‘Sweeping generalizations’ on oil and gas investment breeds Western alienation

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Brad Wall is calling on institutional investors to avoid “sweeping generalizations” about Canada’s energy sector, as a growing number of asset managers prioritize climate change. 

The former Saskatchewan premier said blanket statements about energy and the fossil fuel divestment movement are peaking feelings of Western alienation. His comments come as Canadian energy producers face mounting pressure to disclose climate-related risk, and they race to cut their carbon footprints.

“I think it would be better for business if sweeping generalizations were replaced by a process that would identify those that have a lot more work to do and shouldn’t be targets for investment,” Wall told a lunch audience at the AltaCorp Capital Annual Investor Conference in Toronto on Thursday. 

“But also, [highlight] the companies that are champions and world leaders and are contributing to the fight on climate change, even as oil and gas companies,”

He points to carbon capture efforts at Whitecap Resources (WCP.TO), the Calgary-based oil and gas firm where he’s held a board seat since July. The company estimates its carbon sequestration efforts offset all of its corporate emissions.

“There is a broader story than just Whitecap,” Wall said. “We have to take every opportunity to tell those stories.”

Last July, Canadian Natural Resources (CNQ.TO)(CNQ), Canada’s largest oil and gas producer, announced it cut greenhouse-gas emissions by 29 per cent and methane emissions by 78 per cent since 2012. Earlier this month, Cenovus Energy (CVE.TO)(CVE) announced a plan to reduce per-barrel greenhouse gas emissions by 30 per cent by the end of 2030. Those figures do not include emissions from the consumption of each company’s oil by the consumer.

Meanwhile, fear of a warming planet has seen energy investments increasingly lumped into the sin stock category along with firearms and tobacco. 

BlackRock (BLK), the world’s largest asset manager, recently said it would exit investments that “present a high sustainability-related risk.” 

“Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself," BlackRock CEO Larry Fink wrote in his annual letter to CEOs. “In the near future — and sooner than most anticipate — there will be a significant reallocation of capital.”

In an interview with the BBC late last year, outgoing Bank of England governor Mark Carney urged financial institutions to justify their continued investment in fossil fuels. He warned “a substantial proportion of those assets are going to be worthless.” Carney’s next job will be with the United Nations as special envoy on climate change and finance. 

Margaret Eve Childe, director of ESG (environmental, social, and governance) Research & Integration at Manulife Investment Management, sees quantifying environmental risk of individual investments becoming easier as more data becomes available. 

“At Manulife, we do scenario analysis on the asset management side,” she said during a panel discussion on Wednesday organized by Reuters Breakingviews. “There is a lot of noise out there in the ESG world. It's challenging for portfolio managers to consider which ESG factors are material.”

For Wall, a more nuanced approach to Canadian energy investment on Bay Street would help ease the strained relations he sees between Ontario and the Western provinces. 

“The alienation is real folks. Whether you think there is justification or not, it is real,” he said. “I happen to think there is justification for people to be frustrated.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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