Front Burner - The divestment from Alberta’s oilsands

Episode Date: May 21, 2021

As pressure mounts to address global warming, some financial institutions are grappling with whether or not to divest from the Canadian oilsands. CBC’s Kyle Bakx explains....

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Starting point is 00:00:00 In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. Last month, the New York State Pension Fund made an announcement. They were pulling their money out of seven Canadian companies in the oil sands. I think they want to send the message that they take climate change seriously and they want to,
Starting point is 00:00:45 you know, show all of their stakeholders that they are trying to change their portfolio so that it's more aligned with, you know, low carbon choices. That's my colleague Kyle Bax. He's a business reporter in Calgary. And today we're going to be talking about how some major financial institutions are choosing to divest from the oil patch and how it's a bit more complicated than it may seem at first glance. Starting with this example of a major U.S. public pension fund, the third largest in the country. There were a lot of environmental groups that were pretty excited about this announcement. You know, they really played up that here is another big name investment firm that has pretty deep pockets and it is choosing to turn its back on the oil sands. When you really look, though, at deep into the announcements, it's a bit more complex than that.
Starting point is 00:01:38 There's more layers to it. So the fund decided to pull out more than seven million dollars U.S. out of seven different companies. And really in the grand scheme of things, that's not a lot of money. These are companies that are worth billions of dollars. So $7 million, it's a pretty small amount. And really what happened was, is that they didn't fully pull out of the oil sands. What they did is they took a look at all the different oil sands companies that they were currently investing in and they evaluated each one. So they looked at
Starting point is 00:02:11 how these companies are spending their money. Do they have a strategy for transitioning to lower carbon sources of energy? Do they have environmental targets? You know, what kind of a strategy do they have to reach those kinds of targets? So they decided to pull out of seven different companies, but they kept their funding in Suncor Energy. And it was really interesting because they have more than $19 million invested in Suncor. Okay, so more than what they pulled out. Exactly. And so really, is this big pension fund pulling out of the oil sands? Not really. You know, the majority of the cash that they have invested in the oil sands is staying in the oil sands. What was their reasoning for staying
Starting point is 00:02:58 with Suncor for, you know, having this $19 million stay with Suncor? They didn't give a specific reason, but based on the rationale for why they pull out of the other companies, you can gather that they see Suncor as showing signs that it can still be a player in a low carbon economic transition. We see with Suncor, it's already investing in wind farms. It's done that for 20 years. The oil sands is still their main source of production, definitely. But they're also investing in, you know, carbon capture and technology projects. And they're also investing in, you know, cleaner sources of jet fuel. What does this one example of the New York State Pension Fund tell you about this move by some financial institutions to start divesting from the oil sands? I think it says a lot of different things. I think on one hand, when you divest from the oil sands or divest
Starting point is 00:03:59 from fossil fuels, it sends a pretty loud message. I also think it shows how this is a really complex issue. You saw with this example how, you know, on one hand they saw that they can make an environmental difference by pulling out of some companies, but they still see value in investing in the oil sands. They still see value in investing in the energy sector. And that's probably reflective of society where we're at. You know, the world is still heavily dependent on oil and on natural gas. This is one example of a trend you've been watching. I wonder if you could tell me more about this broader divestment trend. What have you been seeing? You know, it's really interesting.
Starting point is 00:04:46 It started, I'd say probably about a decade ago. And it was really small. It was like small church groups were deciding not to invest in oil and gas and the coal sector. And then it started to grow. And then you had, you know, university students that were kind of raising this issue, lobbying, you know, their universities to take a stand and not invest in fossil fuels. We're from U of T 350 and we are going to barge through this classroom at Convocation Hall in solidarity action with Dow Housing. Dow, Dow, you're the best! No more fossil fuels to rest! Dow, Dow, you're seeing some of these really big players like BlackRock, like the Rockefeller Brothers Fund, who are taking a similar path. And I spoke with Keith
Starting point is 00:05:39 Stewart about this. He's the senior energy strategist with Greenpeace Canada. And he says that in the last six or seven years, there's been enormous momentum towards this movement. And now there's actually a global movement to try and get cut off the money pipeline to sort of the big banks, the big pension funds to sort of say, you guys have got to get out of fossil fuels. And I mean, if you look at since the Paris Agreement was signed in 2015, the federal government has invested $60 billion in its climate strategy. The big five banks in Canada have put $700 billion into fossil fuels. I mean, the scale of this, the sort of the money that's flowing in there now is incredible. And if we could actually get that money directed towards climate solutions, rather than sort of extracting and burning more
Starting point is 00:06:29 fossil fuels, we can make a huge difference. And I thought that was really interesting, because of course, in the last few years, we've seen environmental activists targeting pipelines as a way to stop growth in the oil industry. If you can if you can stop pipelines, then it's pretty hard for the oil industry to grow. But now you're seeing this different strategy. They're targeting the money pipeline. So they're targeting banks, insurance companies, just the broader financial sector. A few of the people chained themselves
