Canadian Responsible Investment Conference Update: Engaging with the Oil Sands Sector

“When does the patience run out?” That question from Bruce Cox of Greenpeace resonated with many in the room who were perhaps more interested in disengaging from than engaging with the tar sands sector.

But, to begin at the beginning, Todd Hirsch, Senior Economist at ATB Financial in Calgary opened the discussion by providing some information on the size of the tar sands. At this time there are 52 major projects either operating or about to get going, representing 143 billion investment dollars. And it’s not all purely Alberta oriented; Mr. Hirsch told us that about 20% of that investment activity generates activity in other provinces.

This year, for the first time, tar sands royalties will surpass natural gas and crude oil royalties for the Alberta government.

However, the economic impact is not what concerns socially responsible investors. Karina Litvack from F&C Investments suggested that perception in the UK is that “this is a very worrisome activity and that risks are not being mitigated to the extent they could or should be.”

Michelle de Cordova from Northwest and Ethical Investments was categorical in her defense of remaining engaged. “You can’t change a company you don’t own. We are committed to our engagement because we see it working.” In addition to their engagement strategy, NEI’s sustainability team has produced some excellent research reports, most recently Lines in the Sands: Oil Sands Sector Benchmarking.

Unfortunately, many of the examples of how engagement is working are related to increased disclosure. While we understand that disclosure is the first step, there was significant frustration in the room at the pace of change. Karina Litvack acknowledged that engagement is a slow process resulting in incremental improvements, while some investors, particularly on the retail side, are looking for transformational change.

Questions from the audience, and the subsequent discussion, suggested that the pricing of carbon might help. One thought was that ‘if you price carbon, you will see innovation like you have never seen.’ Ms. Litvack concurred, “If the pain is not great enough, why should these companies change? Two million dollars for Shell is pocket change.” (this is the estimated extra Shell will pay based on Alberta’s Climate Change & Emissions Management Act requirement for all facilities emitting more than 100 kilo tonnes per annum of specified gases.)

It appears that the results of the engagement process need to be better communicated. Frank Arnold, an advisor in Victoria BC stated, “Ten years ago clients were broadly saying they were interested in environmental issues. Now the first thing they say is they don’t want to support the tar sands.’ While socially responsible investors are in it to drive change, there is growing frustration with the limits of engagement.

Further sessions at the conference provided more information on this topic – stay tuned!