Climate and Energy Analysis of BCI’s 2023-2024 Annual Report
On June 27, 2024, the British Columbia Investment Management Corporation (BCI) released its 2023-2024 Corporate Annual Report. BCI is the pension manager for 740,000 British Columbians, including teachers, health care workers, college and university staff, and municipal and provincial public servants.
The report shows that BCI is making progress on aligning its portfolio with a safe climate. It has surpassed its 2025 target for investing in sustainable bonds, exceeded its 2025 target to reduce the emissions intensity of its public equities portfolio and is beginning to report progress toward engaging its highest-emitting companies to develop mature net-zero plans. The investment manager has laid out strong climate expectations in its proxy voting guidelines, is disclosing some details of engagement to stakeholders and has recently raised its voice on key climate policy engagements, such as by responding to Environment and Climate Change Canada consultations on methane regulations.
But to make its approach to climate-related risks comprehensive and credible, BCI still must fill in the missing pieces by:
Committing to net-zero financed emissions by 2050 at the latest;
Setting interim portfolio-wide emissions reduction targets (both intensity-based and absolute);
Measuring and disclosing the emissions of BCI’s Infrastructure & Renewable Resources portfolio, and setting targets to reduce them, backed by credible transition plans;
Backing its engagement of high-carbon companies with an escalatory approach to divestment;
Placing an exclusion on new fossil fuel investments;
Developing a phase-out plan for existing fossil fuel assets;
Setting an ambitious target for investments in climate solutions.
Progress, But Still No Net-Zero Commitment
BCI achieved its target to reduce the emissions intensity of its public equities portfolio 30% by 2025 ahead of schedule, achieving a 40% reduction below a 2019 baseline. In addition, the investment manager’s overall portfolio footprint decreased by 31% compared to fiscal year 2020. BCI attributes this decrease “mainly due to overall emission reductions at several of the highest emitting assets in the portfolio” (39). BCI also recognizes that climate stability is critical to fulfilling its mandate, stating that it will continue to use its influence “to help avoid the negative long-term economic outcomes that may result from climate change, which is crucial for meeting [BCI’s] long-term return objectives” (68).
However, BCI has not yet committed to net-zero financed emissions by 2050 or sooner. CEO Gordon J. Fyfe writes in the Annual Report, “I am proud of our team’s ongoing work to support the global goal of net zero and align our portfolio to a low-carbon future,” yet stops short of committing the BCI portfolio to a net-zero target (p.10). BCI is one of only three major pension managers in Canada that has not yet committed its portfolio to net-zero, rendering its current climate approach incomplete and lacking a fundamental objective.
Investments in Climate Solutions
BCI reported that it has surpassed its 2025 goal by "exceed[ing] $5 billion in total cumulative participation in sustainable bonds, including 70 per cent green bonds" (37). Cumulatively, BCI has participated in 113 sustainable bond offerings valued at $5.23 billion (p.24). However, BCI's calculated “exposure to climate-related opportunities” decreased this fiscal year from $11.1 billion to $10.7 billion, attributable to “valuations and ownership changes in the real-estate portfolio” (p.73). According to BCI’s 2022 Climate Action Plan, the pension fund calculates its exposure to climate-related opportunities as follows: “50 per cent of BCI’s exposure to companies that generate over 10 per cent of their revenue from aligned products and services, and 100 per cent of exposure for companies with over 50 per cent of their revenue meeting the criteria” (p.10).
BCI uses climate criteria found in the Sustainable Development Investments Asset Owner Platform, green building classifications, Green Bond Taxonomy, and investments in climate-themed opportunities. This definition continues to be concerning because it appears that a coal-fired electric utility or an oil and gas producer that happens to generate 10% of its revenue from renewable energy would be considered a “climate-related opportunity” by BCI. BCI must ensure that its declarations of exposure to climate-related opportunities accurately reflect investments in climate solutions and are not fossil fuel greenwashing.
Aside from its sustainable bonds target, BCI has no commitment to increase investments in climate solutions. BCI’s peers, including both larger and smaller funds, have set climate solutions investment goals. For example, the Healthcare of Ontario Pension Plan (HOOPP) has committed to investing $23 billion in “green assets'' by 2030 using the Climate Bonds Initiative Taxonomy; the Investment Management Corporation of Ontario (IMCO) has set an interim target for 20% of its total assets under management to be invested in climate solutions by 2030; and PSP Investments has targeted $70 billion invested in "low-carbon activities that lead to positive environmental impacts” by 2026.
