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British Columbia Investment Management toughens up external manager evaluation on climate

Canadian giant issues new Climate Action Plan

British Columbia’s public pension investor British Columbia Investment Management Corporation (BCI, formerly known as bcIMC) is to toughen up its external manager evaluation process with the integration of climate considerations, it has said.

It’s part of the the C$145.6bn (€95bn) investor’s ambitious new Climate Action Plan.

BCI said in the report that it plans to “strengthen external manager evaluation process by adding climate-related questions and oversight”.

As of March 31, BCI had 115 external managers and partners, including big names like Macquarie, TIAA CREF, Bain Capital, Bridgepoint, HarbourVest Partners, Allianz Global Investors, Fidelity Investments, JP Morgan Asset Management, Schroders and Vontobel Asset Management.

The plan rivals the ambition of fellow Canadian pension fund Caisse de dépôt et placement du Québec (la Caisse), which last year revamped its entire investment strategy so as to “treat climate change in the same manner as we treat risk: as fundamental in our decision-making process”.

BCI plans to integrate climate scenario analysis into its risk processes across all asset classes and client portfolios, and to address the carbon intensity of its bond portfolio.

Its other commitments in terms of risk management:
+ Measure and report on public equities carbon footprint via commitment to Montreal Carbon Pledge
+ Conduct physical climate change risk assessments for all direct private investments.Its plans around integration are to:
+ Develop a climate materiality assessment in illiquid asset classes, using SASB [the Sustainability Standards Accounting Board]
+ Test a carbon pricing model for valuations of privately-held assets
+ Strengthening external manager evaluation process by adding climate- related questions and oversight.

In seeking opportunities it plans to:
+ Build upon its current exposure to climate-related investment opportunities, where it makes financial sense
+ Measure and report its exposure to climate-related investments.

Around engagement and advocacy, it says it will:
+ Encourage greater disclosure aligned with the recommendations across all its investments
+ Executing on the Global Climate Action 100+ collaborative engagement to target the world’s largest emitters

Accompanying the Climate Action Plan is a detailed breakdown of BCI’s approach to each of the TCFD [Taskforce for Climate-related Financial Disclosure] recommendations.

Responding to the recommendation to “describe the potential impact of different scenarios on operations, strategy, and financial planning”, it assesses its returns under multiple climate scenarios using Mercer models.

BCI said: “Using client long-term strategic asset allocation targets,
we found that the two- and four-degree climate scenarios would create an expected drag of 0.14 per cent and 0.16 per cent in average annual returns respectively over the 15-year forecast horizon, relative to the base case scenario.”