bcimc Responsible Investing Newsletter

Transcription

1 Vol. 3 No. 1 APRIL 2016 ENVIRONMENTAL SOCIAL GOVERNANCE bcimc Responsible Investing Newsletter TOPIC: CLIMATE CHANGE bcimc is a global investor managing assets of $123.6 billion. 1 As the energy sector comprises a significant portion of the domestic and global economy, we have investment exposure across asset classes. The topic of climate change has increasingly gained momentum as posing investment risk. We expect investee companies to give careful consideration to climate change-related matters as a means of mitigating risk and enhancing longterm shareholder value. Physical risks to business operations, such as extreme weather, and evolving changes in policy and regulatory measures are predicted to have widespread economic impacts touching many sectors beyond energy. Our approach to responsible investing is three-pronged: we factor environmental, social and governance (ESG) issues into our investment analysis and decision-making, we are active owners and active participants in capital markets. We believe companies that do a good job of managing ESG factors have less risk and perform better financially over the long term. Companies in which we invest are expected to meet applicable environmental regulations and we encourage them to align their environmental practices with credible, international standards. As an active owner, bcimc encourages companies to manage climate change risks and be transparent about their progress. Disclosure of quality and consistent information on topics such as environmental risk assessments, greenhouse gas emissions (GHGs) and reduction targets, and water usage, helps give investors a better understanding of a company s overall risk profile. We raise awareness so companies can prepare for policy and regulatory changes that may impact their business outlook and operations. As an active participant in capital markets, we rely on well-functioning markets as we believe risk and return on investments depend on fair markets. Regulation plays an integral part in financial market stability and our engagement focuses on policymakers and regulators globally. Our mandate is to grow and protect the value of our clients funds. As climate change impacts vary, we customize our approach across asset classes in a manner that doesn t interfere with the efficient management of their funds. 1 March 31, 2015 INVESTING RESPONSIBLY FOR RESULTS

2 2 bcimc RESPONSIBLE INVESTING NEWSLETTER From the CEO/CIO In December 2015, 195 nations made an historic pact that recognized climate change risks. The Paris Agreement, 1 negotiated with the backing of the United Nations, has laid the groundwork for an evolving policy and regulatory environment that increasingly limits greenhouse gas emissions (GHGs). It is possible these changes can eventually impact multiple sectors, companies and regions globally, despite there being mixed views on how the agreement will play out. At the same time, a recent analysis by the International Energy Agency (IEA) forecasted that total energy demand is expected to rise over the next two decades, and supply will increase to meet demand. 2 The IEA also expects fossil fuels to remain a dominant player in the supply mix. As a global investor, we are and will continue to be invested in the energy sector. bcimc strives to generate the returns our clients require to build a financially secure future. We seek investment opportunities across all asset classes that align with our clients risk-reward expectations. In order to fulfill our mandate, we need assurances about the regulatory landscape. Gordon J. Fyfe Chief Executive Officer / Chief Investment Officer We seek policy and regulatory clarity to make informed decisions so we can continue to successfully deploy and manage capital, leveraging our large balance sheet and long-term investment horizon. We also believe pushing for regulatory reform can influence change on a larger scale. As a responsible investor, we are an active participant within global markets. bcimc advocates for policy and regulatory reform that we expect will lead to greater stability and integrity within financial markets. Since the mid-2000s, bcimc has interacted with companies, industries, regulators and policymakers, on the topic of climate change. We have pushed for regulatory reform at the regional, national and international level. As a founding signatory of the Principles for Responsible Investment (PRI), we commit to factoring environmental, social and governance (ESG) matters into our ownership practices. Shaping of policy and regulatory frameworks within capital markets is one example of putting pledge to practice. We believe financial market stability is a joint responsibility of governments, regulators and market participants. We know meaningful, large-scale change takes time. The Paris Agreement is a significant climate change milestone and we will continue to monitor developments, always with our mandate to grow and protect the value of our clients funds at the forefront of our work IEA World Energy Outlook report 2015

