Oil sands companies called on to “keep it in the ground” – but Suncor opens new mine near Fort McMurray, deploys driverless trucks

Parkland report big oil coverThe majority of Alberta oil sands production is owned by the five companies: Canadian Natural Resources Limited (CNRL), Suncor Energy, Cenovus Energy, Imperial Oil, and Husky Energy.  What the Paris Agreement Means for Alberta’s Oil Sands Majors, released on January 31 by the Parkland Institute, evaluates what the 2°C  warming limit in the  Paris Agreement means for those “Big Five” –  by assessing their  emissions-reduction disclosures and targets, climate change-related policies, and actions, in light of their “carbon liabilities.” The carbon liabilities are calculated using  three levels for the Social Cost of Carbon, ranging from $50, $100, and $200 per tonne. Even under the most conservative scenario, the carbon liabilities of each corporation are more than their total value, and the combined carbon liabilities of the Big Five ($320 billion) are higher than Alberta’s GDP of $309 billion. Conclusion: “the changes required to remain within the Paris Agreement’s 2°C limit signals a need for concrete, long-term “wind-down” plans to address the challenges and changes resulting from global warming, including the fact that a significant portion of known fossil fuel reserves must remain underground.” What the Paris Agreement Means for Alberta’s Oil Sands Majors was written by Ian Hussey and David Janzen, and published by the Parkland Institute as part of the SSHRC-funded Corporate Mapping Project.  A National Observer article reviewed the report and published responses from the Big Five companies on January 31.

autonomous electric mining truckRather than keeping it in the ground, Suncor Energy announced on January 29 that it is continuing to ramp up production at its Fort Hill oilsands mine, about 90 kilometres north of Fort McMurray.  The next day, Suncor also announced  the beginning of a 6-year phase-in of approximately 150 autonomous electric trucks at numerous locations. The company said it will “continue to work with the union on strategies to minimize workforce impacts,” and that “current plans show that the earliest the company would see a decrease in heavy equipment operator positions at Base Plant operations is 2019.”   Reaction from the local union is here in a notice on the website of Unifor 707A;  Unifor National Office response is here:  “Driverless trucks aren’t the solution for Suncor” .  The National Observer published an interview with a Suncor spokesperson on January 31.  According to”Suncor Energy says driverless trucks will eliminate a net 400 jobs in the oilsands” , Suncor is the first oil sands company to use driverless trucks, and “Suncor’s plan to test the autonomous truck systems was initially criticized by the Unifor union local because of job losses. But Little says Suncor is working with the union to minimize job impacts by retraining workers whose jobs will disappear. The company has been preparing for the switch by hiring its truck drivers, including those at its just−opened Fort Hills mine, on a temporary basis.”

The good news is that  “the era of oil sands mega-projects will likely end with Suncor Energy’s 190,000 barrel-per-day Fort Hills mining project, which started producing this month”, according to an article by Reuters.  The bad news is in the title of that article:  “Why Canada is the next frontier for shale oil” (Jan. 29) . The article extols the strengths of Alberta’s mining industry, and quotes a spokesman for Chevron Corporation who calls the Duvernay and Montney formations in Canada “one of the most promising shale opportunities in North America.”  For a quick summary, read   “Montney, Duvernay Oil and Gas Fields Seize the Momentum from Athabasca Tar Sands/Oil Sands” ( Jan. 31) in the Energy Mix.

Also,  consider the work of Ryan Schultz of the Alberta Geological Survey.  Most recently, he is the lead author of  “Hydraulic fracturing volume is associated with induced earthquake productivity in the Duvernay play”, which  appeared in the journal  Science on January 18 , and which is summarized in the  Calgary Herald  on January 18.  It discusses the complexities of how fracking has caused earthquakes in the area.

