How a BC Union Dumped Fossil Fuels and Cashed In

"Hey, you placed an order to move all of your money out of equities. What's going on?!"

No surprise that the investment manager was twitchy. BC Government and Service Employees' Union treasurer Paul Finch expected a reaction when he pulled $20 million from Canadian equities in one day in 2014.

Both the strike fund, and the union's general reserves -- Finch told the investment managers to sell the equity holdings. Now.

"We just moved everything into cash, straight up," he told The Tyee. "I don't think our advisors and our investment firm were too happy about it."

Finch and the union's executive were convinced that global oil prices were about to plunge, and wanted out.

"We needed to divest from these if we wanted to preserve the value of those equities," he said. "We did that very rapidly because we didn't want to risk losing further in the market." (Finch emphasized that he was speaking as BCGEU treasurer and not in his role as a trustee of two pension funds, which haven't divested.)

The union then worked with its investment manager to create a Canadian equity investment fund without any oil, gas or pipeline holdings.

"Our concern was economic," Finch said. "We considered it as being in the best financial interests of our membership.

"And it worked out brilliantly for us. When a lot of people's equities took major hits... what we found was that our equities performed well above the alpha."

'They lost hundreds of millions of dollars'

Divestment activists have been pushing universities, government pension plans, churches and corporations to shed their investments in the oil and gas sector on ethical grounds.

But Peter Chapman, executive director of the Shareholder Association for Research and Education (SHARE), said some major investors who have committed to limiting global temperature increases to two degrees Celsius are looking at the issue pragmatically.

"The goal for pension funds and other institutional investors isn't divestment -- it's managing the risk of climate change," he said. "If any institutional investor, pension fund, or endowment fund recognizes that climate is a risk, then they need to address it."

Dumping oil and gas stocks isn't a complete solution, Chapman said.

"Even if you were to eliminate fossil fuels from your portfolio, you wouldn't fully address all the climate change issues in that portfolio," he said. "There are many different ways investors can address climate change."

Investors can pressure companies to commit to climate change goals and cut emissions, he said. They can pressure corporations to disclose to shareholders lobbying efforts against government initiatives to limit global warming. And investors can press companies to move "away from the production of more fossil fuel capacities, and towards low-carbon solutions," Chapman said.

Marc Lee, senior economist with the Canadian Centre for Policy Alternatives, said the collapse of oil prices has bolstered the financial case against fossil-fuel investments.

"The folks investing money have to answer why they lost hundreds of millions of dollars, in some cases billions, by not foreseeing the collapse of commodity prices," he said.

Finch said he hopes other unions can learn from the BCGEU's experience, but cautioned that every situation is different.

"They need to approach it very cautiously, because when we say 'fossil fuel divestment' we're talking about a very broad range of things," he said. "I would prefer to look at it as portfolio diversification."

'Now for our pension funds'

The BCGEU's $20-million shift seemed bold on that summer day in 2014. But it's tiny compared to the $70 billion in members' pension funds.

Three-quarters of the union's 68,000 members are enrolled in a pension plan, most in the B.C. Municipal Pension Plan ($40 billion in 2015), the B.C. Public Service Pension Plan ($27 billion) and the BCGEU Pension Plan ($150 million).

A 2015 Canadian Centre for Policy Alternatives' report estimated that in 2013 the largest of the three held more than 10 per cent of its assets in the fossil fuel sector and suffered a roughly $505-million hit from the oil price crash. The Public Service Pension Plan held roughly 11 per cent in fossil fuels, and lost an estimated $310 million.

In a comment on the BCGEU website last August, one member praised the union for divesting its equity assets: "Perhaps should have been done earlier... but better now than never -- and a bold, responsible move... now for our pension funds."

The Municipal Plan's 2014 financial report states that its "asset mix continues to reflect an increased focus on real assets such as land, buildings, regulated utilities and renewable resources," because "responsible investing is an integral part of investment."

The CCPA's Lee, who co-authored the left-leaning think-tank's 2014 report, Pension Funds and Fossil Fuels: The Economic Case for Divestment, said Canadian pension funds are still in a state of "climate change denial." Many have refused to divest, arguing their duty is to get the greatest return on investments for current and future retirees.

"Until fairly recently, the idea of fiduciary duty has been used by big pension funds as a sort of shield against doing anything," Lee said. "The assumption has been that if we try to do something more ethical that benefits workers or the environment, it will come at expense of profit -- that greener investments are lower return."

That's a "very crude" interpretation of the legal duty to make careful decisions with members' money, he said. For instance, one day there could be class action lawsuits against investors by climate change's victims, akin to today's tobacco cases. Likewise, fossil fuel investments could plummet if governments were to take aggressive action against the sector.

"When it comes to climate change and fossil fuels, the science is clear," he said. "In financial markets, that is playing out as a lot of sources of risk. All this stuff could come back to bite these funds in the butt."

In addition to his role as BCGEU treasurer, Finch is a trustee on the Public Service Pension Plan and BCGEU Pension Plan. He wouldn't discuss calls for divestments in those funds. His opinions are his own as treasurer, and "not informed by any confidential discussions, nor do they reflect the views of any pension board," he said in an email.

Nonetheless, Finch acknowledged more broadly that union pension funds' fossil fuel holdings raise important questions.

"These are very difficult decisions that pensions have to make," he said. "There's a variety of things they take into consideration. Number one is, 'What is the return for plan members?'

"Pensions in general do need to look at where they invest their money. We need to educate union trustees and boards need to debate policies."

Chapman said SHARE advocates a broader view of the harm climate change will do to future pensioners.

"At the end of the day, many institutions choose not to invest in certain products and services like tobacco that are contrary to the purposes of their organization -- whose operations are fundamentally at odds with their standards," Chapman said.

"You can do that about tobacco, pornography or a whole range of issues. In case of climate change, there are investors who may decide that fossil fuel companies are in that same category for them."