Addressing oil sands risks

Alberta's oil sands are a controversial topic for Canada's SRI community. The 140,000 square kilometre region has become a front-line issue for investors concerned about climate change. Yet, Canadian SRI mutual funds can't afford to ignore energy companies working in the sector, since energy makes up approximately 30% of the TSX.

“It's difficult to avoid that sector and provide competitive rates of return,” says Bob Walker, vice president, sustainability, at Ethical Funds. “80% of our investors care most about financial performance and most Canadian energy companies are involved in the oil sands,” he said during a breakout session at the Canadian Responsible Investment Conference in Winnipeg earlier this week.

Still, that doesn't mean Ethical Funds is ignoring the issue, quite the opposite, in fact. The Vancouver-based firm is currently conducting an extensive study of operating projects in Alberta's oil sands.

“We're going to establish a benchmarking tool to find out which companies are mitigating risks,” Walker said. “And we'll establish some rules around acceptable and unacceptable risk.”

In the meantime, Walker says companies working in the oil sands could have changed forced upon them, thanks in part to U.S. President Obama's promise to cut greenhouse gas emissions and reduce American dependence on “dirty” oil.

”We have seen a slowdown in new [project] approvals,” Walker said. “We've seen projects rejected because of objections from First Nations groups,” he added, noting that aside from climate change, the more acute risks from oil sand projects are health-related, particularly among the First Nations.

“There is the potential for the industry to slow down and re-think, perhaps consider ESG issues,” he added.

The Ethical Funds research is being conducted in partnership with the National Union of Public and Government Employees (NUPGE) and Ceres and will be published in the fall of 2009.