OPINION | Still waiting for Alberta to get the memo on climate-conscious investing
Norway's pension fund issues reminder that global financial markets continue to take climate risk seriously
This column is an opinion from Max Fawcett, a freelance writer and the former editor of Alberta Oil magazine.
There's a certain irony in the recent decision by Norway's Government Pension Fund to divest from Canadian oil and gas companies like Suncor Energy, Cenovus and Canadian Natural Resources because of their excessive climate impacts.
After all, the fund — which came into the recent crisis with more than $1 trillion in assets — was built in large part by Norway's own oil industry, and the Norwegian government's willingness to save its revenues rather than using them to subsidize taxpayers (hello, Alberta!).
But the decision should serve as another reminder of the fact that global financial markets continue to take climate risk seriously — and that those who don't will pay a price for their intransigence.
The growing relevance of climate risk helps explain why the federal government tapped Tiff Macklem, former Bank of Canada governor Mark Carney's deputy, to replace Stephen Poloz as its newest governor.
Macklem is very fluent in the language of climate change and the challenges it poses to the financial system. He recently chaired the federal government's Expert Panel on Sustainable Finance — one that presented a number of recommendations that included RRSP incentives for green investments and more stringent corporate disclosure of climate risks.
As he said last year, "finance is not going to solve climate change, but the things that are going to solve it … all require a lot of investment. And that's where finance is critical."
It's particularly critical for the ESG (environment, sustainability, governance) movement, which continues to win converts and build momentum.
In a 2019 report, MSCI predicted that millennials alone could put "between $15 trillion and $20 trillion into U.S.-domiciled ESG investments, which would roughly double the size of the current U.S. equity market." And in its 2020 Global ETF Investor Survey, U.S. private bank Brown Brothers Harriman noted that ESG "doesn't appear to be a passing fad."
The province isn't reading the room
Unfortunately, the Government of Alberta doesn't seem to have gotten the memo about this yet.
In response to the news out of Norway, its "war room" (the Canadian Energy Centre) released a fact sheet that emphasized the industry's recent efforts to reduce greenhouse gas emissions — and pointed out that Norway was still developing its own resources, including the massive Johan Sverdrup project that will crank out nearly 500,000 barrels of oil per day.
While it didn't use the word "hypocrite," that was clearly the implication they were trying to make.
The premier left little doubt in a press conference later that day, when he suggested the sale was an example of the "pot calling the kettle black."
There's just one problem with that framing: Johan Sverdrup emits fewer GHGs than almost any project on Earth.
Because its facilities are electrified, and because that electricity is provided by zero-emissions hydro, Norway's new oilfield produces barrels of oil that have just 0.67 kilograms of carbon dioxide. The average barrel coming from Norway's continental shelf has an emissions intensity of 9 kilograms per barrel, while the global average is double that.
The oilsands, meanwhile? According to a recent report from IHS Markit, intensities range from 39 kilograms of carbon dioxide per barrel to a whopping 127.
Yes, Norway's oil is far lighter than Canada's, and is much easier to extract, but these are distinctions that are going to be lost on most people, and they aren't ones anyone from the Government of Alberta even bothered to delineate. Instead, the premier said that Albertans weren't about to be "lectured to" by a fund that made its bones selling oil.
But while Jason Kenney and his war room continue to demonstrate that they're incapable of reading the proverbial room, that's not true for all of the companies they apparently want to defend.
'Our stakeholders care about carbon emissions'
In February, Calgary-based Seven Generations Energy struck a landmark deal with Énergir, Quebec's largest natural gas distribution company, that will see it ship 50 million cubic feet per day — and get paid a premium for it.
That's because 7G was the first natural gas company to receive certification under the EO100 Standard for Responsible Energy Development, which "establishes metrics and performance targets that address the social and environmental impacts of energy development."
Jackie Forrest, a senior director with Calgary's ARC Energy Research Institute, says the deal establishes an important precedent for the industry.
"It proves that there's a return on investment for ESG," she said during a podcast with 7G CEO Marty Proctor.
Not surprisingly, he agreed with her assessment.
"The fundamental point to make is that this does matter. We need to accept that our stakeholders care about carbon emissions, and they care about the potential impact of our emissions on climate change."
If the Government of Alberta wants to help companies like Proctor's, it should direct its war room to do more than just repeat talking points about the past.
Instead, it should acknowledge the challenges ahead and the work that needs to be done, and set out to actually do it.
Alberta must tell a more honest story
That means changing the regulations that have allowed thousands of orphan wells to crop up in Alberta, and bringing that number as close to zero as possible.
That means getting on top of the province's growing tailings pond problem, where there are still trillions of litres of unreclaimed oilsands waste.
And it means telling a more honest story about Alberta's industry — not one where it's already the best, but instead where it aspires to get there.
That's a journey that the federal government is already supporting, both with its investment in cleaning up some of the province's old wells, and its requirement that large companies that access the bridge loans it recently made available must disclose their climate plans and sustainability goals.
With a new climate-conscious governor of the Bank of Canada, it's entirely possible that Alberta could forge a productive new alliance with Ottawa, one that sees capital flows directed to the companies that are leading the way on climate like 7G.
Perhaps, one day, those flows could even come from Norway's Government Pension Fund. But that will only happen if the province and its leadership stop picking fights and start embracing the realities of a decarbonizing global economy.