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Originally appeared in the Financial Post
The capital needs of Canadian energy producers are increasingly buffeted by two forces that have been created and nurtured by the global environmental movement.
The first is “ESG” — a growing consensus among institutional investors that all industries need to commit to having to consider the environment, social, and governance in their forward-looking business decisions. Whether you agree with ESG-based investing or not, it looks like it is here to stay.
The word amongst those who still work in Calgary’s downtown towers is that institutional investors won’t even look at you if there isn’t a detailed ESG component in your financing proposal.
The second great challenge for energy producers is the growing divestment movement, which has many institutional investors liquidating their equity positions in the oil and gas game altogether. This campaign, begun in 2011 by Bill McKibben’s environmental group 350.org, has been taken up by other environmental NGOs and climate groups all over the world.
As so often happens, the movement spread its wings in post-secondary institutions, with campus protest groups making things awkward for endowment fund trustees if they didn’t agree to divest from oil and gas. But it has now gone mainstream and the pressure it applies is causing leading multi-national investment funds to signal they will switch to more “sustainable” investments.
What the Canadian industry has not yet succeeded in making clear is that this capital shift away from our oil and gas in the name of “sustainable” investing is inherently counterproductive. Every major international organization with any credibility still sees fossil fuels as a large part of the world’s energy mix well off into the future.
Even if the world meets its net-zero commitments, oil and gas won’t disappear any decade soon. The world’s growing need for reliable and responsibly-produced and -consumed energy is arguably the greatest challenge of our time.
The world population will reach roughly 10 billion by 2050. Global GDP is expected to more than double by then, which means global energy demand will rise, too. If we know that oil and gas will still be around in 2050, should we not insist that the companies producing it operate under the most responsible conditions possible?
The world’s growing need for reliable and responsibly-produced and -consumed energy is arguably the greatest challenge of our time.
This is where Canadian oil and gas companies can make their largest impact.
Canada ranks highest in ESG among major oil and gas producing countries. We are world leaders who do energy production more responsibly than anyone else.
Our oil and gas industry is already Canada’s leading industry for environmental and clean technology spending. And the sector is doubling down on reducing its emissions because it knows it must remain on top. Actively investing in companies committed to reducing emissions seems by far the best bet for both portfolio returns and climate change.
Not taking this more sensible approach could lead to the exact opposite of the divestment movement’s intended effect. Divesting from environmentally conscious suppliers of energy in Canada will shift future supply to countries that are more polluting, less transparent, less sensitive to societal pressures, and less committed to emissions reductions.
That’s essentially what the International Energy Agency said in the net-zero report it released last month. If countries like Canada wind down their production, OPEC countries with poor environmental and human rights records will become the biggest suppliers of oil and gas. That’s not a future we should be excited about.
Divestment is not a real solution to global problems. If Canada is serious about leading on climate, we need to champion our world-leading oil and gas industry. Investing in Canadian oil and gas is not anti-climate, it’s both pro-responsible resource production and pro-Canada.
Oil and gas will not be gone by 2050, and only responsible producers like Canada should be left producing. Real net-zero production and consumption technologies are beginning to take shape in the industry. This is a clear sign that Canada’s energy industry is serious about fighting climate change. But it won’t succeed if it can’t get access to capital.Suppliers of that capital should invest in the best and divest from the rest.
Cody Ciona is a researcher for the Canadian Energy News Network at www.canadianenergynewsnetwork.com
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