Friday, January 11, 2013

The Dirty Business of Pension Divestment?

Larry Pynn of the Vancouver Sun reports, B.C.’s public-sector pension invests millions in Enbridge, tobacco stock:
B.C.’s public-sector pensions are investing billions in Enbridge Inc. and other oil giants at the same time that public opinion in the province is strongly against projects such as Northern Gateway and the Alberta oilsands.

The B.C. Investment Management Corp. — the major investor of public pension funds — has $405.6 million invested in Enbridge, whose Northern Gateway project seeks to deliver bitumen from Alberta by pipeline to Kitimat to be exported by coastal tankers. A poll last month showed 60 per cent of British Columbians oppose the project.

BCIMC’s diversified portfolio also include $197.5 million in two British American Tobacco companies, $134 milllion in Philip Morris, $36.6 million in Imperial Tobacco, and $21.9 million in Japan Tobacco Inc., according to the corporation’s latest investment list dated March 31, 2012.

In 2011, the Alberta government directed the Alberta Investment Management Corp. to divest itself of ownership in tobacco companies, although tobacco remains in the portfolio of the Canada Pension Plan.

B.C. and other provinces are suing tobacco companies to recover the costs of tobacco-related health-care costs.

BCIMC has also invested close to $5 million in three Kinder Morgan companies. Kinder Morgan is seeking to twin its 1,150-kilometre pipeline to carry Alberta oilsands diluted bitumen to Burrard Inlet, requiring increased tanker shipments through Burrard Inlet.

Gwen-Ann Chittenden, manager of corporate initiatives for BCIMC, said in an interview on Thursday that the corporation has a “fiduciary obligation” to get the best return on its investments, even if that involves controversial companies and products.

“Our job is to deliver the returns that our clients require to fund their pensions,” she said from Victoria. “We do acknowledge that not all plan members will support every investment decision we make and will hold varying and conflicting views, but we have to prudently invest and do whatever we can to maximum the return ... within a given level of risk.

“Investing responsibly is not always about owning clean and green investments. It’s doing what we can to ensure the long-term financial status of the plans.”

(Employees of The Vancouver Sun and Province are among those whose pension investments include Enbridge bonds, Media Union president Mike Bocking confirmed.)

Chittenden noted that when BCIMC invests in a company, it has the potential to exert influence for the better, including by putting a representative on a board of directors. She encouraged individuals who are concerned about certain investments to raise the issue with their local pension board of trustees, who can then address the issue with BCIMC.

BCIMC represents the pension investments of more than 500,000 members of the public sector — including provincial and municipal employees, post-secondary institutions, health-care workers, police and firefighters, teachers, etc. It administered $92.1 billion in assets as of March 31, 2012, including insurance funds.

Bob Walker, a vice-president with NEI Ethical Funds in Vancouver, said it is difficult to avoid investing in energy companies given that they are such a major component of the Canadian corporate landscape.

“Investing in oil and gas and basic materials is a fact of life in Canada,” he said. “It’s pretty hard to escape. Our approach is to engage those sectors ... to improve performance. The saying is: ‘You can’t change a company you don’t own.’ It’s a more effective approach than avoidance.”

NEI draws the line at investing in nuclear power, tobacco companies, and certain military weapons such as landmines.

Walker noted that both NEI and BCIMC are signatories to the United Nations Principles for Responsible Investment, a global coalition representing more than 1,000 signatories and $30 trillion in assets under management.

Gwen Barlee of the Wilderness Committee called for a public groundswell to erase the “massive disconnect” that allows pension investments in areas such as the “dirty” Alberta oilsands.

Barlee said pension funds for the University of Victoria, which claims to be socially and environmentally progressive, have more than $4 million invested in Enbridge and more than $50 million in oilsands and other oil and gas producers and transporters,

“To say I am astounded is an understatement,” said Barlee, a UVic alumnus.

Last December, encouraged by 350.org (a U.S.-based group fighting investments in fossil-fuel companies, including by colleges and universities), Seattle Mayor Mike McGinn said he supported divesting from certain companies, including for city employee pension funds.

“That’s the right move,” Barlee said. “It sends an important moral message to society and to the markets — that these products that are part of the pension plan are not sustainable and are not green.”

Enbridge and Kinder Morgan are certainly not the only oil-industry companies that BCIMC has money in. Others include: $659.8 million in Suncor Energy, $381.1 million in TransCanada Corp., $317.3 million in Exxon Mobil Corp., $158.8 million in Royal Dutch Shell, $132.4 million in Encana Corp., $105 million in Crescent Point Energy Corp, and $98.2 million in BP PLC (the company involved in the 2010 Deepwater Horizon disaster in the Gulf of Mexico).

Others include: $96 million in Imperial Oil, $81.4 million in Husky Energy, $75.8 million in Occidental Petroleum Corp., $52.3 million in Anadarko Petroleum Corp., $36 million in Vermilion Energy Inc., $29.9 million in Pembina Pipeline Corp., $23.9 million in Tourmaline Oil Corp., $20.3 million in Duke Energy Corp.

BCIMC also holds equity investment in weapons manufacturers BAE Systems ($11 million), General Dynamics ($15.7 million), and Lockheed Martin ($16.3 million).
Richard Watts of the Times Colonist also reports, UVic urged to cut Enbridge pension ties:
Environmentalists are calling on faculty and other professional staff at the University of Victoria to divest their pension investments from the controversial pipeline company Enbridge.

