Corporate Disclosure of climate change risks, and shareholder action by BCGEU on sustainability

The British Columbia Government and Services Employees’ Union  (BCGEU) issued a press release on April 20 to announce its partnership with the global advocacy group SumOfUs (Fighting for people over profits).  Over the summer, on behalf of BCGEU, SumOfUs will file proposals at annual general meetings of Canadian companies,  calling  for greater fairness in corporate governance and increased scrutiny around human rights and labour practices as well as of the impacts of deforestation.

BCGEU President Stephanie Smith stated “As a union, we need to make sure that funds our members count on, such as the strike fund, are financially healthy and this requires careful and responsible investment decisions. …Calling for greater corporate responsibility as a shareholder is not only financially prudent, but it allows us to pursue our values as a labour union as well.”  This is not the first time BCGEU has taken initiative  – in 2014,  the union divested its strike fund and general reserves from fossil fuel equities, and saw in increase in values.

With a similar strategy, the Fonds de Solidarité des Travailleurs du Québec (FTQ), empowered SHARE (Shareholder Association for  Research and Education), to file a shareholder proposal at the April 27 annual meeting of Imperial Oil, requesting better disclosure on its exposure to and management of water-related risks in its oil and gas operations.

Even Canada’s financial regulators are moving in the direction of increased transparency and disclosure for corporations. The Canadian Securities Administration,  concluding a process which had stretched out for over a year, issued a press release on April 5, announcing   CSA Staff Notice 51-354 Report on Climate change-related Disclosure Project.  The report announced  its intention to consider new disclosure requirements relating to material risks and opportunities and “how issuers oversee the identification, assessment and management of material risks.  This would include, for example, emerging or evolving risks and opportunities arising from climate change, potential barriers to free trade, cyber security and disruptive technologies.”

And on April 12, Minister of the Environment and Climate Change announced  the creation of an  Expert Panel on Sustainable Finance. Part of the mandate of the Expert Panel will be to  explore the issue of  voluntary standards for corporate disclosure of the financial risks associated with climate change, and to provide  recommendations to the federal government by the fall of 2018. Full Terms of Reference are here .  The Expert Panel is expected to build upon the work of the CSA Task Force, and the earlier, international Task Force on Climate-related Financial Disclosures (TCDF), led by Michael Bloomberg,  and chaired by  Mark Carney. Canada’s new Expert Panel will be chaired by Tiff Macklem, Dean of the University of Toronto’s Rotman School of Management and former Senior Deputy Governor of the Bank of Canada; the other three members are Andy Chisholm, member of the Board of Directors of the Royal Bank of Canada; Kim Thomassin, Executive Vice-President, Legal Affairs and Secretariat, Caisse de dépôt et placement du Québec; and Barbara Zvan, Chief Risk and Strategy Officer, Ontario Teachers’ Pension Plan.

For context on the issue of corporate disclosure, read “Investigation finds nearly half  of Canadian failing to  Disclose Climate-Related Risk” from the National Observer (April 5), and, in the opposite direction in the United States, In ‘Attack on Shareholder Rights,’ SEC Seeks to Sideline Activist Investors .

Bank of Canada sees risks of climate change; Insurers urge end to fossil fuel subsidies

On March 2, in a speech in Montreal, the Deputy Governor of the Bank of Canada weighed in on the economic and financial risks of climate change, and the role of the Bank (BoC) .  In Thermometer Rising—Climate Change and Canada’s Economic Future , the Deputy Governor drew on 2011 estimates from the National Round Table on the Environment and the Economy (NRTEE) when he acknowledged that in Canada alone, “ in the absence of action to address global warming, we would face annual costs of between $21 billion and $43 billion by the 2050s”.   Touching on the role of carbon pricing and green finance such as green bonds, he also states: “enhanced transparency and analytical tools are also needed”  to enable investors to exploit green investment opportunities. However,   “In contrast to some other central banks, the Bank of Canada is not directly responsible for regulating banks, insurance companies and similar financial institutions. …. We do not regulate financial markets and thus do not have the mandate to establish standards of transparency and disclosure in support of green finance…. We do, however, have a broader set of responsibilities to support financial stability, including identifying, analyzing and assessing both imminent and emerging systemic risks. We bring this risk assessment into our discussions with other agencies that control the relevant policy levers.”