Corporate Climate Risk Disclosure needed to protect Pensions

To protect pensions, companies should be required to come clean on climate risk” writes Keith Stewart of Greenpeace Canada in an Opinion piece in the National Observer on November 27.  Stewart reports that Greenpeace Canada has filed a formal request under Ontario’s Environmental Bill of Rights, for the Ontario government to review the need for mandatory disclosure of climate-related risks in corporations’ financial filings. The government’s response is expected by the end of 2017.  This is the latest of recent and ongoing calls for increased corporate disclosure of the risks posed by climate change,  to protect investors and financial stability.  The issue has even made it to the conservative Report on Business of the Toronto Globe and Mail newspaper, in  “Business risk from climate change now top of mind for Canada’s corporate boards” (November 22)  . The article warns that Canada’s  stock markets are  particularly vulnerable to a potential “carbon bubble” in the valuations of fossil-fuel-dependent companies, given that the Toronto Stock Exchange is so heavily weighted with energy and mining companies (20 per cent for that category, as compared with only 2 per cent for clean technology and renewable-energy companies).  And that’s not the worst:  on the TSX Venture Exchange, mining and oil and gas companies account for 68 per cent of the index.  (Such a resource sector dependency was part of the reasoning given by the Norweigian Wealth Fund for its proposal to divest oil and gas investments (Nov. 16)).

Another related Globe and Mail article provides an excuse for the current state of climate risk disclosure in Canada in  “Companies Looking to Report Environmental Data Also Navigate Inconsistent Frameworks” (Nov. 22) . The article states that “There is a dizzying number of best-practice guidelines for climate disclosures” and lists the major ones – with information drawn largely from the Carrots & Sticks database . In fact, Carrots & Sticks lists  nine sustainability reporting instruments unique to Canada, in addition to widely-recognized international ones such as the Principles for Responsible Investment (PRI) Reporting Framework  and the OECD Guidelines for Multinational Enterprises  .  (Carrots & Sticks  is an initiative begun in 2006 by KPMG International, Stichting Global Reporting Initiative, UNEP, and the Centre for Corporate Governance in Africa, with the goal of encouraging and harmonizing financial disclosure guidelines.)

Most recently, the Task Force on Climate-related Financial Disclosures, led by Marc Carney and Michael Bloomberg, released their  landmark Final Report and Recommendations in 2016. The following Canadian pension funds have, at least on paper, supported it:  Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, OPTrust, the Caisse de dépôt et placement du Québec and the British Columbia Investment Management Corporation.  The Canadian Securities Administrators  launched a Climate Change Disclosure Review  in March 2017 to investigate and consult re Canadian practice, which will issue a report “upon completion of its review”.

And across the globe in Australia, the  Australian Prudential Regulation Authority (APRA), the  regulator of the financial industry, has  also announced an industry-wide review of climate-related disclosure practices.  On November 29, an Executive Board member of the APRA delivered a speech, “The weight of money: A business case for climate risk resilience” , in which he outlines the Australian perspective on climate-related financial risks, and states:  “So while the debate continues about the physical risks, the transition to a low carbon economy is underway, and that means the so-called transition risks are unavoidable: changes to market sentiment, new financial or environmental regulations, or the emergence of new technologies with the potential to prompt a reassessment of the value of a large range of assets, and consequently the value of capital and investments.”  The speech is summarized in The Guardian.

Quebec Pension fund leads the way in low-carbon investing in Canada

The  Caisse de dépôt et placement du Québec (CDPQ) is Canada’s second largest pension fund, with $286.5 billion under management for the  public and parapublic pension plans of  Quebec workers. On October 18, the Caisse burnished its existing reputation as a responsible investor by releasing  “Our Investment Strategy to address Climate Change”,    a detailed strategy document which pledges to factor climate change into every investment decision.   The CDPQ will increase its low-carbon investments by 50% by 2020, and reduce the carbon intensity of its portfolio by 25% by 2025 across all asset classes.   According to an article in the Montreal Gazette , “the Caisse is the first fund in North America, and only the second in the world — after the New Zealand Superannuation Fund — to adopt this type of approach.” That article also notes that investment managers’ compensation will be tied to the emissions performance of their investments:  investment teams will be given fixed carbon budgets, “and their performance will be evaluated and remuneration linked to how well they stick to these budgets.” The announcement was also covered by the Globe and Mail  .

In contrast, the Canada Pension Plan Investment Board , entrusted with the funds to support the public pensions of 20 million Canadians (the CPP), continues to invest in oil and gas ventures – and according to Bloomberg Research , is currently involved in a bidding process for an Australian coal operation owned by Rio Tinto .  Friends of the Earth Canada is advocating against the bid as part of its ongoing campaign, Time to Climate-Risk-Proof the CPP  .  The CPPIB describes its investment strategy regarding climate change here  .

It is worth noting that the Labor Convergence on Climate event  organized by the Labor Network for Sustainability in September included a discussion of how union leaders and rank and file members can work through their pension funds to join the movement to divest from fossil fuels and make green investments .

