Today, British Columbia Investment Management Corporation (BCI) published our 2021 ESG Annual Report,
an in-depth look at how we capture opportunities and manage risks
associated with environmental, social, and governance (ESG) matters on
behalf of our clients. The report is supported by a supplementary document that provides additional case studies.
“Addressing climate change and ESG issues is not only a source of
potential investment opportunities, it also allows us to manage
long-term financial risks,” said Gordon J. Fyfe, chief executive officer
and chief investment officer of BCI.
“At BCI, we are guided by our fiduciary duty to clients and our
organizational purpose of helping hundreds of thousands of British
Columbians secure a strong financial future. The people we are serving
include our children’s teachers, our health care providers, our
municipal workers, and our neighbours.”
Expanding BCI’s ESG activities from a predominantly risk-mitigation
approach to one that includes ESG as a source of long-term value
creation remains a corporate priority. This year’s report demonstrates
our progress and work under the four components of our corporate-wide ESG Strategy: Integrate; Influence; Invest; and Insight.
BCI is committed to incorporating the Task Force on Climate-related
Financial Disclosures (TCFD) recommendations into our reporting and
disclosure practices. Our 2021 ESG Annual Report includes our
TCFD-aligned reporting and a feature on BCI’s climate action journey
over more than two decades. We will release an update to our Climate Action Plan in late 2022.
Conducted
ESG reviews of all private equity general partners using our
corporate-wide ESG Evaluation Framework for External Managers; 98 per
cent have an official ESG policy and evidence of ESG integration
Developed a custom ESG dashboard to support our internal active
emerging markets team, empowering investment staff and maximizing
efficiency of our ESG resources
Influence
Engaged 299 companies in public markets, including through four
collaborative engagement initiatives focused on climate change, human
capital management, and gender diversity
Joined more than 100 general and limited partners in committing to the ESG Data Convergence Initiative, which aims to improve the quality and availability of private company data
Updated our ESG engagement key performance indicators for our public
markets program to reflect positive trends and changing priorities; we
now track five categories and over 60 data points
Invest
Participated in 37 sustainable bond issuances valued at over $1.7
billion, increasing total historical participation to more than $2.5
billion
Invested in the First Nations Finance Authority’s new commercial
paper program, bringing total historical participation to over $750
million
Increased assets under management in our Global Quantitative ESG
Equity Fund and Thematic Public Equity Fund, reflecting intentional
allocations to these mandates and generating strong returns
QuadReal Property Group successfully completed its second green bond
issuance in 2021, and third green issuance in February 2022, for a
total of nearly $1.2 billion raised to date
Insight
Partnered with the University of Victoria and Pacific Institute for Climate Solutions to co-develop new climate finance tools over the next three years
Researched emerging trends on the opportunities that ESG presents as a source of value creation
Provided education and training opportunities to BCI staff, clients,
and board members on topics such as climate change, Indigenous
reconciliation, and labour relations
ABOUT BCI
British Columbia Investment Management Corporation (BCI) is amongst the
largest institutional investors in Canada with $211.1 billion under
management, as of March 31, 2022. Based in Victoria, British Columbia,
with offices in Vancouver and New York City, BCI is invested in: fixed
income and private debt; public and private equity; infrastructure and
renewable resources; as well as real estate equity and real estate debt
through our independently operated platform company QuadReal Property
Group. 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. This compels us to integrate
long-term ESG matters into all investment decisions and activities.
BCI’s clients include pension plans representing over 715,000 plan
members, insurance funds providing more than three million Autoplan
insurance policies annually, benefits coverage to more than two million
workers and 225,000 companies, and special purpose funds within BC’s
public sector. Founded in 1999, BCI is a statutory corporation created
by the Public Sector Pension Plans Act.
Take the time to read BCI's 2021 Annual ESG report here and the supplementary case studies here.
The ESG report is extremely well written and comprehensive, totaling 64 pages in all, packed with excellent insights on how BCI is addressing climate change risks and opportunities, promoting diversity, equity and inclusion and there are many case studies embedded in the report.
It is beyond the scope of a blog comment to cover this report in detail which is why I recommend reading it very carefully but I think it is worth covering important parts.
Let me begin with a message from BCI's CEO/ CIO, Gordon Fyfe, at the top of the report:
The world has certainly changed in the past two years, with some
shifts being only temporary, while others can be considered permanent.
