Seeking clarity from IMCO on its confusing fossil fuel exclusion policy

In June, 2023, working and retired public servants from across Ontario sent a letter today to their pension manager, the Investment Management Corporation of Ontario (IMCO), seeking clarity on its confusing policy for restricting and phasing out investments in fossil fuels. The letter was sent to IMCO’s President & CEO, Vice-President for Responsible Investing and Board Chair, as well as the President & CEO and Chair of the Ontario Pension Board. Below are the contents of the letter.

Investment Management Corporation of Ontario
16 York Street, Suite 200
Toronto, ON M5J 0E6

Attn:
Bert Clark, President and CEO, IMCO
Hyewon Kong, Vice-President, Responsible Investing, IMCO
Brian Gibson, Chair of the Board, IMCO
Mark J. Fuller, President & CEO, Ontario Pension Board
Geri Markvoort, Chair of the Board, Ontario Pension Board

RE: Seeking clarity on IMCO’s “climate guardrails”

Dear Mr. Clark and Mr. Fuller,

We are writing as members of Ontario’s Public Service Pension Plan who hope to enjoy a secure retirement in a future that limits the global temperature increase to 1.5°C and avoids the worst impacts of the climate crisis.

We appreciate that IMCO fully supports this goal, through its membership in the Paris Aligned Investment Initiative, its commitment to achieve net-zero emissions by 2050 or sooner, and its Climate Action Plan released in November. We also appreciate the leadership that IMCO has demonstrated by committing to invest 20% of its portfolio in climate solutions by 2030, setting ambitious emissions intensity reduction targets, and prioritizing engagement activities and external investment managers that focus on the management of climate-related financial risk.

We were relieved to see that IMCO’s Climate Action Plan includes “climate guardrails” to “limit (IMCO’s) exposure to investments that are incompatible with a net-zero future” and “phase out new investment commitments in development of new unabated fossil fuel assets, in line with appropriate global, science-based scenarios and limit exposure to investments in thermal coal mining and arctic drilling”.

However, we are confused by this wording, and IMCO’s 2022 annual report did not provide further clarification. We are asking you to provide clarity on the climate guardrails, specifically:

1) What exactly does IMCO mean by “limit(ing) its exposure to investments that are incompatible with a net-zero future"?

a) By how much, in percentage of AUM or dollar terms, does IMCO plan to limit this exposure?

b) By what date does IMCO plan to limit this exposure?

c) Which categories of investments does IMCO consider to be incompatible with a net-zero future?

2) What does it mean to “phase out new investment commitments in development of new unabated fossil fuel assets”?

a) Presumably, “new investment commitments” are those that have not yet been made. If that’s the case, how can IMCO “phase out new investment commitments”?

b) By what date does IMCO plan to phase out these new investment commitments?

3) What does IMCO mean by “unabated fossil fuel assets”?

a) Are there fossil fuel assets in the IMCO portfolio that are currently “unabated”?

b) Are there fossil fuel assets in the IMCO portfolio that are currently “abated”?

4) Why do the climate guardrails focus on “limit(ing) exposure to investments in thermal coal mining and arctic drilling” in particular?

a) What exactly does IMCO mean by “limit(ing) its exposure”? Limit by how much?

b) What rationale is IMCO using to differentiate investment in thermal coal mining and arctic drilling from investment in other fossil fuel production activities?

c) What are the thresholds IMCO is using to define investments in thermal coal mining and arctic drilling?

5) IMCO states that its “interim emission reduction target is aligned with science-based net zero pathways developed by the Intergovernmental Panel on Climate Change (IPCC), International Energy Agency (IEA), Networking for Greening the Financial System (NGFS), and One Earth Climate Model (OECM)” (p.12). Are these the same net-zero pathways IMCO is using to inform its climate guardrails?

a) If so, why don’t IMCO’s climate guardrails explicitly screen for new investment in companies expanding fossil fuel production (as these net zero pathways unambiguously state that limiting global average temperature increase to 1.5°C requires no new oil and gas production projects)?

6) IMCO’s Chair of the Board, Brian Gibson, concurrently serves on the Board of Directors of Precision Drilling. Precision states that it’s “prepared to help usher in a new era of global energy production”(1) and reported a significant increase in oil and gas drilling activity, service rig operating hours, drilling services, and production services in recent years.(2) Precision’s business model and capital expenditures appear to directly contradict IMCO’s net-zero commitment and the science-based net zero pathways that IMCO says are guiding its Climate Action Plan. We perceive Mr. Gibson’s legal duty to make decisions in the financial interest of Precision Drilling’s shareholders to be in conflict with his fiduciary duty to oversee investments in our best long-term interests, which includes approving and overseeing the implementation of IMCO’s Climate Action Plan.

a) As Chair of IMCO’s Board of Directors, what role did Mr. Gibson play in developing, writing, reviewing or approving IMCO’s Climate Action Plan and climate guardrails?

b) Did Mr. Gibson recuse himself from discussions and decisions related to IMCO’s Climate Action Plan and climate guardrails?

Again, we appreciate the progress and leadership that IMCO has demonstrated with its net-zero commitment and Climate Action Plan. But we are seeking answers to these questions so we can have peace of mind that IMCO is fulfilling its fiduciary duty to identify, assess and manage climate-related financial risks and invest our retirement savings in our best long-term interests.

We would appreciate a response by July 31, 2023.

References

(1) Precision Drilling (accessed May 2023). Innovating for a brighter future. https://www.precisiondrilling.com/about/.  

(2)  Precision Drilling. (6 March 2023). 2022 Annual Report. https://s3.amazonaws.com/b2icontent.irpass.cc/2738/189685.pdf.