3 bcimc RESPONSIBLE INVESTING NEWSLETTER 3 Pushing For Regulatory & Policy Reform Alongside 347 global investors, representing US$24 trillion in assets under management (AUM), bcimc signed the 2014 Global Investor Statement on Climate Change calling on governments to develop a global agreement on climate change and bolster policies to influence investment flow toward a climate-resilient economy. We asked for meaningful carbon pricing policies, regulatory support for energy efficiency and renewable energy, as well as a focus on innovation and low-carbon technologies. Investors vowed to strengthen their capacity to assess risks and opportunities, evaluate low carbon investments and work with policymakers and companies. We believe this approach can mitigate climate change investment risks and influence change on a larger scale. Ahead of the G7 Summit in June 2015 and the Paris talks later that year, we signed an open letter to the Group of Seven Finance Ministers. Signatories, representing 120 chief executive officers of institutional investors managing US$12 trillion, declared climate change a major systemic risk. We called on leaders to develop a long-term global emissions reduction goal, as well as national action plans to mitigate policy risk, encourage research and development and deploy new technologies. After the summit, leaders agreed to phase out fossil fuels by the end of the century. 1 At Paris, 195 countries adopted an ambitious global climate agreement to take steps to keep warming under 2 C, with an ultimate goal of 1.5 C above preindustrial levels. In September 2014, bcimc alongside global investors representing US$1.3 trillion in managed assets signed the Pension Fund Statement for the UN Secretary General s Climate Summit addressed to heads of state, government and other participants at the summit. We called for policymakers and regulators to lay the groundwork to enable the flow of capital to climate-resilient infrastructure. As investors, we emphasized that we strive to assess climate-resilient opportunities, but they must align with our clients risk-return objectives. bcimc signed a 2015 letter addressed to the Alberta premier on Renewing Alberta s Climate Change Framework. The energy sector accounts for about 20 per cent of Canada s main stock index 2 and we focus on Alberta because it is home to the vast majority of the country s energy producers, of which we are invested. Alongside 120 investors managing $4.6 trillion, signatories of the letter collaboratively called for robust policy that supports credible carbon pricing and innovation in renewable energy and energy efficiency to give investors more investment certainty. Alberta unveiled an advisory group to inform climate policy, to which we expressed support for enhanced climate change action that balances the need for companies and investors to prepare for regulatory change. In the fall of 2015, Alberta unveiled its Climate Leadership Plan that included a focus on phasing out coal-generated electricity and developing renewable energy, a new carbon tax, a cap on oil sands emissions, and a new methane reduction plan. 1 U.S., Germany, France, the U.K., Japan, Canada and Italy said they supported cutting greenhouse gases by 40 to 70 per cent by 2050 from 2010 levels the first time they have backed such a precise long-term target, Financial Times, June As of March 9, 2016

4 4 bcimc RESPONSIBLE INVESTING NEWSLETTER Real Estate bcimc owns approximately 500 buildings that include a mix of residential, office, retail, industrial and mixeduse properties. Property investments involve longer horizons than other assets. Our responsible property investing approach considers risks and opportunities that may impact fund and asset performance now and into the future. We seek to build a resilient real estate program. Working with our external managers, our analysis takes a longer-term view when evaluating potential cost savings, value creation and return on investment. We pursue ways of ensuring the viability of our properties over the long term through projects related to waste management, retrofits and tenant engagement. CASE STUDY: 6985 & 6897 Financial Drive, Mississauga, Ontario Taking steps to curb greenhouse gas emissions (GHGs) is one way of managing environmental risks. In 2008, Bentall Kennedy, on our behalf, implemented a waste-to-energy program at the two buildings located in the sprawling Meadowvale North Business Park in Ontario. The program recovers waste that cannot be recycled and generates renewable energy to avoid using landfill, which can contribute to methane gas emissions. Using municipal solid waste as the primary fuel source, the waste-to-energy facilities deploy various technologies and pollution control equipment to combust and scrub greenhouse gases to prevent them from releasing into the air. Waste-to-energy increases sustainability by decreasing landfill and providing alternative heating fuel. It also reduces GHGs by avoiding emissions through long-haul transportation to ship trash. The process also produces ash that can be used in civic projects such as road construction. bcimc acquired the land in 1997 and completed the development in FROM TONS OF WASTE INTO ENERGY GENERATED 122,220 kwh OF POWER EQUIVALENT TO POWERING ROUGHLY 14 HOMES FOR ONE YEAR 1 1 Based on Statistics Canada average home consumption of 8,889 kwh

