B.C. Pension Fund Plans $5 Billion for Sustainability Bonds as ESG Investments Surge
The investment fund responsible for British Columbia’s public sector pensions is committing to buy C$5 billion in new sustainability bonds and reduce the carbon dioxide exposure of its existing investments 30% from 2019 levels by 2025, at a moment when the broader field of environmental, social, and governance (ESG) investing is taking financiers by surprise with its “astronomical” rise.
B.C. Investment Management Corporation (BCI) isn’t setting a specific net-zero target, the Globe and Mail reports. But the investment fund, with $171.3 billion under management, said the announcement will help it align its operations with the goals of the 2015 Paris Agreement.
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“We’ve really focused on these short-term targets, feeling that they are very tangible and really show that we are taking action today, and will continue to monitor on a more long-term basis, and review those targets every five years,” Jennifer Coulson, BCI’s vice-president, ESG in public markets, told the Globe.
“The new goals build on the organization’s climate action plan, which it released in 2018,” the Globe adds, citing Coulson. “The plan addressed how BCI will manage risk and seek investment opportunities in the fight against climate change, as well as compel companies in its portfolio to achieve its environmental ambitions. It also committed to aligning its disclosure and reporting with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), now being adopted widely as a global standard.”
In a separate report, Globe sustainable finance specialist Jeffrey Jones says interest in ESG investments has been skyrocketing—to the surprise of some industry veterans.
“Dollar figures have become astronomical, with the world’s major financial players amassing capital specifically to invest in green energy, emissions reduction, and other sustainable technologies,” Jones writes. “Each week, a parade of companies from all industries announces targets for net-zero carbon emissions in the coming decades.”
As recently as last year, when the COVID-19 pandemic began, “few of those making investment decisions expected things to turn out this way,” he adds. “In a new survey of Canadian institutional investors, 93% said they were surprised, both by how quickly markets recovered and how much of a role environmental and other previously ‘soft’ factors have played in the market rally.”
Jones says there’s some concern that ESG, like information technology and cannabis before it, will become an unsustainable “bubble” that eventually falls out of favour with investors. But “from those that we spoke to, I don’t think they see it as a bubble. They see this as a very significant tipping point,” said Milla Craig, president of Millani, the Montreal-based ESG firm that published the survey. “It’s exposed the vulnerabilities, both in society and in portfolios,” with the vulnerabilities and business risks uncovered by the pandemic shining a light on the “S” in ESG. It has also served “as a reminder that climate change poses long-term risks to businesses that must be quantified and dealt with,” Jones writes.
Jones has more detail on recent ESG investment trends and policies.
In a release last week, the C.D. Howe Institute pointed to green bonds as a corner of the sustainable finance market that is “poised to regain momentum as the economy recovers from COVID,” with Senior Fellow Glen Hodgson encouraging the federal government to get onboard.
“Green bond issues were surging prior to the pandemic, with US$257.7 billion issued globally in 2019 and C$9.25 billion in Canada,” the institute states. “Canada has seen the green bond market grow rapidly over the past five years, growing by 63% in 2019 alone. As the economy recovers from COVID-19, so should the popularity of green bonds,” particularly with investors “increasingly looking for ways which demonstrate that negative externalities—like GHG emissions—are being addressed.”
The report “supports Ottawa’s involvement in green bonds as it would allow the federal government to set standards and create a baseline price, creating an environment where green bonds at the private level are traded properly in a functioning market,” the institute writes.
“Ultimately, the federal government should expect to engage all available economic and policy instruments if it is committed to reducing GHG emissions and reach net-zero emissions by 2050 within a well-performing economy,” Hodgson said.