Divesting is the correct path for the British Columbia Teachers’ Pension Plan

March 20, 2023 (IEEFA) — Last year, the British Columbia Teachers’ Pension Plan (BCTPP) requested its pension fund representatives to begin divesting its assets from fossil fuel companies. Divestment will make the pension fund stronger and more resilient, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).

The plan’s investment manager, British Columbia Investment Management Company (BCI), has taken preliminary steps to address this risk, but much more needs to be done. The IEEFA report, A Strategic Fossil Fuel Divestment Policy Would Strengthen the British Columbia Teachers’ Pension Plan, details the policy and fiduciary imperatives to achieve divestment; key analyses and actions required to meet the challenge; and the potential to convert the challenge into new opportunities to achieve a stronger, more resilient pension fund.

By expanding the investment options offered to the BCTPP under the current management paradigm, the BCI can create a seamless set of decarbonized alternatives that run parallel to the existing investment strategies that include fossil fuels. Implementing IEEFA’s proposal would allow fund managers and pension fund beneficiaries to move capital in the direction of climate solutions and economic growth.

“Climate change poses financial risks, and financial action should be taken to address the risks. The market position of fossil fuel companies is weak and its outlook is negative,” said Mark Kalegha, IEEFA energy finance analyst Canada and co-author of the report. “Alternative investment products now exist that would facilitate a prudent, well-managed, orderly process to reduce and ultimately eliminate fossil fuels from the BCTPP.”

An analysis of annual reports, audits, policy documents and other materials related to the BCTPP found:

• BCI holds billions of dollars in fossil fuel reserve and infrastructure investments, yet its fragmented disclosures provide only partial insight into the full extent of its fossil fuel investments. Transparency would improve planning and accountability.
• The rationale for divestment is anchored in sound financial and corporate management principles, given that the fossil fuel industry’s financial performance has declined substantially over time and now faces unprecedented competition.
• Climate change also poses risks to BCI’s portfolio. BCI has determined if global temperatures rise to 2oC, its portfolio will lose 5.1 percent of its value, putting $11 billion of its investments—$2 billion attributable to BCTPP beneficiaries—at risk of capital loss.
• BCI’s arguments against adopting a divestment strategy do not stand up to scrutiny. Several studies have shown that divestment does not increase investment risks or costs, and does not negatively affect returns. The financial impact has proven to be positive or neutral.

The current measures taken by BCI, while commendable, are insufficient given the degree and severity of the risks. A prudent fiduciary should work to achieve rapid decarbonization of the existing BCTPP investment portfolio, and exclusion of further investment in fossil fuel reserves or infrastructure, or in industries that use fossil fuel as feedstock.