Canadian banks and pensions promise climate action in wake of BlackRock divestment

BlackRock CEO Larry Fink speaks during a Bloomberg event on the opening day of the World Economic Forum in Davos, Switzerland, on Tuesday, Jan. 21, 2020. Simon Dawson/Bloomberg

Canada’s largest banks and pension funds are promising to reduce their environmental impact in the wake of BlackRock’s pledge to overhaul its US$7-trillion portfolio to fight climate change. 

New York-based BlackRock, the world’s largest asset manager, said earlier this month it plans to vote against management at firms that aren’t making environmental progress, and will drop companies that derive over a quarter of their revenues from thermal coal from its actively managed portfolios. It is also signing on to Climate Action 100+, a global investor initiative designed to pressure heavy polluters to reduce their environmental impact. The Logic contacted 13 of Canada’s largest institutional investors, including the Big Six banks and the largest pension funds in the country, to ask whether they planned to take similar steps.

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Talking Point

The Logic contacted 13 of Canada’s largest institutional investors, including the Big Six banks and the largest pension funds in the country, to ask whether they planned to change the way they invest following BlackRock’s pledge to overhaul its US$7-trillion portfolio to fight climate change. The Caisse de dépôt et placement du Québec, Desjardins and the Ontario Teachers’ Pension Plan promised pullbacks from coal, and the majority highlighted various initiatives to address their environmental impact.

The Caisse de dépôt et placement du Québec said it will not make any new investments in thermal coal companies, and Desjardins said it intends to pull all of its coal investments by the end of the year. 

BlackRock has driven industry-wide change in the past on issues including shareholder responsibility and gun control. “When the largest asset manager does anything … I think it does have the effect of normalizing that for the entire ecosystem around them. It’s a signalling of the mainstreaming of ESG and sustainable investing for the entire space,” said Emily Chew, steering committee chair for Climate Action 100+ and global head of ESG research for Manulife Investment Management. 

The 13 Canadian firms were asked if they planned to make changes to the way they handle climate change-related investments and if they intended to divest from coal firms. 

Only four companies, including the Caisse and Desjardins, directly answered the question on coal. 

The Ontario Teachers’ Pension Plan (OTPP), which has reduced its fossil-fuel equity holdings to just one per cent of its $200-billion portfolio, said it isn’t looking to make new coal investments.

“For several years we have not active[ly] pursued companies that are primarily focused on thermal coal,” said Dan Madge, senior manager of external communications. 

Melanie Adams, responsible investment and corporate governance vice-president at RBC Global Asset Management (GAM), made a pitch for staying invested in coal firms. 

“RBC GAM takes an active approach as an investor and engages directly with management and/or the directors of the companies in which we are invested to understand, engage and improve their approach to ESG issues,” said Adams. “By using this approach, we are in a better position to advocate and effect change than if we are not invested in those companies at all.”

Last week, RBC CEO Dave McKay said he’d faced pressure on the bank’s financing of oil and gas firms. “I think what we’re missing is an articulation of a plan to replace your fossil fuels,” said McKay. 

Many of the other investors highlighted their intentions to tackle climate change following BlackRock’s announcement. 

Several said they are planning to disclose more about how their own investments have an environmental impact. The Caisse is going further, tying employee compensation to climate targets. “The achievement of the reduction targets of the carbon footprint of each investment team is now a factor which influences their remuneration,” said Maxime Chagnon, head of global media relations. 

“The fact that each investment team is attributed a carbon budget also means that they must consider the carbon footprint in every investment decision they make.”

Many investors cited the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD), a global effort to establish consistent climate-related financial risk disclosures for use by companies. However, the institutions surveyed are at different stages when it comes to disclosing information. 

OTPP included the TCFD in its first-ever climate-change report, published last year. The Ontario Municipal Employees Retirement System said it’ll be disclosing its climate-change risk using the TCFD in its forthcoming 2019 annual report. National Bank, which also supports the TFCD recommendations, said it’s working with others in the banking industry to develop a disclosure methodology based on TCFD. 

Scotiabank is examining its own portfolio: “We are continuing to gather the data necessary to support portfolio stress testing and scenario planning, and to determine credit exposures in high-carbon sectors,” said spokesperson Doug Johnson. 

“As our clients adapt their practices to a low carbon future, we will do the same and support them, mobilizing funds to financing both green and transition activities.”

CIBC did not directly address The Logic‘s inquiries—“We can’t comment or speculate on the future nature of your questions,” said spokesperson Trish Tervit—but said CIBC Asset Management “considers environmental, social and governance factors into our investment and ownership decisions.”

For its part, BlackRock offered The Logic few specifics of how its new climate-change plans will be implemented. The firm declined to identify the coal firms from which it’s planning to pull its investments, or which Canadian companies, if any, will be affected by its new policies. The firm did, however, say that it did not plan to drop any of its 45 Canadian exchange-traded funds, including those that contain oil and gas companies. 

BlackRock is in many ways a laggard to climate-change investing. There were already over 300 signatories to Climate Action 100+, including at least 15 Canadian institutions, before BlackRock announced its commitment. The firm has faced multiple protests outside its office, and analyses show it has one of the weakest records on climate-change proxy voting. 

Once it shifts on issues, however, it can drive industry-wide change. In 2018, BlackRock CEO Larry Fink called on CEOs to explain their wider social purpose beyond shareholder returns. That helped spark a broader movement, including a 2019 announcement from 181 of the top CEOs in the U.S. that shareholder value was no longer their first priority. 

Not all Canadian investors were eager to highlight their environmental strategies in the wake of BlackRock’s moves. TD Bank and the Public Sector Pension Investment Board declined to comment on their climate-change plans. BMO did not reply to multiple requests for comment. 

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In November 2019, the left-leaning think tank Canadian Centre for Policy Alternatives criticized the country’s largest pension plan, the Canada Pension Plan Investment Board, for “moral and ecological failure” for not investing in line with the Paris Agreement’s plan to limit global temperature levels. The same month, The Logic reported that the pension had increased its renewable-energy investments a hundredfold since 2016. 

“Overall, global market participants generally benefit from improving corporate practices. However, we have no reason to take positions on how particular investment managers fulfil their mandates,” said CPPIB global head of communications Michel Leduc in response to BlackRock’s changes. 

With files from Catherine McIntyre in Toronto and Martin Patriquin in Montreal

Clarification: This story has been updated to more fully reflect CIBC’s response.

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