Even though many of us paused daily activities, the collective
urgency to address climate change continued. Recent reports from the
Intergovernmental Panel on Climate Change and the UN Climate Change
Conference (COP26) increased global awareness of the need for action. As
climate change is one of the most pressing issues for our clients and
investments, BCI joined 35 other institutional investors in advance of
COP26 to sign the Canadian Investor Statement on Climate Change, making
clear our expectations of the companies in which we invest and
reinforcing our commitment to supporting the transition to a low-carbon
economy.
Closer to home, British Columbians felt the impacts of extreme
weather events as we experienced deadly wildfires, unprecedented heat,
and flooding during the year. These events took lives, forever impacted
communities, and resulted in major damage to infrastructure and the
environment. The people of British Columbia showed their resilience as
they worked together to rebuild and to collectively address and identify
climate solutions.
We talk about resilience a lot at BCI. Our clients have long-term
investment horizons and building a portfolio that performs through
market cycles and periods of volatility is paramount to meeting their
investment needs. Physical climate risk, regulatory risk, and
decarbonizing the economy will impact the portfolio, and it is our job
to understand and manage these implications, relying on a combination of
in-house and market-leading tools and methodologies, so that we can
deliver long-term returns.
Some estimate that trillions of dollars annually are needed over
several decades to address climate change. Governments will contribute,
but significant investment will come from the private sector and
institutional investors, like BCI. We actively look across asset classes
for opportunities benefiting from, or supporting, the energy
transition, while always keeping our focus on meeting return
expectations. We have made substantial progress:
Our total participation in sustainable bonds now surpasses
$2.5 billion, with $1.7 billion completed in 2021, bringing us more than
halfway towards the $5 billion investment expected by 2025.
QuadReal, BCI’s real estate and mortgage company, has the
third-largest real estate green bond program in Canada, raising nearly
$1.2 billion since 2020. The program finances current and future
projects with clear environmental benefits, and supports QuadReal’s
commitment to reducing its operational carbon footprint.
In our
infrastructure portfolio, in February 2022 we agreed to acquire a
significant interest in Reden Solar, a leader in solar energy
development with operations across Europe and Latin America.
We are also evolving our climate strategy to remain competitive and
reflect the latest science. Later this year, we will release our updated
Climate Action Plan, setting out our comprehensive strategy for
managing climate change across asset classes.
THE POWER OF PARTNERSHIPS
Decarbonizing our economy is an immense challenge that requires
multi-stakeholder collaboration. BCI partners locally and globally to
support initiatives driving meaningful change and to advance our
knowledge and influence on matters most material to our clients.
In 2021, we announced a three-year climate finance research project
with the University of Victoria and the Pacific Institute for Climate
Solutions. Our partnership combines BCI’s climate scenario and valuation
expertise with leading academic and applied research to build data and
capacity in the field, and broadly share learnings with peers, academia,
policymakers, and the public.
Supportive government policy is critical to accelerating the
transition to a low-carbon economy and BCI actively engages with
policymakers. We advocate for policies aligned with achieving the global
goal of driving emissions to net zero by 2050 and support mandatory
public company disclosure in line with the Task Force on Climate-related
Financial Disclosures. In 2021, we were appointed to the federal
government’s Sustainable Finance Action Council, where we are helping to
shape sustainable finance markets in Canada. At a provincial level in
British Columbia, we participated on the new ESG Advisory Council,
consulting with the Minister of Finance on ESG-related issues for the
2022 budget.
INCREASING OUR EXPECTATIONS OF COMPANIES
As the private sector plays a large role in transitioning to a
low-carbon economy, we increased our expectations for how companies
report on and address climate change risk. Our proxy voting record in
2021 demonstrates these expectations: we supported 80 per cent of
climate change shareholder proposals and voted against 51 directors at
34 companies for a lack of climate disclosure or poor performance —
sharp increases in both metrics compared to the prior year. Where
climate performance is not keeping pace, we engage with directors and
leadership of publicly traded companies.
We also work with our privately held companies to adopt best
practices in climate management and disclosure, and actively support
their transition to low-carbon operations — including net-zero
commitments like those made by Puget Sound Energy and Thames Water last
year. At the end of the day, our portfolio companies must evolve and
thrive so that they continue to generate value for our clients.
