2024 UPDATES

• Released its inaugural stewardship report in October 2024.

• Continued to lead Climate Action 100+ engagements with companies in high-emitting sectors.

• Reported voting against directors at over 100 companies for climate-related reasons, including insufficient disclosures, a lack of emissions reduction targets, and failure to link executive compensation to the achievement of climate goals.

• Filed a shareholder proposal seeking assurance on TC Energy’s climate-related emissions metrics, including methane. Withdrew the proposal after the company committed to publishing a roadmap to attain assurance and reassess, by July 2025, joining the Oil & Gas Methane Partnership 2.0.

• Responded to Canadian and American methane policy consultations, expressing strong support for proposed federal methane regulations while recommending enhancements to accelerate implementation timelines, strengthen emissions monitoring and narrow venting exceptions.

OVERVIEW

BCI’s engagement and sustainability staff have demonstrated their ability to take on a leadership role on climate when engaging with public companies. Now they need pension plan trustees and BCI’s senior staff and board to understand the futility of engaging with the fossil fuel sector and develop and approve a time-bound, escalatory framework for both private and public companies that are unable or unwilling to align their business model with a safe climate.

DETAILS

BCI’s engagement with and stewardship of its private portfolio companies is lacking, with an inadequate target and little to report in terms of results. BCI still needs to strengthen climate expectations—including by setting its own net-zero target—for its owned companies to have a credible net-zero pathway. 

The pension manager has somewhat stronger expectations articulated for public companies through its climate-related proxy voting guidelines. In 2024, BCI demonstrated follow-through on these guidelines, including by voting against directors for climate-related reasons. BCI has been willing to transparently report on collaborative climate engagements and has in a few cases been public about escalating engagement—for example by filing a shareholder proposal ahead of Imperial Oil’s 2023 annual general meeting and by filing, and then subsequently withdrawing, a proposal ahead of TC Energy’s 2024 annual general meeting.

However, there is no evidence that BCI’s engagement efforts have done anything to convince either of these companies to align their business model with climate safety, as they continue to increase production and build new fossil fuel infrastructure. Whether with public companies or privately-owned assets, the investment manager’s efforts to engage with fossil fuel companies only serve to highlight these companies’ inability and/or unwillingness to do what is necessary to avert catastrophic climate outcomes that undermine the retirement security of BC pension plan members.

BCI is engaging on climate policy more transparently than most funds and states that its policy advocacy in the short term will attempt to “increase the pace of action toward the global goal of net zero by 2050.” 

BCI’s policy advocacy, follow-through on its proxy voting guidelines and examples of escalation have led to a small increase this year in its score on Climate Engagement.

Expectations and escalation

Portfolio companies

BCI’s efforts at engaging its own privately-owned portfolio companies on climate appear weaker than its engagement with public companies and on climate policy.

BCI has not set the expectation that its portfolio needs to align to net-zero. For its most carbon-intensive assets—defined as the companies that make up over 80% of BCI’s carbon footprint—it has set out only a modest target that 80% would either have established net-zero-aligned commitments by 2030 or be “the subject of direct or collaborative climate engagement.” BCI’s 2024 update was that only 11% of such investments had made mature net-zero commitments. In its Infrastructure & Renewable Resources portfolio, which contains fossil gas pipeline companies, oil and gas producers and fossil fuel power generation assets, BCI has not demonstrated how its ownership of and influence over private companies has led to climate alignment.

BCI’s low expectations and lack of consequences for companies that fail to align on climate should be contrasted with pension managers such as the Ontario Teachers’ Pension Plan (OTPP), which expects its investments to have credible, science-based net-zero plans and targets, including scope 3 emissions where material, within two years of OTPP’s investment. OTPP has committed that 66% of the portfolio’s emissions will be covered by such plans by 2025 and 90% by 2030. Unlike that of BCI, OTPP’s commitment has no loophole for continued engagement of companies that fail to comply.

Public companies

BCI’s efforts to engage public companies on climate seem to be more rigorous. Its proxy voting guidelines set out some important climate-related expectations. BCI also discloses an above-average level of detail about its engagements, including in its inaugural Stewardship Report, which includes its annual “Engagement Inventory”.

As a Climate Action 100+ investor participant, BCI notes it is one of the few large Canadian investors leading engagements with high emitting sectors. BCI reported leading engagements with Suncor Energy, Canadian Natural Resources Limited and Teck Resources Limited, and supporting engagements with six other companies, including Chevron and ExxonMobil. Some of these engagements are further discussed below (see Misguided attempts to engage the fossil fuel sector).

Proxy Voting Guidelines

While BCI’s Proxy Voting Guidelines do not state that the investment manager expects companies to have credible net-zero pathways, they do contain some noteworthy climate considerations.  

BCI strengthened its proxy voting guidelines in 2023 to require publicly-traded companies to incorporate climate assumptions and risk assessments into their audited financial statements, noting that if companies in high-emitting sectors fail to provide such disclosures, external auditors should note this. The guidelines also state that BCI may vote against a company’s financial statements if they lack sufficient detail on climate-related risk. This addition built on previous climate-related considerations in the guidelines, including an expectation that directors oversee climate risks and a willingness to vote against directors based on “ESG” failures, including those related to climate risk. Since 2021, BCI has said that it will consider voting for “more prescriptive” climate proposals.

The 2023 guidelines note that such proposals include “asking companies to align emissions reduction targets with best practices”. BCI states that it will “generally support” shareholder proposals “related to climate change risk and adopting best practices.”

BCI publishes its proxy votes in a searchable database in advance of companies’ annual general meetings. Its disclosure includes a rationale for votes against management and for votes on shareholder proposals.