5 bcimc RESPONSIBLE INVESTING NEWSLETTER 5 CASE STUDY: Park Place, Vancouver, British Columbia bcimc recognizes the value in making upgrades to improve operational efficiencies and mitigate environmental risks. Climate change is expected to cause a rise in average temperatures and other weather events such as dry spells. 1 As such, the use of water in the air conditioning process is an environmental factor that we consider. In 2009, GWL Realty Advisors Inc. (GWLRA) on our behalf, introduced a retrofit to reduce water consumption at Park Place, a 35-storey office tower located in the heart of Vancouver s financial core. The closed-loop cooling system requires the use of significantly less water because it is recirculated back into the system rather than being immediately discharged into the sewer. We carefully consider certification programs such as Leadership in Energy and Environmental Design (LEED) and BOMA BESt when designing, building and operating our properties. Both encourage sustainable building and development practices through standards and performance criteria. About 70 per cent of our properties are certified LEED and BOMA BESt. 2 bcimc acquired Park Place in MILLION LITRES OF WATER SAVED, EQUIVALENT TO 180 OLYMPIC-SIZED SWIMMING POOLS TENANTS AVOIDED $600,000 IN UTILITY COSTS BETWEEN CASE STUDY: BP Centre, Calgary, Alberta As tenant satisfaction plays a role in the long-term resiliency of our property investments, our property managers raise awareness around the importance of conserving energy use. For one week in June 2015, Bentall Kennedy, on our behalf, conducted an energy challenge at the 31-floor BP Centre to enhance energy conservation awareness. The campaign tracked each floor s daily energy consumption compared to the previous week. Tips included turning off computer monitors and printers, desk lighting, televisions and radios. The winning tenant of the energy challenge helped to reduce energy use by 7.2 per cent. bcimc acquired BP Centre in Canada s Action on Climate Change 2 Certification is not a stated goal of our program given the economic costs

6 6 bcimc RESPONSIBLE INVESTING NEWSLETTER Public Equities As an active owner, our ESG engagement includes voting on shareholder proposals. Common climate-related proposals include improved reporting and disclosure, emissions reduction and resource efficiency. We generally support requests if a company does not have well-documented environmental management systems and/or does not monitor impacts or their actions and policies lag peers as outlined in our Proxy Voting Guidelines. 1 Climate change is one of our top engagement priorities. 2 It is our responsibility to interact and, where appropriate, challenge companies about their policies and activities. We pursue activities that are expected to have the greatest impact. IN 2015, WE VOTED ON 40 CLIMATE CHANGE SHAREHOLDER PROPOSALS OF WHICH WE SUPPORTED 75% 264% INCREASE IN NUMBER OF PROPOSALS FROM 2013 In 2016, bcimc co-filed our first climaterelated shareholder proposal that included global investors representing more than five per cent of the company s outstanding shares. We called on Anglo American Plc to report annually on the resiliency of their business model under different climate scenarios for 2035 and beyond. Other requests included emissions management, asset portfolio resilience, low-carbon energy research In 2014, we joined the PRI s Collaborative Engagement on Hydraulic Fracturing as a steering committee member, helping to launch the initiative by identifying objectives and target companies. Methane gas is a focus of the collaboration as leakage is a key environmental and reputational risk for fracking operations. Regulators are becoming more stringent on methane rules in Canada and the United States, representing regulatory risk for companies. Investors, and development, transparency about key performance indicators and engagement with policymakers. Anglo s board has stated support, which is uncommon for shareholder proposals. Last year, we voted in favour of similar proposals at Royal Dutch Shell Plc and BP Plc meetings. Both proposals passed with more than 98 per cent support. managing assets of more than US$5 trillion, called for improved leak detection and repair technology, emissions reduction targets, as well as installing infrastructure to capture gas that would otherwise be flared into the atmosphere. The group has held more than 50 meetings with about 35 companies so far. We led engagements with three Canadian companies. A PRI progress report is expected to be published in TYPES OF PROPOSALS CLIMATE CHANGE 67% PROPOSALS SUPPORTED Report on climate risks and resilience & capital expenditure strategies GHGs 89% PROPOSALS SUPPORTED Report and adopt quantitative GHG goals and methane emissions reduction targets RENEWABLE ENERGY PROPOSALS 50% SUPPORTED Report on low carbon, renewable energy use or generation and/or adopt renewable energy targets 1 Please see our Proxy Voting Guidelines for our voting rationale 2 Our 2016 ESG Engagement: Public Equities Priorities and Processes outlines our approach with companies, regulators and industry associations