CHAMPIONING INCLUSIVE AND SAFE WORKPLACES
The pandemic has exacerbated inequities and occupational health and
safety concerns. Research demonstrates the link between financial
benefits and workplaces following best practices in these areas. In the
past two years, we raised our expectations of companies on gender,
ethnic, and racial diversity and actively engaged on the workforce
impacts of the pandemic. We also supported the development of reporting
frameworks and introduced key performance indicators to effectively
measure broader progress.
SECURING FINANCIAL FUTURES
Addressing climate change and ESG issues is not only a source of
potential investment opportunities, it also allows us to manage
long-term financial risks.
At BCI, we are guided by our fiduciary duty to clients and our
organizational purpose of helping hundreds of thousands of British
Columbians secure a strong financial future. The people we are serving
include our children's teachers, our health care providers, our
municipal workers, and our neighbours.
An excellent message which shows you how seriously BCI takes its commitment to addressing climate change risks and opportunities as well as its commitment to diversity, equity and inclusion.
One thing that you realize, BCI is evolving its climate strategy to remain competitive and reflect the latest science:
We are also evolving our climate strategy to remain competitive and
reflect the latest science. Later this year, we will release our updated
Climate Action Plan, setting out our comprehensive strategy for
managing climate change across asset classes.
Climate strategy isn't static, you need to evolve it as the science evolves and as you learn and adapt from others.
Now, in terms of actions, I note what Ramy Rayes, Executive Vice President,
Investment Strategy & Risk states about integration:
I also note the ESG risk and opportunity framework which works to bolster BCI's total portfolio approach and how the organization is evaluating ESG opportunities across all asset classes:
Interestingly, BCI’s strategies in fixed income will lead to an estimated
cumulative participation of $5 billion in sustainable bonds
by 2025.
Daniel Garant, Executive Vice President & Global Head, Public Markets, states this:
The growth of the sustainable bond market and the strong demand for labelled bonds demonstrates that ESG-focused investments are becoming a long-term, mainstream trend.
BCI’s fixed income strategies allowed us to surpass 50 per cent of the $5 billion in investments we expect to reach by 2025. This acceleration supports our clients’ return objectives and provides positive outcomes through use of proceeds.
In terms of external managers, there is a comprehensive evaluation framework to evaluate them
And Jim Pittman, Executive Vice President & Global Head,
Private Equity, states this: "Improved transparency, quality, and
comparability of industry-level ESG
information will strengthen our ability to
measure and manage ESG factors when
seeking opportunities and managing risk
in our private equity portfolio."
I also think it is worth mentioning the great work BCI's real estate subsidiary, QuadReal, is doing on integrating ESG in its portfolio:
The same goes for Infrastructure and Natural Resources, the team is integrating ESG factors in every investment:
It is also worth noting BCI's approach to engagement with public companies, even with a giant like Amazon:
What else? Along with encouraging other companies to follow the
TCFD’s recommendations, BCI is committed to incorporating them
into its own reporting and disclosure practices:
I am only providing you with a glimpse of how BCI integrates ESG in its portfolio and engaging with its clients on these initiatives:
Once again, a full detailed discussion on BCI's 2021 ESG report is beyond the scope of a blog comment.
I highly recommend you take the time to read BCI's 2021 Annual ESG report here and the supplementary case studies here (click on PDF icon on top to get the PDF file).
This report is so comprehensive, so detailed, providing a lot of great insights and I am really only scratching the surface above.
Lastly, I want to publicly recognize BCI's ESG Working Group and all those who worked so hard to contribute and produce such an in-depth report, they should be very proud as should all of BCI's employees who contributed to this detailed report:
I also want to congratulate BCI's CEO/CIO for being named one of BIV News' BC500 in Banking and Finance. BC500 features influential leaders who have made an impact on British Columbia's communities, industries and economy:
Well done and well deserved! As a reminder, I recently covered BCI's 2021 results and had a detailed discussion with Gordon covering the results and more.
Below, BCI's CEO/ CIO Gordon Fyfe took part in a panel discussion on long-term strategic thinkers
at the Milken Institute back in May. Take the time to watch this
discussion and listen to Gordon's discussion on strategy (minute 11) and
his views on many issues including why
engagement works better than divestment.
Comments
Post a Comment