This article was published by The Energy Mix on Aug. 20, 2024.
By Mitchell Beer
Fossil fuel and mining companies in Canada are beginning to alienate the institutional investors they depend on with their steadfast refusal to adopt sustainability disclosure standards that are already in effect in 164 countries around the world, The Energy Mix has learned.
The initial signs of discord are showing up as the federal government inches closer to announcing a sustainable finance taxonomy that may exclude new fossil fuel investment and set strict criteria for attaching a green label to “transition” projects in high-emitting industries. But while they wait for Finance Canada to take action on a standard that has been under development for half a decade, some investors are thinking about voting with their feet.
“After doing engagement for so many years,” said Barbara Zvan, president and CEO of University Pension Plan Ontario (UPP), “people who’ve been a part of those engagements are starting to morph their portfolios.” While there is no move afoot to pull investment dollars out of whole sectors like fossil fuels or mining, institutional investors like pension funds “will make more and more of those decisions” as the target dates for meaningful emission reductions get closer, she told The Mix.
Zvan cited shareholders’ overwhelming rejection of the climate plan put forward last April by Perth, Australia-based Woodside Energy as a sign of things to come. “Investors said no, not good enough,” she said. “We will see more and more of that,” as well as an uptick in shareholders voting against corporate directors if their response to climate change falls short.
After a couple of years of record profits, driven by the COVID-19 recovery and Russia’s war in Ukraine, the evolution in investors’ attitudes won’t lead to an immediate change in corporate behaviour. “The challenge right now is that oil and gas companies have lots of money,” Zvan said.
Moreover, UPP Director of Stewardship Delaney Greig said the last decade has seen a shift in hiring practices in many Canadian fossil companies: rather than bringing in outside experts in stakeholder issues or mediation to fill senior sustainability positions, they’re hiring executives whose past experience is “squarely within the industry” to address sustainability “as part of a portfolio role.”
But that complacency won’t help them draw the international investment Canada needs, Zvan said. From the point of view of international investors, with 164 countries already adhering to international standards for sustainability disclosures, “a lot of them just say no, because Canada is not a focus” when natural resource companies fail to step up.
“When you look at the data, Canadian companies are woefully behind” compared to their counterparts in Australia and Asia, and “I find it boggling,” Zvan added. In an email, she cited Climate Engagement Canada analysis that showed a focus list of Canadian companies falling behind their global peers in short- and medium-term emission reduction targets and far behind on long-term and net-zero targets, decarbonization strategies, and alignment of their capital allocation with a net-zero future. Mining companies received a similar bleak assessment for their corporate climate policy engagement.
“What is going on here that makes us think we’re special?” Zvan asked.
The Globe and Mail reported late last month that the 169 responses the Canadian Sustainability Standards Board received on the sustainability reporting standards showed “a stark divide between investors such as pension funds and asset managers demanding detailed comparable data and companies that say some factors are still too uncertain and implementation too burdensome.” The news story cited two Calgary-based companies, utility and industrial conglomerate ATCO and pipeliner Enbridge, as well as Toronto-based Barrick Gold, opposing the detailed reporting the financial sector increasingly expects.
Financial Reporting & Assurance Standards Canada has the full series of responses here.
In April, Zvan led a sign-on in which 230 members of Canada’s Clean50 urged Finance Minister Chrystia Freeland, Environment Minister Steven Guilbeault, and Natural Resources Minister Jonathan Wilkinson to get on with the job of adopting a sustainable finance taxonomy that has been under development since 2019.
“We are concerned that Canada has become an outlier amongst its G-7 peers and most of our other trading partners, and is falling further behind with every passing day,” the letter stated. “A Canadian taxonomy can make Canada a more attractive global investment destination, accelerating much needed transition finance and facilitating the deployment of new climate innovations,” while helping companies to “finance their transition plans and decarbonize operations at a faster pace.”
Clean50 founder Gavin Pitchford, who coordinated the sign-on along with Zvan, said Canadian companies will miss out on international investment unless the country adopts a robust taxonomy. “No one in Europe is going to call Canadian companies and whine about lack of disclosure,” he told The Mix in an email. “They’re just going to send their capital somewhere else and Canadian companies across the board will lose.”
The sign-on drew support from more than a dozen major investment firms and pension funds with many billions of dollars under management, as well as seven venture capital firms and the CEOs of more than 50 cleantech firms that “clearly benefit once a taxonomy is implemented because they will be eligible for greater investment,” Pitchford wrote. “It will unlock capital to which they presently have no access,” the lack of which “is starving emerging Canadian cleantech firms of the capital they need to expand. Capital their foreign competitors can access.”
And “meanwhile, not a single signer from any of the Big Five banks or anyone presently or previously employed by a resource extraction firm. Not one.”
Pitchford said that wasn’t entirely surprising. “Obfuscation and endlessly kicking the can down the road is what they do,” he wrote. “They think a Poilievre government will buy them another four years of pain-free [resource] extraction, so they’ll leverage that as best they can.”
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