BCMPP’s Climate Ambitions Constrained by Investment Manager

British Columbia’s Municipal Pension Plan (BCMPP) continues to lead its fellow provincial public sector pension plans when it comes to climate action, as evidenced by its 2023 Annual Report. However, with all of BC’s public sector pensions managed by the British Columbia Investment Management Corporation (BCI), how much climate progress is truly possible without an investment manager with a credible climate plan?

Positive Steps Towards Addressing Climate Change

BCMPP has taken several positive steps in its approach to the climate crisis that indicate the plan is more advanced in developing a credible climate plan compared to other BC pension plans and their shared investment manager, BCI, including:

1. Net-zero commitment: The BCMPP has set a goal to achieve a net-zero portfolio by 2050, aligning with global efforts to limit warming to 1.5°C above pre-industrial levels (p.2).

2. Interim target: BCMPP aims for a 55% reduction in portfolio emissions intensity by 2030 (from 2020 levels), demonstrating a commitment to near-term action (p.2) and recognizing that averting dangerous global warming requires immediate emissions reductions.

3. Systemic risk recognition: BCMPP acknowledges climate change as a major social and economic risk that must be addressed (p.13).

4. Investor role: The plan recognizes the critical role investors play in facilitating the low-carbon transition, indicating a proactive stance on climate action (p.43).

While many of these goals appear to go further than the actions of other BC public pension plans, their credibility is undermined by BCMPP's relationship with BCI, its investment manager whose actions, portfolio companies, investment decisions and policies often contradict these climate objectives. The approach to climate change of BC’s other public pension plans, such as BC’s Teachers’ Pension Plan and Public Sector Pension Plan, as well as BCI itself, lags behind BCMPP's stated objectives in several key areas:

1. Lack of net-zero commitment: Unlike BCMPP, BCI and other BC public pension plans have not committed to achieving net-zero financed emissions by 2050 or sooner.

2. Absence of portfolio-wide targets: BCI has not set interim portfolio-wide emissions reduction targets, either intensity-based or absolute. BCI has two targets to reduce emissions: an intensity-based target in its public equities portfolio, and an absolute target in its real estate portfolio. But these limited targets are unambitious, especially since BCI has already met one target a year early. BCI remains one of the few major Canadian pensions without portfolio-wide emissions reduction targets.

3. Ongoing fossil fuel investments: BCI continues to acquire new oil and gas assets, such as its recent stake in National Gas, the UK's gas transmission network, that increase MPP’s exposure to fossil fuels and undermines the credibility of BCMPP’s net-zero target and climate plan.

BCMPP's climate initiatives represent significant progress in integrating climate considerations into pension fund management. However, as long as BCI continues to increase its exposure to fossil fuel assets that lack a credible climate strategy, BCMPP's ability to fully realize its climate goals will be constrained. 

BCMPP's Oversight Role and Future Directions

As the administrator of the BCMPP, the Board of BCMPP has a crucial oversight role in ensuring its climate goals are met. Current oversight mechanisms include:

1. Setting investment beliefs and goals through the Statement of Investment Policies and Procedures (SIPP).

2. Overseeing BCI's performance in managing the plan's assets.

To strengthen its climate approach and address the gap between its objectives and BCI's lacklustre Climate Action Plan, BCMPP should consider the following improvements:

1. Protecting plan members from stranded assets: Develop strategies to mitigate the risk of the portfolio’s fossil fuel assets, which face terminal decline and must be rapidly phased out to achieve net-zero emissions and avert dangerous global heating outcomes.

2. Excluding new fossil fuel investments: Incorporate explicit language in the BCMPP SIPP to prohibit new investments in fossil fuel assets.

3. Enhancing disclosure: Provide more detailed information on BCMPP’s Climate Action Plan, including specific milestones and strategies.

4. Aligning with credible net-zero bodies: Join and align with reputable net-zero investment initiatives to strengthen accountability and best practices, such as the Net Zero Asset Owner Alliance or the Paris Aligned Asset Owners.

5. Directing fossil fuel phaseout: Instruct BCI to set clear targets for phasing out investments in companies that fail to align with net-zero pathways.

While BCMPP has shown leadership in setting some climate goals, true progress will require ensuring that these ambitions are fully reflected in BCI’s investment strategy. As climate risks and opportunities continue to reshape the investment landscape, BCMPP's ability to navigate this challenge will be crucial to securing its members' long-term financial future in a climate-constrained world. As much of BCMPP’s assets are in pooled funds managed by BCI, BCMPP's climate strategy appears to be more about optics than substantive action, leaving its members' long-term financial security vulnerable to escalating climate risks.