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.
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.”