An undefined number of Plan members have expressed interest in having a new fund option that would exclude investing in firms associated with the fossil fuel industry (i.e. a Fossil Fuel Free or “FFF” fund). This mandate would be a narrower subset of the broader ESG factors but it is an area that has received more attention than many other ESG factors. In the next few weeks we will be sending out a survey to our Plan members to gauge how committed they would be to investing in such a new fund option if it was made available. We expect to have the results of this member survey available by the second quarter of 2019.
One of the outstanding issues around whether such a new FFF fund could be offered by the Plan is in regard to the legal fiduciary duty of the Trustees. Under current British Columbia pension legislation, the Trustees owe a fiduciary duty to the members of the Plan such that their investment decisions must be made in “the best financial interests” of the members. The Trustees have received legal advice on this issue and they would first need to be satisfied that any potential new FFF fund option would not breach this fiduciary duty. For example, the Trustees are prohibited from making investment decisions based on advancing a particular social objective, as the members’ financial interests must be the primary rationale in their decision-making. This would include being satisfied that providing such a FFF fund does not pose a material risk of negatively reducing expected returns (or increasing risk) versus a similar type of fund that did not employ this type of negative screening criteria.
There are a limited number of FFF funds currently available in the Canadian market with most having relatively short track records, which makes it more difficult to fully assess the funds’ performance and the skill of the investment managers. Given there is no one standard industry definition of an FFF fund, there can also be broad variances in the underlying structures of these funds. The Trustees would only consider a Balanced fund mandate as a potential FFF fund option.
Potential Fund Costs
In addition to the investment management fees associated with any of our investment options, the establishment of a new FFF fund option would also entail other additional costs. These costs include such things as legal advice, consulting and communication costs, manager search costs and additional record-keeping costs. The full costs of providing a new FFF fund would be borne by those investors who choose to invest in the fund and not by all the Plan members. Also, given that a new fund would probably start with a small amount of assets, the investment fees, which are partially based on asset size, could be higher than the fees payable on the existing Balanced Fund.
We look forward to receiving your feedback with the upcoming survey.
Environmental, Social, and Governance Investing and the UBC Faculty Pension Plan
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