General News · 25th October 2012
The transition to a sustainable economy can’t happen without the participation of big institutional investors like pensions funds. One of the world’s biggest pension funds, right here in BC, is invested in some of the most controversial and destructive companies in the province.
British Columbia Investment Management Corporation’s (bcIMC) beneficiaries worked in schools, colleges, municipal offices, health care facilities, the provincial government, public transportation and energy services. They may be surprised to learn that bcIMC is directly invested in the companies that are logging the heart out of Vancouver Island, companies responsible for the oil sands and its pipelines, companies that frack, and companies that mine and transport coal.
To be fair, bcIMC is a relatively good actor among pension funds. It is signatory to the UN Principles of Responsible Investing and prides itself on direct engagement with companies on issues of environmental, social and corporate governance (known as ERG). It signed the United Nations Environmental Programme’s Declaration on Climate Change by the Financial Services Sector and works with other institutional investors to encourage best corporate practices, carbon disclosure, and preparing for changes in fresh water supplies.
But what about those logging companies?
bcIMC is heavily invested in the “Big Three” timber companies that are turning Vancouver Island forests into real estate via the export of raw logs. bcIMC owns 25% of Island Timberlands (IT). IT owns 258,000 hectares of coastal forests. Communities that have opposed IT’s industrial scale logging of their home communities include Roberts Creek, Port Alberni, Oceanside, Cowichan Valley, Port McNeil and Nanaimo. IT’s logging of the magnificent Cathedral Grove also sparked protest and controversy.
bcIMC also is directly invested in Timber West which owns approximately 327,000 hectares of private land on the BC coast and owns over 5 million common Brookfield Asset Management shares. Brookfield-related companies own 51% of Island Timberlands and 86% of Western Forest Products (WFP).
TimberWest, Island Timberlands and Western Forest Products account for 80 percent of the logging on Vancouver Island, along with some pockets on the mainland coast and BC interior. These companies manage forests for top shareholder return at the expense of communities, ecosystems and the provincial job market. Vancouver Island trees from private corporate forest lands are increasingly shipped offshore. As a result, BC, the province with the biggest, most valuable forest resource in Canada, has a much smaller yearly output of value-added wood products ($345 million) than either Ontario ($928 million) or Quebec ($825 million).
According to the Canadian Centre for Policy Alternatives (CCPA), the “Big Three” are dramatically eroding the forestland base in BC. Research finds that:
• In some cases logging is at more than twice what forest industry auditors say can be sustained and this threatens both the economy and the environment;
• Trees are getting logged at progressively younger ages;
• Douglas fir forests are being liquidated and, for Island Timberlands, could be gone within 25 years;
• Tens of thousands of hectares of private forestland are being readied for permanent conversion to real estate developments;
• Private land logging activities have been linked to heavily damaged streams and rivers with resultant fisheries and biodiversity loss;
• Present trends are unsustainable, a detriment to the environment and economy alike.
Instead of delivering wood to coastal mills and this creating BC jobs, timber companies are selling raw logs to China for uses as temporary as concrete forms. Raw log exports increased by more than 50% in 2010, with more logs shipped to China than during the previous 20 years combined. In the first three months of 2011 alone, BC’s coast exported 40% or 1.3 million cubic metres of logs, up 300% from the same period in 2009. Raw log export rates from Crown owned forest lands are almost as high. WFP, with harvesting rights of 7.4 million m3 Annual Allowable Cut on the BC coast, sells 40% of its logs to Asia, 42% in Canada, with the remainder going to Europe and the US.
Cortes Island is a prime example of Island Timberland’s devastating impacts on communities. IT owns over 2500 acres on Cortes Island which it imminently plans to log against the protests of Cortes Islanders. Residents have negotiated with the industrial forest land holders for ecosystem based management for nearly twenty years (starting with MacMillan Bloedel, then Weyerhaeuser and now IT). A local businessman estimates that tourism accounts for $4 million in direct wages each year and this tourism economy has sustained the island during the recent economic downturn that deflated other island industries such as construction and aquaculture. He believes that a large number of these jobs will disappear if IT moves forward with its industrial logging plans. As in other communities that have suffered from IT’s industrial logging of home forests, residents are gearing up for civil disobedience.
The CCPA estimated (based on IT numbers stated in a December 2007 prospectus) that IT’s current rate of logging is far beyond its own estimated long run sustained yield and IT will entirely log all its mature Douglas fir forests within 25 years.