According to the International Renewable Energy Agency (IRENA) the climate transition will require US$5 trillion to be invested each year into climate solutions. As a long-term investor that requires climate stability to meet its mandate, BCI should commit to ambitious climate solutions investment targets to safeguard its portfolio for the long-term.
Ongoing Fossil Fuel Investments
BCI continues to invest in fossil fuels but has not disclosed a plan to profitably phase out or wind-down these assets in line with a safe climate. BCI also owns significant stakes in fossil fuel companies and assets all over the world, including coal plants in Louisiana and Texas, oil and gas producers in Alberta, and gas pipelines in the UK, Germany and Brazil. In March 2024, BCI quietly completed its additional 20% co-acquisition of National Gas, the UK’s gas transmission network, bringing its total joint investment to 80% with the option to acquire the final 20% this year. BCI’s 2023-2024 Corporate Annual Report does not mention these private fossil fuel infrastructure assets or how they factor into BCI’s climate plan. This is concerning given that these investments are some of the most carbon-intensive in BCI’s portfolio and carry the most risk of becoming stranded assets as the world transitions away from fossil fuels.
In its annual report and an article published on the same day, Escalating Engagement: Methane Disclosure, BCI emphasizes that it “believes in engagement and advocacy over divestment in high-emitting sectors such as oil and gas.” While immediate reductions in oil and gas methane emissions are critical to achieving global climate targets, BCI does not explain how the oil and gas sector, the business model of which fundamentally causes greenhouse gas emissions from combustion, can be “engaged” to align with the “global goal of net zero” that BCI claims to support.
High-carbon industries such as steel, cement, transportation, mining and utilities can be transitioned to zero emissions. These industries are sensible places for pension managers like BCI to invest in decarbonization and engage companies to develop and execute science-based transition plans. But the business model of coal, oil, gas and pipeline companies is predicated on the continued burning of fossil fuels. The only science-based transition plan for the fossil fuel sector is a managed wind-down of production and early retirement of assets. Internationally, institutional investors such as Europe’s largest pension fund ABP and the Church of England Pensions Board have tried for years to engage the fossil fuel sector on climate and finally determined that the sector is unable or unwilling to align with the goals of the Paris Agreement. BCI’s commitment to “engagement and advocacy over divestment” in these sectors is misguided, especially since BCI doesn’t communicate the expectation that aligning its fossil fuel holdings with net-zero requires the phase-out of production and early retirement of assets.
Aligning Portfolio Companies to Net-Zero
In its 2022 Climate Action Plan, BCI committed that 80% of its carbon-intensive investments—defined as the approximately 90 companies that make up over 80% of the carbon footprint of BCI’s portfolio—will have “set mature net-zero aligned commitments by 2030, or [be] the subject of direct or collaborative climate engagement by BCI” (p.5). In 2023-2024, BCI recalculated the number of carbon-intensive companies from 90 to 128, and reported that 11% of these companies now have “mature” net-zero commitments and 63% have “emerging” commitments (p.72). BCI does not disclose which companies have “mature” or “emerging” net-zero commitments, nor does it define what mature or emerging means. In order to limit its exposure to transition risk, BCI should set interim targets to align with this 2030 goal (PSP Investments, for example, has committed that assets representing 50% of the portfolio's carbon footprint will be covered by a mature science-based transition plan by 2026), establish consequences (beyond continued engagement) for those companies unable or unwilling to establish mature net-zero commitments, and eliminate its exposure to fossil fuel companies that have no pathway to transition.
Climate Engagement
Engagement with TC Energy
In its Insights Article on methane disclosure, BCI reports on its engagement with fossil fuel infrastructure company TC Energy. BCI had been engaging with TC Energy for two years before escalating to filing a shareholder proposal focused on the company’s measurement and reporting of emissions, including methane, in line with the Oil and Gas Methane Partnership 2.0 (OGMP). However, BCI withdrew the proposal after TC Energy agreed to “publish a roadmap to reasonable assurance and reassess its membership in the OGMP by July 2025”. This modest concession from TC Energy may help the company prepare for increasingly stringent methane regulations, but does not help align the company with a net-zero pathway. As a company dependent on the transportation of fossil fuels for combustion, TC Energy cannot credibly align with net-zero emissions without halting its expansion of new fossil fuel infrastructure and retiring existing assets early.
While Shift supports immediate methane reductions in the oil and gas sector, it is difficult to understand why BCI would narrowly focus on TC Energy’s methane emissions at the same time that TC Energy is building new fracked gas pipelines, lobbying to exempt methane and LNG plants from Canada’s proposed oil and gas emissions cap, facing an investigation by BC’s lobbyist watchdog for the company’s role in undermining climate policy and attempting to sue the U.S. government for blocking the construction of the Keystone XL tar sands pipeline. According to Climate Engagement Canada’s Net Zero Benchmark, of which BCI is a member, TC Energy is failing across the board to align its business with net-zero.
