Canadian Pension to Invest C$5 Billion in Green, Social Bonds by 2025

The C$171.3 billion ($135.9 billion) British Columbia Investment Management Corp. (BCI) said it will invest an additional C$5 billion in sustainability bonds by 2025, up from C$887 million at the end of last year. The pension fund also said it will reduce the carbon exposure in its global public equities portfolio by 30% by 2025, using 2019 as a baseline.

The moves are part of BCI’s commitment to five-year climate-related targets for its public markets program.

“These targets will help ensure our clients benefit from the shift to a low-carbon economy,” Gordon Fyfe, BCI’s chief executive officer and CIO, said in a statement. “They set concrete near-term goals that will help us track our progress as we continue to champion long-term and sustainable growth.”

BCI defines sustainability bonds as bonds whose proceeds will be exclusively applied to finance or re-finance a combination of green and social projects. Green bonds enable capital-raising and investment for new and existing projects with environmental benefits, while social bonds are use-of-proceeds bonds that raise funds for new and existing projects that have positive social outcomes.

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BBVA Global Markets Research estimates that the current size of the green, social, and sustainable bond market is approaching $1 trillion, equal to an estimated 0.86% of the total bonds in circulation. BBVA also said global issuance of instruments labeled as green, social, and sustainable totaled $351 billion in 2020, which is a 37% increase from the previous year.

The pension fund said the 30% reduction target in global equities will be measured using weighted average carbon intensity, as recommended by the Task Force on Climate-related Financial Disclosures (TCFD). It also said the 2019 baseline aligns with best practices among global investors and closely reflects BCI’s current investment strategy based on more active, internally managed mandates.

BCI’s global portfolio of fixed income and public equity investments represented C$112.8 billion, or 65.9% of the pension fund’s assets under management (AUM) as of March 31. The program invests in Canada, the US, and internationally in developed and emerging markets using index and active management strategies.

The pension fund said the targets represent the evolution of the objectives outlined in its Climate Action Plan, and align with its strategic approach of leveraging environmental, social, and governance (ESG) issues for both value creation and risk management.

“These targets balance ambition with feasibility and provide a clearly defined pathway for BCI to seize on climate-related investment opportunities and reduce the climate transition risk of our public markets portfolio,” said Daniel Garant, executive vice president and global head of public markets. “Gradually lowering exposure to carbon-intensive companies and engaging with companies and regulators to adapt to the low-carbon economy will lead to better financial outcomes for our clients.”

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Tags: BCI, British Columbia Investment Management Corporation, Climate Change, ESG, Gordon Fyfe, Green Bonds, social bonds, sustainability bonds, Task Force on Climate-Related Financial Disclosures (TCFD), TCFD

Britt Harris

The Millennial generation has gotten “a raw deal” economically, says Britt Harris, president, CEO, and CIO of the University of Texas/Texas A&M Investment Management Company (UTIMCO).

That troubles the iconic asset allocator, whose investing career has been dedicated to supporting education—both at UTIMCO and before that at the Teacher Retirement System of Texas (TRS).

But Harris noted that Millennials, now ages 24 to 40, have been tested in ways that Baby Boomers weren’t. Plus, he said, they are gradually taking charge. Appearing on the Talks at Goldman Sachs webcast dedicated to great investors, he said this young generation’s rise “has already affected the way global big decisions are being made.”

Indeed, in the US, Millennials (aka Generation Y) recently overtook Baby Boomers in numbers, with 72.1 million. As the webcast host, Katie Koch, Goldman’s co-head of fundamental equity business and herself a Millennial, put it: “Their spending is going to increase a lot, while Baby Boomers are going to shrink.”

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Harris, a Baby Boomer, recounted the tribulations that Millennials have had to surmount. “When you look at generations, they’re a function of their own history,” he said. Millennials have endured three economic downturns in their lifetimes, he recounted: the recession at the start of the century, the global economic crisis of 2008-09, and now the pandemic-induced slump.

“The typical Millennial is five years behind where their parents were at the same age,” Harris observed, adding that Baby Boomers joined the adult workforce with little college debt, while Millennials have had to borrow large sums. “A lot of them went to college and then they became baristas with a $50,000 debt,” he said.

Harris comes to the subject of young people with a great deal of empathy. He has taught graduate business school classes and mentored many as a finance executive. Aside from his extensive investing success, that’s one reason he was awarded CIO’s 2013 Lifetime Achievement award.

Certainly, as with all generations, the School of Hard Knocks does confer practical wisdom. Harris recounted his own early test. Just two years out of college, he invested $10,000 in an oil company, a stake that ended up worthless. He had read a market tip sheet and listened to someone else praising the stock.

That experience, he said, taught him a valuable lesson: Do extensive due diligence before committing your investment capital. “And so, from that day to this day, I’ve had plenty of losses,” he said. “But I’ve not had a single one where I had to say to myself, ‘I did not do the work,’ or ‘The people that I work with did not do the work.’”

Altogether, he has managed more than $500 billion for millions of people during his life, Harris said. Nonetheless, “that $10,000 loss is probably the best thing that ever happened to me.”

Looking at the future, and from the perspective of a native Texan whose home state is the nation’s chief energy supplier, Harris maintained that fossil fuels will be a key part of the US economy for a long time. “The first thing you’ve got to realize is the technology is not ready,” for renewables to supply all the nation’s energy needs—although he said that will happen eventually.

“It’s going to be a long road,” for renewables, he said. “It’s going to be a 30-year road to travel.” Spending on global energy has been about $1.7 trillion annually, with 90% of it on traditional energy companies, he explained. Over the next three decades, he went on, world outlays for renewables will total $60 trillion, so their day will come.