Fir forests as carbon sinks
Scientists know that forest age plays a key role in determining whether forests are CO2 sources or CO2 sinks. Studies running since 1997 show this to be true for Douglas fir forests on Vancouver Island. Logging results in large CO2 releases which continue over time due to high decomposition rates in logging blocks. A 2006 report found that a logged area of Vancouver Island Douglas fir-dominated forest was a “large source” of CO2 and only became a moderate carbon sink 53 years after logging, when older trees were big enough to shade exposed ground.
Higher and better use?
The big three timber companies are increasingly converting forest lands to real estate, which is considered a “higher and better use.” Shareholders may love the fast, one time returns but they betray the public trust because, historically, logging companies have received public land cutting rights and low tax rates based on the representation that their private lands would be managed sustainably now and in future years as forestlands. Additionally, land conversion removes the potential of forestland for carbon uptake in the long term.
Opposition to permanent conversion of forestlands to real estate was highlighted in 2007 when the Ministry of Forests gave WFP permission to unlink its private lands from its private public land cutting rights (called a Timber Forest Licence) and sell them on the real estate market. The Auditor General sharply criticized the BC government for showing insufficient regard for the public interest. Timber West has reported that 17 percent of its lands are better suited for non-forest uses. For Island Timberlands, that figure is over 5 percent.
bcIMC “sustainable forestry” greenwash
bcIMC highlights the Sustainable Forestry Initiative (SFI), a third party certification scheme that claims to conserve biodiversity with a philosophy “that healthy productive forests yield immense environmental, social and economic benefits and mitigate the impacts of climate change....” Forest Ethics calls SFI “certified green wash” because:
• SFI is not “independent” but an outgrowth of the paper and timber products sector.
• SFI is does not perform “rigorous” audits, particularly in comparison to Forest Stewardship Council (FSC) audits.
• The SFI label doesn’t require any chain-of-custody tracking of its content or origins. The origin and content of products bearing this green-seeming label are mysteries.
SFI has “debunked” these criticisms and Forest Ethics has responded. In sum, the SFI reputation is widely questioned. This year alone, 20 major companies have rejected SFI products. Companies that are sincerely interested in sustainable sourcing of forest products use FSC. bcIMC itself used FSC certified paper for its 2012 annual report.
The unethical price tag of environmentally destructive activities
bcIMC’s logging company investments rely on liquidation of climate stabilizing and increasingly rare forests, such as the Douglas fir forests of Cortes Island. Because the “big three” don’t log sustainably, long term profits will rely on conversion of forestlands to real estate. Meanwhile, industrial logging destabilizes local economies by harming or destroying ecosystems and the tourism businesses that depend on them. No benefits from logging return to communities because the “big three” send most of their wood in the form of raw logs to Asia with no added value. bcIMC hides these unsound practices behind the widely discredited “Sustainable Forestry Initiative” certification.
Direct engagement for better forestry
bcIMC prides itself on direct engagement with companies in which it invests for the purpose of bringing corporate practices into line with principles of ethical investing. This serves a crucial role: pension funds are essential to a successful transition to a low-carbon and climate resilient global economy. Recent studies show that industries are not acting quickly enough on their own: current corporate sustainability efforts will not prevent a future of resource scarcity. Pension funds need to weigh in.
With its deep investments in Vancouver Island’s “Big Three” logging companies, bcIMC has the influence to bring major industry players in line with a future that relies on truly sustainable logging. Pension funds are uniquely positioned to manage assets for long term results. In the logging industry, this could mean allowing Vancouver Island trees to grow to their full legendary size and quality, as well as investing in diversification of timber products. According to the Canadian Centre for Policy Alternatives, this approach is central to any credible plan to restore the health of our forests and to use forests and forest products to maximize carbon storage. It also provides longer term economic stability. By diversifying markets but not products, the “Big Three” risk competing in global markets with products that are readily substituted in the short term. Developing distinctive forest products will secure markets for the medium and long term. In the meantime as it facilitates such truly sustainable solutions, bcIMC could stop Island Timberlands from decimating its Douglas fir forests. It could start with Cortes Island, where brushing crews are about to spark conflict.
bcIMC Chief Investing Officer:
Next in the series: bcIMC’s investments in Enbridge, Kinder Morgan and a who’s who of Canadian oil sands companies.