Private financial institutions and companies are trying to influence those policy levers – specifically, about fossil fuel subsidies. In a Public Statement addressed to the governments of G20 countries,  a group of 16  investment  and insurance companies managing more than  USD $2.8 trillion in assets states: “Subsidies and public finance supporting the production and consumption of fossil fuels are a key concern to the finance sector. They increase the risk of stranded fossil fuel assets, decrease the competitiveness of key industries, including low‐carbon businesses, and negate the carbon price signals many of us have been calling for. They are also notoriously inefficient from and economics standpoint. They create a significant burden on government budgets, perpetuate income inequality by benefiting the richest consumers while failing to meet the energy needs of those lacking energy access, and damage public health by increasing air pollution.”  The Statement then calls on the G20 governments to commit to “a clear timeline for the full and equitable phase-out by all G20 members of all fossil fuel subsidies by 2020, starting with the elimination of all subsidies for fossil fuel exploration and coal production.”

What would be the  impact of removing fossil fuel subsidies?  The most recent estimate comes from the Overseas Development Institute and the International Institute for Sustainable Development (IISD) Global Subsidies Initiative in   Zombie Energy: Climate Benefits of Ending Subsidies to Fossil Fuel Production. It concludes that if  subsidies to fossil fuel production were removed across the globe, the world’s GhG emissions would be reduced by 37 Gt of carbon dioxide  by 2050.  The authors call this “ likely a low-end estimate”, partly because it relies on what they say is  a “conservative estimate of global production subsidies in G20 countries” : $70 billion U.S. annually.   For more on this longstanding issue,  see the Global Subsidies Initiative webpage on fossil fuel subsidies.

Public sector pension administrators are recognizing climate risk, protecting pensions of public employees in Ontario and New York City

OPTrust administers the Ontario Public Service Employees Union (OPSEU ) Pension Plan, with almost 87,000 members and retirees.  On January 31, it became a leader in Canadian pension plan administration by releasing two documents:   Climate Change: Delivering on Disclosure, a position paper, and OPTrust: Portfolio Climate Risk Assessment, a report by Mercer consultants, which provides an assessment and analysis of the fund’s climate risk exposure .  The  OPTrust  press release  states: “For pension funds, climate change presents a number of complex and long-term risks. In Canada alone, pension funds manage well over $1.5 trillion in assets, which brings a real responsibility to collectively seek innovative approaches to modeling carbon exposure and its impact across portfolios.”   The position paper, Delivering on Disclosure, includes a call for collaboration amongst other financial actors to develop standardized measures for carbon disclosure.  It is noteworthy that OPTrust is governed by a 10-member Board of Trustees, five of whom are appointed by the union,  OPSEU,  and five by the employer, the Government of Ontario.

In a February 2 press release  affecting  the pension plans of New York’s public employees, teachers, firefighters and police,  the Office of the Controller of New York City announced:  “the Trustees of the New York City Pension Funds … will conduct the first-ever carbon footprint analysis of their portfolios and determine how to best manage their investments with an eye toward climate change. In the 21st century, companies must transition to a low-carbon economy, and a failure to adapt to the realities of global warming could present potential investment risks.”  The  New York City pension system  has been a leader in addressing climate change risks, including an initiative called the Boardroom Accountability Project  , which began in 2014 to give investors the ability to ensure boards are diverse and “climate-competent”.

On this point, a January 2017 report from Vancouver-based Shareholder Association for Research and Education (SHARE) found that   “… companies in Canada’s most carbon-intensive sectors are not demonstrating ‘climate competency’ in the boardroom.”   The report, Taking Climate on Board: Are Canadian energy and utilities company boards equipped to address climate change? urges greater transparency from boards at publicly-traded corporations, stating “Investors need boards to demonstrate that they are “climate-competent” – that they understand and prioritize climate change risks to long-term value, including the physical, legal, reputational, stranded asset and regulatory risks related to climate change.”   The report is based on a  review of the public disclosures from 52 companies across Canada’s energy and utilities sectors,  using 3 measures: board skills and experience, oversight, and risk disclosure. It concludes that “more companies are starting to talk about climate change in their reporting, but only three boards disclosed any expertise amongst their members on the issue, and no board included climate change knowledge in its board competency matrix.” The full report is here.  (On another note, SHARE has walked the walk by filing shareholder resolutions with Enbridge Inc., and met with TD Bank regarding their environmental and social aspects of their investments  in  the Dakota Access Pipeline. See “The Dakota Access Pipeline and Indigenous Rights.” )

Canada Pension Plan Investment Board lags international financial community on recognition of climate change risks and stranded assets

In what the WWF has called   “a landmark moment for responsible investment in Europe” , the European Parliament voted in November 2016  to mandate that all workplace pension administrators must consider climate risk and risks “related to the depreciation of assets” -stranded assets-  in investment decisions.  It also requires greater transparency about investment policies. Individual governments of the EU now have two years to pass into national law this updated version of the  existing Institutions for Occupational Retirement Provision (IORP) Directive. Currently, the directive would affect occupational pension plans affected covering approximately 20% of the EU workforce, mostly in the United Kingdom, the Netherlands, and Germany .  A September 2016 Briefing Note from the European Parliament  details the administrative/political evolution of the Directive; a December  article from Corporate Knights  or  Go Fossil Free or Reuters  provide summaries.

