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  • BC government pensions still depend on industrial carbon emissions

    Russ Francis

    Despite some fossil fuel divestment, BC Investment Management Corporation tripled its investment in the Coastal GasLink pipeline builder and doubled its investment in Gazprom.



    BCI recently doubled its investment in Russian fossil giant Gazprom, which owns this LNG production facility on Sakhalin Island


    STOCK MARKET HOLDINGS IN PENSION FUNDS for more than 600,000 BC teachers, public servants, college instructors, municipal staff, BC Hydro workers and others have taken a big hit in the year ending March 31, 2020.  The funds are managed by BC Investment Management Corporation (BCI).

    While BCI made a small overall gain in the year ended March 31, 2020, its investments in the Canadian stock market fell 13.9 percent. BCI also lost money in emerging market stocks (11.2 percent) and global stocks (4.0 percent).

    BCI’s share market performance would likely have been much worse had it not sold off some of its holdings in large fossil fuel companies, including Royal Dutch Shell, the lead partner in the LNG Canada project now under construction near Kitimat. However, at the same time it bought approximately 2.7 million more shares in TC Energy, which is now building the Coastal GasLink pipeline to supply gas to LNG Canada.

    Public equities comprise just under one-third of BCI’s managed assets, and overall the corporation earned 3.0 percent—including returns from private equity, fixed income (such as bonds), and real estate as well as the stock market—in the year.

    The corporation does not break down its equity investments by category, so there is no easy method of calculating its total fossil investments, nor measure their precise returns.

    However, one way of estimating its fossil share performance is to examine the shares of the firms that do the most damage to the planet. An October 2019 report by the Colorado-based Climate Accountability Institute listed the 20 worst climate-wrecking fossil fuel firms, which together produced 35 percent of total global emissions in the modern period, 1965 to 2017.

    On March 31, 2019, BCI owned shares in 10 of those 20 companies, worth approximately $660 million. The companies are Shell, Mitsubishi, Petrochina, Chevron, Gazprom, Coal India, Conocophillips, BHP Billiton, Exxon Mobil and Total SA. The 10 companies were responsible for 271,581 Megatonnes (Mt)  of CO2-equivalent emissions in that 52-year modern period, amounting to one-fifth of total worldwide emissions.

    One year later, BCI still owned shares in the same “Top Ten” firms, though the value of holdings in those firms totalled just under $189 million—less than one-third of the 2019 total.

    Of course, the value of shareholdings can drop either by a fall in the share prices or by the sale of shares. BCI’s publicly available records do not reveal earned dividends, nor share transactions. However, there is a way to estimate the number of shares BCI held in 2019 and 2020: For each firm, divide the total value on the last day of each year into the share price for that day, adjusted for historical exchange rates. This method provides only an estimate, since it does not account for the possibility that BCI participates in a dividend reinvesting program. Nor does it account for any funds paid out as dividends.

    Among the Top Ten, BCI’s largest investment on March 31, 2019 was Shell, the lead partner in LNG Canada. One year later, Shell was still BCI’s largest holding of that group.

    However, Shell holdings dropped from $219.17 million to $43.46 million in the one-year period. This is partly explained by the collapse of Shell’s price, from $42.16 to $25.04 in the year ending March 31, 2020. (All figures are in Canadian dollars, adjusted for historical exchange rates.) But most of the drop in value was the result of BCI unloading Shell shares. BCI sold two-thirds of the 5.2 million shares it held in 2019.

    There was one exception to the selloffs among the 10 holdings: Gazprom, the world’s largest natural gas producer, based in St Petersburg and majority-owned by the Russian state. The shares trade on Russian stock markets, as well as on the New York Stock Exchange in the form of American Depositary Receipts (ADRs). In 2019, BCI held $15.33 million in Gazprom and its subsidiaries.  A year later, that investment had nearly doubled, to $28.44 million, despite the share price growing by less than 3 percent in the year.

    At the same time, BCI sold off large portions of most of its other Top Ten holdings. The number of shares it held in Conocophillips dropped by 68 percent, and BHP Billiton by 74 percent.

    Had it not sold these stocks by last March 31, BCI’s stock market performance would likely have been worse. In the three-month period ending October 14, Exxon Mobil dropped another 23 percent, Shell and Gazprom 22 percent, and Petrochina 19 percent.

    In the case of Fluor Corporation, the Texas company leading the construction of LNG Canada’s plant, BCI sold its entire $6.51 million investment. It still owns $150,000 worth of shares in the other construction partner, JGC Holdings.

    As well, as of last March 31, BCI retained shares in all five members of the LNG Canada partnership—Shell, Mitsubishi, Petronas, Petrochina and Korea Gas. But the total value of BCI’s shares in the seven LNG Canada-related firms dropped from $269 million to $63 million, a 77 percent reduction. Much of this was the result of BCI’s sale of shares in Shell.

    TC Energy is the company building the highly controversial Coastal GasLink pipeline, a 670 kilometre project intended to deliver unnatural, fracked gas from the Dawson Creek area, through Wet’suwet’en territory, to Kitimat to supply LNG Canada. BCI increased its shareholdings in TC Energy more than three-fold, jumping from 1.2 million to 3.9 million shares.

    BCI’s actions are prima facie somewhat puzzling. If it is genuinely concerned about either the climate crisis or the poor recent performance of fossil fuel shares, why not sell all fossil fuel holdings? On the other hand, if it cares about neither, why sell any?

    Focus asked BCI external communication manager Ben O’Hara-Byrne why the corporation had sold some of its fossil fuel holdings, and whether it plans to further reduce them.

    “While we do not comment on our specific investment strategies, BCI does recognize the role institutional investors around the world can play in promoting sustainable, inclusive, and long-term growth,” he said in an email. “Assessing and managing investment risk is an integral part of how we meet our fiduciary responsibility to our clients, and climate change is a key focus of both long-term investment risk and opportunity at BCI.”

    O’Hara-Byrne added that BCI participates in Climate Action 100+, a group of more than 500 large, world-wide investors which aims to ensure that the largest corporate emitters “take necessary action on climate change.”

    What kind of action? Well, for one thing, 120 companies have now nominated a board member or committee to “oversee climate change.”

    It’s not evident that such measures are in keeping with the urgency of the climate situation.

    In July 2020, the World Meteorological Organization warned that there is a 20 percent chance that the annual mean global temperature will exceed 1.5 degrees Celsius above pre-industrial levels in at least one of the next five years. And the probability is increasing, says the United Nations organization. The probability is approximately 70 percent that one or more months in the next five years will exceed 1.5 degrees Celsius.

    UVic environmental studies associate professor James Rowe calls BCI “an interesting case.”

    “They remain invested in many of the largest reserve-holding fossil fuel companies—those companies most likely to push us beyond 1.5 degrees,” Rowe said in an email. “They also remain invested in companies with long records of climate change denial (Exxon and Imperial). Finally, they continue to hold a large stake in TC Energy, the company pursuing the Coastal GasLink pipeline on Wet’suwet’en territory without consent from hereditary leadership. They have, however, significantly reduced a number of their fossil fuel investments over this past year. The sell-off of shares is dramatic and relatively unique in the Canadian pension landscape.”

    Russ Francis is highly impressed with the recent BC government’s September 17 announcement that it is helping pay for the electrification of Centerra Gold’s Mount Milligan mine, north of Vanderhoof. This will reduce annual emissions by 4,800 tonnes of CO2e—or approximately seven one-thousandths of one percent of BC’s 2018 emissions. See? Mining is green!

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