its chief investment officer.
Tamara Lawson, QuadReal's Chief Financial Officer, said, "On the back of a successful inaugural issuance and continuing low interest rate environment, our green bond platform provides additional capital in support of QuadReal's industry-leading sustainability practices and initiatives. We have the team and experience to drive innovative solutions to reduce energy consumption, pollution and waste in our portfolio."
In line with the Green Bond Framework established by QuadReal, this pool of capital will support qualifying expenditures on green buildings, renewable energy, resource and energy efficiency, pollution prevention, clean transportation, and climate change adaptation. QuadReal's Green Bond Framework is available at www.quadreal.com/sustainability/green-bonds.
"We appreciate being able to benefit from the growing demand for green and sustainable financing. The issuance was well received, broadly distributed to 57 investors and with over 70% of the issuance attributable to green investors," added QuadReal's John Lee, Senior Vice President, Treasury and Capital Markets. "The successful execution of this transaction reflects the alignment between QuadReal's vision for sustainable finance and the objective we share with our clients and investors to invest responsibly."
In Private Equity, Gordon told me that Jim Pittman and his team have made several green investments and also take ESG very seriously.
Gordon also told me BCI has expanded its credit portfolio considerably since he took over the helm and that there too, ESG factors play a critical role.
On "sustainability bonds", he told me the market is growing fast and they won't have a problem to invest $5 billion over the next five years.
I wonder if they're investing in green bonds CPP Investments is emitting to invest in its European renewables platform.
I forgot to ask him about that.
Lastly, I mentioned a Vancouver Sun article which states BCI employees say they feel more connected than ever:
Like most of her fellow employees at the British Columbia Investment Management Corporation (BCI), Gina Dennison was worried the pandemic would leave her feeling isolated. But now she has a whole new family.
Dennison, analyst of enterprise risk management, is part of the company’s COVID-19 working group tasked with ensuring employee health and safety. Coping with the huge responsibility—and meeting virtually every day since March—has brought them closer together.
“We’ve really become quite a family. It shows how resilient we are at BCI,” says Dennison.
“We’ve become closer as we’ve worked hard to ensure we’re in the best place possible, because employee health and safety is the top priority.”
Headquartered in Victoria, BCI ensures the financial security of 630,000 pension plan beneficiaries and 2.5 million workers while handling over $171 billion of managed assets. It’s a leading provider of investment management services for B.C.’s public sector.
When the pandemic hit, BCI shifted employees overnight to working remotely. It provided a stipend to pay for setting up home office spaces and offered home ergonomic assessments. Healthcare support was increased thanks to a virtual health care provider.
The BCI COVID-19 working group also developed resources like the managers’ guide to supporting employees during the pandemic and a hybrid teams’ best practices guide. A constant flow of information with virtual townhalls, a dedicated COVID-19 microsite and regular check-ins keep employees and managers connected.
“We surveyed staff throughout to gauge how well they’re connected and found the pandemic had actually increased the feeling of connection with their team and BCI, which was really surprising given we’re all working from home,” says Dennison.
BCI’s COVID-19 response wasn’t limited to within the corporation. It’s kept in constant contact with its clients and strengthened ties to the community. BCI continues its long-standing relationship with the Greater Victoria United Way, focusing on the most vulnerable groups affected by the pandemic, like isolated seniors, mental health and addictions.
“Since we started participating, we’ve given over a million dollars to the United Way,” says chief operating officer Shauna Lukaitis.“It’s important to us that we help people in the community not just with our time, but with our pocketbooks, because we’re so very fortunate to be able to continue to work.”
A strong foundation of employee empowerment and constant communication has helped BCI not just survive but thrive during the pandemic.
“COVID-19 put our resiliency and ability to respond quickly to the test and the corporation is successfully navigating those challenges,” says Lukaitis.
Gordon mentioned that BCI was recently recognized as one of British Columbia’s Top Employers and one of Canada’s Top Family-Friendly Employers for the second consecutive year. The awards are part of Mediacorp Canada Inc.’s Canada’s Top 100 Employers project, which again named BCI one of Canada’s Top 100 Employers in November.
I'm happy to hear this because BCI had some growing pains so it's good to see they've put that in the past and are focusing on their employees well-being and on the well-being of their community.
I'm happy I had a chance to talk to Gordon earlier tonight, he's in good spirits and seems to be enjoying working at BCI.
He told me there are a lot of great people there and he wants "them to receive more recognition".
I would have liked to speak with Jennifer Coulson to get her perspective too.
What else? I forgot to tell Gordon that Asif Haque was just appointed CIO of CAAT Pension Plan to succeed Julie Cays.
Good for him, I'm happy for him and he has big shoes to fill. I'll be speaking with Asif and Julie on Monday so stay tuned for that.
Anyway, it's getting late and my wife and I are binge watching "Shameless" on Netflix, a dramedy based on a British series which centers on siblings in a dysfunctional Chicago family who struggle while coping with their alcoholic father (Gordon was my former boss, my wife is the current one).
Below, in 2015, the Financial Stability Board (FSB) established the Task Force on Climate-related Financial Disclosure (TCFD) to develop voluntary, consistent disclosures for companies to use in providing information to investors, lenders, insurers and other stakeholders. The TCFD final recommendations were released in 2017. and are critical in supporting enhanced financial risk disclosures in response to the urgent issue of climate change.
Earlier today, I read the United States needs to set a target to slash its greenhouse gas emissions between 57% and 63% below 2005 levels by 2030 in order to achieve the Biden administration's longer-term goal of net-zero emissions by 2050. Lots of work ahead to achieve a net zero world.
Update: On Friday, QuadReal announced the successful green bond issuance of $400 million Senior Notes:
QuadReal Property Group (“QuadReal”) is pleased to announce today the successful green bond issuance of $400 million of 1.056% Series 4 Senior Notes maturing March 12, 2024 (the “Senior Notes”) issued by BCI QuadReal Realty (“BQR”). BQR serves as the primary issuing entity of unsecured notes for British Columbia Investment Management Corporation’s (“BCI”) real estate program. BCI is a Canadian leader in investment fund management that provides services to British Columbia’s public sector.
The Senior Notes were BQR’s second green bond offering made on a private placement basis to accredited investors in Canada. The Senior Notes are rated AA (low) with a stable trend by DBRS Limited. The offering was made on an agency basis by a syndicate of agents co-led by TD Securities Inc., CIBC, HSBC and Scotiabank and included BMO Capital Markets, Mizuho Securities, National Bank, RBC Dominion Securities Inc. and SMBC as co-managers.
Tamara Lawson, QuadReal’s Chief Financial Officer, said, “This is our second green bond issuance and we are very pleased with the strong investor support we received. We continue to grow our green bond platform to fund projects that reflect our commitment to sustainability and innovation. Our ability to access the green market has expanded the range of investors with whom we do business and helps us to secure the lowest cost of financing.”
Lawson added, “In the last year, QuadReal has raised borrowings of CAD $2.3 billion for BQR, including the two green bond issuances totalling CAD $750 million. With an average term of 6.1 years and an average coupon of 1.45%, going forward, performance will be enhanced accordingly.”
In line with the Green Bond Framework established by QuadReal, this pool of capital will support qualifying expenditures on green buildings, renewable energy, resource and energy efficiency, pollution prevention, clean transportation, and climate change adaptation. QuadReal’s Green Bond Framework is available at www.quadreal.com/sustainability/green-bonds.
Great stuff, QuadReal is quite an impressive outfit and this pool of capital will support qualifying expenditures on green buildings, renewable energy, resource and energy efficiency, pollution prevention, clean transportation, and climate change adaptation.