In December 14, 2016, the Task Force on Climate-Related Financial Disclosure, chaired by Michael Bloomberg,  released its report and recommendations  to the Financial Stability Board, a G-20 organization chaired by Mark Carney. An article by the two men appeared in The Guardian, capturing the gist of the work:  “We believe that financial disclosure is essential to a market-based solution to climate change. …. A properly functioning market will price in the risks associated with climate change and reward firms that mitigate them. As its impact becomes more commonplace and public policy responses more active, climate change has become a material risk that isn’t properly disclosed.” The Task Force calls for companies to make voluntary disclosure of climate risks to their business,  to help  investors, lenders and insurance underwriters to manage material climate risks, and ultimately to make the global economic and financial systems more stable.   A 60-day public consultation period began with release of the report; an updated report, incorporating that input,  will be released in June 2017.  The Task Force report was summarized in   “Climate disclosure framework creates a better environment for investors” in the  Globe and Mail Bloomberg News also reported on another recommendation, “Carney Panel Urges CEO Compensation Link With Climate Risk ” , stating that the time has come for organizations to provide detailed reporting of how manager and board member pay is tied to climate risks.  (See a Dec. 1 Reuters article about Royal Dutch Shell’s moves to link CEO bonuses to GHG reduction).

In Canada, the Canada Pension Plan Investment Board, which administers the assets of the national public pension fund, seems to be standing on the sidelines.  A recent article in the Globe and Mail was written by the director of the CPPIB Sustainable Investment department , which is described in  more detail in their 2016 Report on Sustainable Investing . The report states (page 11)   “ CPPIB has established a cross-departmental Climate Change Working Group to consider how physical risks, as well as technological, regulatory and market developments will impact climate change-related risks, and create opportunities, in the future. …. This review, which will take some time, is being done from a long-term perspective in light of how the gradual transition to a lower-carbon global economy might unfold….  On the topic of divestment and climate change, research has shown that investors with longer horizons tend to be more engaged with the companies that they invest in, and CPPIB is a case in point. As responsible owners, we believe that in many cases selling our shares to investors who might be less active in terms of considering material risks, including climate change, would be counterproductive.”   In light of this very slow approach, Friends of the Earth (FOE) has been frustrated in its divestment campaign for the CPPIB in 2016 ;  FOE maintains a petition website, Pensions for a Green Future, which calls for the CPPIB to, among other things,  “report immediately to its 19 million members on the carbon footprint and exposure to climate solutions of our CPP investment portfolio” and “to replace climate polluting investments with those in green energy, technologies and infrastructure that support Canada’s commitment to act to avoid 1.5°C of warming.” The CPPIB discloses the companies it is invested in here  .

In contrast to the CPPIB, the Caisse de dépôt et placement du Québec (CDPQ),  the second largest pension fund manager is Canada,  is highlighted in a new report by the World Economic Forum  as “ one of the most important institutional investors in wind power” for its investment of  close to $2.5 billion (US) in both onshore and offshore wind projects in Europe and North America, starting in 2013 with a tentative investment in the Invenergy , and now including the London Array wind farm in the outer Thames estuary.  The Caisse statements on environmental and social responsibility are here ; it is a signatory to the U.N.  Principles for Responsible Investment (PRI), a member of the Carbon Disclosure Project and the Carbon Water Disclosure Project, and endorses the Extractive Industries Transparency Initiative , which monitors the oil and gas industry .

U.S. Climate Policy Considers Health Effects of Climate Change, Including Occupational Health

On April 7th, the Obama administration announced a series of new initiatives which will highlight the health risks of climate change, especially for children, the elderly and the vulnerable. In the companion Climate and Health Assessment report released by the U.S. Global Change Research Program, outside workers are identified as exceptionally vulnerable to heat extremes. ” Certain occupational groups that spend a great deal of time exposed to extreme temperatures such as agricultural workers, construction workers, and electricity and pipeline utility workers are at increased risk for heat-and cold-related illness, especially where jobs involve heavy exertion… Lack of heat illness prevention programs that include provisions for acclimatization was found to be a factor strongly associated with death”. The report cites numerous other reports on heat  effects, including a 2014 report from the Centers for Disease Control, “Heat Illness and Death Among Workers – United States, 2012-2013”.