The role of the banking and investment community is important in policy development also; the case is most recently made in  “Three suggestions for for B.C.’s Climate Solutions and Clean Growth Advisory Council” in the National Observer (Oct. 26). The article concludes:  “If the Advisory Council wants to see money move to support its policy aspirations they will have to find genuinely committed allies in the asset management and banking community. Action on climate change is great economic opportunity for British Columbia and Canada, and the financial sector must be brought into the discussion in order to accelerate the transition to a low-carbon energy system.”

How receptive is the Canadian investment community to considering and disclosing climate change risks and stranded assets? Two reports  by the UN-affiliated Principles for Responsible Investment ( PRI )   are relevant to this question. Fiduciary duty in the 21st century: Canada roadmap (Jan. 2017) makes recommendations for how Canadian pension fund and investment managers can catch up with the international community and implement the recommendations of the Taskforce on Climate Related Financial Disclosures (TCFD) . The PRI Canada country review (June 2017) describes the current regulatory framework for environmental and social governance disclosure .  The Responsible Investment Association has  also published the 2016 Canadian Responsible Investment Trends Report .

Actors within Canada include the Canadian Securities Administrators , which began their own  review on climate-related financial disclosure practices in March 2017 , but have not yet reported.   A group of Canadian Chief Financial Officers launched  the CFO Leadership Network in March 2017, to focus on the role CFO’s play in integrating environmental and social issues into financial decision making. The Canadian CFO Leadership Network is the Canadian Chapter of The Prince of Wales’s Accounting for Sustainability (A4S) CFO Leadership Network; in Canada, it operates in partnership with Chartered Professional Accountants of Canada , with support from The Prince’s Charities Canada.

Finally, SHARE (Shareholder Association for Research & Education), is a Vancouver-based organization which actively promotes sustainable and responsible investing. On October 12, it announced  that it is participating in an investor-led initiative which has written to the CEO’s of sixty of the world’s largest banks, including six Canadian banks, calling on them to adopt the landmark recommendations of the Taskforce on Climate Related Financial Disclosures (TCFD), released by the Financial Stability Board in December 2016 .  Specifically, they call for disclosure in four key areas: climate-relevant strategy and implementation, climate-related risk assessments and management, low-carbon banking products and services, and banks’ public policy engagements and collaboration.

 

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: improved benefits, but still exposed to fossil fuel risk

Welcome as it is that the federal government announced improvements in the Canada Pension Plan on October 4, it would be even more welcome to know that the CPP Invesment Board (CPPIB)  was not risking our future pensions by remaining invested in the  fossil fuel industry.  Friends of the Earth  Canada has launched a new campaign, Time to Climate Risk-proof the CPP,  which reveals that approximately 22% of the Canadian portfolio is invested in  fossil fuel producers or pipeline companies, including coal.  The Friends of the Earth campaign includes an online site called Pension Power , enabling ordinary Canadians to query their pension fund managers.  It also calls on the CPPIB to sign onto the Montreal Pledge, and  the Portfolio Decarbonization Coalition (PDC), two United Nations Environmental Program initiatives that encourage institutional investors to decarbonize their portfolios and disclose risky assets.  Anything less ignores the now-apparent decline of the fossil fuel industry and the shift to a low carbon world,  and thus fails the fiduciary responsibility of institutional investors – to protect assets against risk.

Canada’s Shareholder Association for Research and Education (SHARE) has published studies on the need for responsible investment;  Royal Bank of Canada (RBC), Suncor Energy and NEI Investments published Unburnable Carbon and Stranded Assets : What investors need to know   in January 2015, and  Canada’s Marc Carney,  in his high profile role as Governor of the Bank of England and Chair of the international Financial Stability Board,  has been a world leader in warning about the dangers of stranded assets since 2015 .  How can the Canada Pension Plan Investment Board have missed the message that other Canadians are so well aware of?

Further reading:   For an overview of the international literature, see Divestment and Stranded Assets in the Low-carbon Transition from the OECD (Oct. 2015)  or more recently: Unconventional Risks: The Growing Uncertainty of Oil Investments in July 2016;  Shorting the Climate ( from the Rainforest Alliance Network, BankTrack, Sierra Club and Oil Change International);  “New York City Pension Funds begin to craft a Fossil Fuel Divestment Path others can Follow”  (July 2016),  and  “Fiduciary responsibility and climate change”    in Corporate Knights (Aug. 30).