7 bcimc RESPONSIBLE INVESTING NEWSLETTER 7 Infrastructure Our Infrastructure program holds tangible, long-term assets with the potential for strong cash flows that align with our clients pension liabilities. As ESG risks can develop over time and impact companies, sectors and regions, bcimc considers these factors in our private investments. To each, we apply a pre-investment due diligence process and postinvestment monitoring. We invest in core and regulated infrastructure the backbone of economies and unregulated assets that have stable, inflationlinked revenue streams. We expect our portfolio companies in which we invest directly and, to a lesser degree, through external managers to assess environmental risks in their operations and comply with applicable procedures, standards and regulations. CASE STUDY: Corix Utilities, British Columbia bcimc first invested in Corix in Since then, Corix has provided us with platforms for additional capital investment towards current and future growth opportunities. The company implements water, wastewater and energy utility infrastructure solutions for small to medium-sized communities across North America. As the majority owner, we hold significant influence at the company s board of directors. A key area of focus for Corix has been the acquisition and operation of district energy systems, a network that generally uses a central energy plant to provide efficient heating, cooling, and hot water to a group of buildings. The system, in turn, alleviates the need for each building to have its own boilers, furnaces, chillers or air conditioners. Corix s program includes eight major district energy systems in Canada and the United States. In 2015, Corix acquired Cleveland Thermal, a district energy provider that heats and cools a variety of commercial, institutional and municipal buildings in downtown Cleveland using a steam system and chilled water. Cleveland Thermal is converting its steam system to natural gas from coal to comply with requirements of the Clean Air Act, a United States federal law that seeks to control air pollution at a national level. The conversion, which enhances the profitability of the company while reducing emissions, is expected to be complete by District energy initiatives are considered a best practice for providing a local, affordable and relatively low-carbon energy supply. In a United Nations study, 1 these systems were typically found to reduce primary energy consumption by 30 to 50 per cent. 1 United Nations Environment Programme s 2015 report District Energy in Cities, Unlocking the Potential of Energy Efficiency and Renewable Energy

8 Strength in Numbers Working with like-minded investors and organizations helps us deploy our resources and strengthen our voice. Our partners related to climate change include: Our Commitment to Responsible Investing CDP is an independent organization that works globally with investors, public companies and government to gather information aimed at managing climate risk and, ultimately, reducing greenhouse gas emissions. bcimc joined as an investor signatory to the CDP Climate Change program in In January 2016, we enhanced our participation by becoming an investor member, one of four Canadian members out of a total membership of 63. Being an investor member gives us enhanced access to company information so that we can understand a company s climate change risks and analyze broader trends. In 2015, 121 Canadian companies participated in CDP s climate change questionnaire, up 55 per cent from 2006 when the initiative began. There has been a 47 per cent increase between 2010 and 2015 in the number of Canadian companies undertaking emissions reduction initiatives. For 2015, one-third of responding companies set absolute emission reduction targets. With a global portfolio of $123.6 billion, bcimc is among the world s most influential responsible investors. In 2006, we became a founding signatory for the Principles for Responsible Investment (PRI), an international initiative to develop and promote best practices in responsible investing by institutional investors. In March 2015, bcimc signed on to the Green Bond Principles. The industryrecognized principles promote transparency, disclosure and the integrity of the development of the green bond market. The voluntary process seeks to ensure investors are able to access information that is necessary to assess the environmental impact of their green bond investments. BRITISH COLUMBIA INVESTMENT MANAGEMENT CORPORATION Jutland Road, Victoria, BC V8T 5K2 Tel: communications@bcimc.com bcimc is the investment agent for many institutional clients; the views and opinions expressed in this document are those of bcimc. Produced by bcimc Communications. All rights reserved. Contents copyright (c) May not be reprinted without permission. Photographs provided by: Corix, Shutterstock