Voting record and escalation

BCI’s score on Climate Engagement improved this year in part due to the investment manager’s escalation and follow-through on its climate-related proxy voting guidelines, although the pension manager’s ongoing attempts to engage the fossil fuel sector are fundamentally flawed.

According to a February 2024 Investors for Paris Compliance (I4PC) analysis of a selection of shareholder resolutions from 2023 that aligned with Climate Engagement Canada (CEC) and Climate Action 100+ principles, BCI voted in favour of 22 and against four. BCI’s 85% rate of support in I4PC’s 2023 analysis was an encouraging increase from its 52% rate of support in I4PC’s 2022 analysis.

In its 2023-2024 Stewardship Report, BCI reported supporting proposals for large North American banks to disclose the ratio of low-carbon energy financing to fossil fuel financing. The pension manager reported voting against directors at 21 companies for failing to link compensation to climate targets, voting against directors at 17 companies for a lack of emissions reduction targets; and voting against directors at 94 companies for insufficient climate-related disclosures.

Misguided attempts to engage the fossil fuel sector

BCI’s escalation on climate issues makes sense for companies that have a profitable and credible pathway to align their business model to net-zero. But for companies with business models that depend on continued combustion of fossil fuels, BCI’s approach seems more like foot-dragging. It appears as if BCI’s engagement and stewardship staff are being put through a futile and time-consuming exercise of voting against directors and for climate-related shareholder proposals at companies that have no intention of responding to investor pressure.

The oil and gas industry may from time to time throw a bone to climate-focused investors: BCI notes that companies including Enbridge, TC Energy and Suncor, “have introduced a greenhouse gas related metric for long-term compensation arrangements, demonstrating a commitment to meeting emissions reduction goals over time.” Similarly, TC Energy seems to have responded to BCI’s engagement on methane by promising to “publish a roadmap” and “reassess” joining the Oil and Gas Methane Partnership 2.0. 

But these companies are not setting credible net-zero strategies. Based on information to June 2024, Enbridge fails to meet almost all criteria on CEC’s Net Zero Benchmark and scores a “D” for misaligned climate policy engagement; TC Energy does not meet any CEC Net Zero Benchmark criteria and scores a “D-” on climate policy engagement; and Suncor similarly fails on Climate Action 100+ benchmark and alignment assessments. Similarly, while BCI has in the past pointed to its engagement with ExxonMobil as an example of successful climate engagement, the oil and gas major has repeatedly demonstrated it has no intention of aligning its business model to a safe climate.

Other Climate Action 100+ investors have recognized the futility of continuing to engage with the fossil fuel sector. For example, Europe’s largest pension fund, ABP, announced it would exit coal, oil and gas after engagement efforts were ineffective, and Sweden’s AP7 is blacklisting oil companies for failing to align with the Paris Agreement.

BCI is not doing itself or its clients any favours by attempting to use its influence to engage a sector that has proven again and again to be hostile to engagement and resistant to fundamental change. The pension manager’s engagement and sustainability staff have considerable expertise; their efforts will be better focused on continuing to vocally and publicly push for ambitious government climate policy, and on engaging with sectors and companies that do have a pathway to transition and that do not expose BCI’s portfolio to unacceptable stranded asset risks.

External managers

It is unclear what direction BCI gives to external managers on identifying and managing climate-related financial risks. BCI’s disclosure about external manager engagement refers mostly to “ESG”, with no specific climate-related criteria disclosed. Meanwhile, BCI itself sets a poor example for its external managers, having failed to commit its portfolio to net-zero.

BCI could improve its external engagement by learning from the examples of the Investment Management Corporation of Ontario (IMCO) and University Pension Plan (UPP).

IMCO has provided above-average detail on the process it uses to conduct due diligence and screening of external managers, including questions related to net-zero commitment, portfolio alignment with net-zero, climate risk and opportunities, carbon footprinting including scope 3 “if appropriate,” and climate-related targets and metrics. The investment manager has stated it would “prioritize partnerships with external managers that have made, or plan to make, net zero commitments and increase investment in companies with net zero commitments.”

In 2024, UPP reported that it engaged with external managers to familiarize them with the fund’s Climate Transition Investment Framework and “encouraged” external managers to “submit emission reduction targets for Science Based Targets Initiative validation, enhance proxy voting policies informed by climate commitments, implement processes to measure and manage physical climate risks, and communicate climate expectations to portfolio companies more decisively.” UPP also states that it will prioritize partnerships with entities that have made, or plan to make, net zero emissions commitments.

Policy engagement

BCI deserves recognition for its policy engagement, including its recognition of the importance of policy advocacy given the lack of global progress on climate targets. According to the investment manager’s 2023-2024 Corporate Annual Report, “BCI’s policy advocacy in the short term will continue to promote regulatory and policy ambition and certainty to increase the pace of action toward the global goal of net zero by 2050.”

The report states that the investment manager contributed to 26 ESG-related policy consultations, roundtables, and joint statements in its most recent fiscal year, on topics such as climate change, biodiversity, and corporate governance. BCI discloses its comments and submissions publicly.

BCI’s 2023-2024 Stewardship Report detailed its efforts to support stronger policy and regulatory measures to curb methane emissions in Canada and in the United States. These efforts include joining with other investors in 2021 to call on the U.S. government to reinstate previous methane rules for oil and gas wells and to strengthen the Environmental Protection Agency’s authority. BCI also reported that it participated in federal methane policy consultations in Canada and the US in early 2024.

In its submission to Environment and Climate Change Canada (ECCC), BCI expressed explicit support for the proposed regulatory framework, emphasized the critical importance of addressing methane emissions from oil and gas operations, and acknowledged that “ambitious action to address oil and gas methane emissions is critical to help investors understand and reduce our exposure to climate risk and avert the worst consequences of climate change on the finance system.” BCI also called for ECCC to implement even more stringent regulatory measures than those initially proposed.