The Western Canada Wilderness Committee has gone through the pension plan investments for people at UVic and found the plan serving faculty has about $4 million invested in Enbridge.

“We want [UVic] to get their money, their pension funds, their endowments out of companies like Enbridge,” said Torrance Coste, Wilderness Committee campaigner

Calgary-based Enbridge Inc. is seeking to build a 1,150-kilometre pipeline, the Northern Gateway, to carry bitumen, a heavy, tar-like substance from the Alberta oilsands to Kitimat. There it would be loaded onto tankers for shipment to refineries overseas.

A federal review panel, holding hearings into the proposal, has been told that the pipeline is too risky, causing great harm to the environment if it leaks.

Kristi Simpson, member of the board of trustees for the UVic pension plan with the money invested in Enbridge, said it’s important to remember the pension plan is not part of the University of Victoria.

It belongs to its professional employees and faculty members. The plan is administered at arms length by trustees who hire investment managers.

Under B.C.’s Pension Benefit Standards Act, the pension must be administered in line with the best financial interests of plan members. So things such as climate change, pollution or the ethics of an investment aren’t up for consideration.

“The position of the Wilderness Committee is not something the board of trustees could consider,” Simpson said. “They need to look after the best interests of the plan members.”

But Andrew Weaver, UVic climate scientist and announced Green Party political candidate, said he believes ethics and environmental concerns should be part of a pension trustees’ thinking.

Weaver said he realizes the issue is complicated. Trustees are bound by law. Also, a good argument can be made that shareholders can influence the behaviour of companies in which they hold a stake. But he said there should be discussion on how things like pension funds can be administered with ethics in mind.

“I don’t think it’s the be all and end all to just say ‘;the fiduciary responsibility means we can’t,’ ” he said.

UVic student Matt Hammer, the responsible investment co-ordinator for the university environmental group, CommonEnergy, said calls for divestment should be made with caution.

The pension plan secures the future of thousands of members and must be treated carefully, he said.

“There are options out there where you can maintain financial responsibility while still making ethical decisions.”

Enbridge could not be reached for comment.
Divestment should indeed be made with caution but when I read articles like these, I'm afraid that emotions and idealism take over and people demanding change don't understand the implications of the actions they're calling for.

In November, I discussed my thoughts on bcIMC being slammed over unethical investments, stating the following:
...bcIMC is one of the best, most ethical pension funds in Canada with first-rate governance which ensures alignment of interests between their managers and stakeholders.
Think about this statement and what it means. There are many stakeholders in public pensions, not just union members, and the primary concern is achieving the actuarial rate of return without taking undue risk to keep the cost of providing pensions down. If divesting means lower returns, are union members, plan sponsors and taxpayers prepared to live with higher contributions and lower benefits?

Investing pension monies isn't solely based on ethics and carbon footprints. If the folks at bcIMC and other large public pensions have to consider every ethical and environmental aspect every time they invest in a large corporation, they would be hard pressed to invest anywhere.  

Importantly, once you go down that slippery slope, there is simply no end to how many companies you want to divest from.

For example, I can make a serious case against investing in big banks, showing people why their very existence has done more damage to humanity than big oil, pipelines, tobacco and defense companies all put together. If you think I'm kidding or delusional, I can assure you I'm not.

And yet nobody in their right mind would ever divest from big banks. They are typically the largest holdings of retail and institutional investors and with good reason, they have a license to steal and generate enormous profits. My best trade of the year last year was buying JP Morgan when it fell in the low thirties after the 'London Whale' kerkuffle.

Everyone was running scared worried about the next "Lehman event" and I pounced on the opportunity. Didn't think twice about the ethical dimensions of this move because I learned long ago, never bet against banksters, especially banksters of Greek descent. There was no way in hell JP Morgan was going to fail.

I can also tell you that I lost money on environmentally-friendly solar stocks, waiting for a solar boom that never materialized. The industry might take off but right now I'm far more bullish on "dirty coal" as global coal demand over the next five years is set to grow at an average of 2.6 percent a year. It will be volatile but the reality is the world still runs on coal, not solar, much to the chagrin of environmentalists.

And while investing in renewable energy makes sense, this is still a contentious space. On Thursday, I discussed whether the Caisse is blowing $500M in the wind, stating that while Rupert Murdoch thinks renewable energy investments are a waste of money, Buffett and Google are also investing in wind farms.

I hope this turns out to be a profitable investment but the Caisse could have just as easily invested this money into public shares, including coal companies, and get a better return on their investment, mark-to-market. Like I said, only time will tell if they did the right move but keep in mind the Caisse already invests in coal, oil, pipelines, etc., so it makes sense to diversify their holdings (they are one of the largest holders of Enbridge, a great investment).

Finally, on Wednesday, CalSTRS, the second largest US pension fund, announced it decided to sell off its investments in manufacturers of firearms that are banned in California, like the assault rifle used in the Newtown, Connecticut, school massacre.

In the wake of that tragedy, it understandably looks bad for the largest teachers pension fund to be investing in gun manufacturers. Private equity's dirty little secret has been exposed and yet if there is profit to be made, some other large fund will gladly step in and invest in this sector and other unethical and controversial sectors.

Speaking of controversy, did anyone catch the exchange between CNN's Piers Morgan and Alex Jones earlier this week? I embedded the entire exchange below. Watch as things get very heated.