BCI’s 2023-2024 Corporate Annual Report does not state whether the investment manager completed any engagements with companies regarding violations of Indigenous rights. TC Energy continues to be the subject of controversy for its joint ownership of the Coastal Gaslink pipeline and its ongoing violations of Indigenous rights. TC Energy is a highly questionable example to provide as an example of engagement for a pension manager that claims to care about climate action and Indigenous rights.
BCI announced in its 2023-2024 Corporate Annual Report that it will "introduce an annual supplementary report focusing on ESG engagement and active ownership in the fall of 2024” (6). This forthcoming report is a good opportunity for BCI to disclose additional climate-related engagements as well as engagement undertaken to ensure BCI’s portfolio companies respect the United Nations Declaration on the Rights of Indigenous Peoples and obtain Free, Prior, and Informed Consent from Indigenous Nations whose lands are affected by their activities.
Engagement with External Managers
BCI reported that it updated its proprietary ESG Framework for External Managers to include climate change, and that the framework was used to assess all new external managers and partners in fiscal 2024 (40).
Policy Engagement
BCI has been more public than most of its Canadian pension manager peers in putting forward comments and submissions in support of climate-related financial disclosures and climate-related policies and regulations. For example, in 2023-2024, BCI provided responses to the U.S. Environmental Protection Agency and Environment and Climate Change Canada consultations on methane regulation. BCI states that it will continue to support “public policies and regulations that enable an orderly and predictable transition and aim to prepare companies to be resilient under any [warming] scenario” and in the short term will “promote regulatory and policy ambition and certainty to increase the pace of action toward the global goal of net zero by 2050” (68).
Climate Integration
BCI reported that an internal ESG and climate platform now allows portfolio managers to “evaluate future implications of portfolio construction decisions on BCI’s total carbon footprint” before making an investment decision (40). The investment manager has also introduced “climate solution playbooks” for internal use (42).
Board Involvement
BCI has not disclosed a Board competencies and experience matrix, and climate expertise is not specifically mentioned as a director competency (55). However, BCI notes that in 2023-2024 the Board received education on climate change scenario analysis, strategy reporting and risk assessment, and assessed revisions to BCI's approach and actions on climate change (67).
Emissions Disclosure
BCI reported its scope 1 and 2 financed emissions and for the first time obtained limited assurance from its auditor on the public markets portfolio carbon footprint. BCI notes that scope 3 emissions are excluded “due to data quality, comparability, coverage and standards in place in the market” (77). BCI recognizes (as indicated, for example, in BCI’s recent joint submission to the Canadian Sustainability Standards Board) that its portfolio’s scope 3 emissions are important in assessing risk exposure and transition potential. The investment manager should ensure it is monitoring this risk by setting interim goals for obtaining scope 3 data.
BCI disclosed its operational scope 1, 2 and 3 emissions and stated it offsets these emissions by “procuring and retiring offsets from the BigCoast Forest Climate Initiative on Vancouver Island.” A recent Globe and Mail investigation questioned the legitimacy of the BigCoast Forest Climate Initiative’s accreditation system. Renoster Systems Inc., a carbon-credit ratings agency, accused BigCoast of “gerrymandering” and claimed the project lacks additionality because it includes areas unlikely to be logged and therefore does not provide any real new carbon storage. BCI has not commented on this controversy and how it could affect the calculations of its operational emissions.
It’s Time for BCI to Complete the Picture
BCI has made some encouraging moves in a climate-aligned direction, and it’s time for the investment manager to add it all up and create a comprehensive, credible climate strategy. BCI can strengthen its “support the global goal of net zero” rhetoric by making a firm commitment to reach net-zero financed emissions by 2050 or sooner and by placing an exclusion on new investment in fossil fuels. Building on the emissions reductions achieved in its public equities portfolio and its commitment to engage its highest-emitting companies to put credible net-zero plans in place, BCI could commit itself to interim portfolio-wide emissions reduction targets. After surpassing its sustainable bonds target, BCI could set an ambitious target to invest in credible climate solutions. And following on its increasingly vocal and escalatory engagement with fossil fuel companies to achieve marginal scope 1 and 2 emissions disclosure, BCI could recognize what other leading engagement-oriented funds have already accepted: there is no pathway to engage fossil fuel producers to reach net-zero other than phase-out.
BCI has put a lot of pieces in place: it’s time to complete the picture.