Starting point is 00:07:01 to the front door of the head office of Liberty Mutual Insurance. Others held signs and chanted for the government to stop the TMX pipeline. And so if they're able to stop this money pipeline, the financial support for the sector, that's a way of stifling the industry and making sure that it's a real challenge for the industry to grow. You just mentioned how this sort of goes beyond pension funds, right? You mentioned insurance companies as well, and talk to me a little bit about that. Well, this is pretty interesting, and it's not a topic that really gets a lot of attention. But what's happened is, in recent years in particular, oil sands companies and pipeline companies are having a real tough time getting adequate
Starting point is 00:08:03 insurance for their projects. And this came up recently with the Trans Mountain Pipeline. So this is the pipeline that's the expansion pipeline that's being constructed from Alberta to the BC west coast. And so this is a crown corporation. It's owned by the federal government. And Trans Mountain was having a tough time not only getting insurance, but what was happening is that some demonstrators in Vancouver were blocking the entrances of buildings that house insurance companies. Indigenous youth are inside BMO Tower in so-called Vancouver, where AIG Insurance has an office. Indigenous youth have shut down the entrance to AIG and BMO Tower.
Starting point is 00:08:51 So these activists were trying to raise this issue, trying to demonstrate against these insurance companies that are providing coverage to this project. And Trans Mountain asked the regulator to keep the names confidential of the companies that are providing insurance to it. And Trans Mountain basically made the argument to the regulator that it's becoming so hard to find insurance companies that want to support their pipeline project. It's becoming more expensive and it's harder just to get enough coverage for the facility. and it's harder just to get enough coverage for the facility. And we're seeing this with oil sands companies too. With their big multi-billion dollar facilities,
Starting point is 00:09:32 they're having a tough time getting enough insurance. And this probably sounds like a very obvious question, but what are they needing the insurance for? Well, if you're going to, if you're, let's say, an investor in an oil sands company and this oil sands company wants to build a new facility, you want to make sure that you're that there's some assurance that your investment, there's massive costs to clean it up and other related expenses, that there's some sort of coverage that'll cover that big expense. So like essentially these companies need the insurance, right? Like they just can't not get insurance. Transmountain, they even spelled it out that it's mandatory for their company as the way that they operate. And it's mandatory even that the regulator insists that they have enough insurance. Even though the regular let the insurers stay secret, I wonder if the environmentalists saw this still as a victory. Absolutely, they did.
Starting point is 00:10:40 And I spoke with some of these environmental groups that are around the world. And even though they weren't even part of this case, they definitely picked up on what was happening. I spoke with Alana Sulakshana. She's with the Rainforest Action Network. It's an environmental organization based in San Francisco. And, you know, she could only smile when she was talking about it, basically saying it's a huge sign that the pressure on these insurance companies is working. And, you know, that's basically what her job is as part of the Rainforest Action Network is to put pressure on these companies to stop supporting the fossil fuel industry. these companies to stop supporting the fossil fuel industry.
Starting point is 00:11:36 In the past one, two years, we've seen an increasing spotlight on financial institutions as pillars of the fossil fuel industry, increasing kind of recognition that it's not just big oil and gas companies and coal companies that have to reduce their emissions, that financiers and insurers are also responsible for kind of zeroing out emissions to achieve the Paris Agreement. And we're seeing that kind of increased recognition from civil society, politicians, investors, and executives within the financial industry as well. There's actually a coalition in the U.S. that came together a year and a half ago called Stop the Money Pipeline, which aims to bring together kind of all of these campaigns on financial institutions into a broader movement
Starting point is 00:12:18 to build our collective power. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples,
Starting point is 00:13:06 I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. We spoke earlier about the $7 million, the New York State pension fund was pulling out of the oil sands and how it was kind of a pittance. pension fund was pulling out of the oil sands and how it was kind of a pittance. It's not a huge amount of money. But do we have a sense of the scale of the divestment at this point, if you start to put it all together, just how many insurance companies as well are refusing to insure companies in the oil sands? It's a great question. And, you know, it's something I was really grappling with and trying to find definitive numbers for. And it's difficult because, you know, some insurance companies will completely pull out
Starting point is 00:13:52 their money from the oil sands. Others, you know, they'll have certain stipulations. So if the oil sands only makes up, let's say, 20 or 30 percent of your business, they'll still provide you coverage. So it's difficult to come up with a definitive number. But I can say about a decade ago, there were about 50 large insurance companies in North America, Europe, and Bermuda that provided coverage to the oil sands. And I spoke to Joe Seeger. He has more than 25 years of experience advising oil patch companies on insurance. And he says today, there's only about half as many insurance companies. So instead of 50, there's, you know, about 25 or 30 that are left that are actually providing insurance to the oil sands. Wow, that's a big difference. What would be the more cynical reason why a financial institution might make this kind of move to get out of the oil sands?
Starting point is 00:14:54 It might be just about improving your reputation, for sure. You know, there are some financial risks. You know, right now, the oil patch is doing very well. You know, it's making a lot of money. So for some investors, they want to stick with the fossil fuel industry just purely out of financial reasons. But there is some financial risk. You know, no investor wants to be left with a stranded asset. You don't want to have to have all your money in, let's say, an oil sands company. And, you know, the world basically shifts off of oil i don't know when that'll be 5 10 15 20 maybe even longer now but you don't want to be left with a stranded asset so there is some financial risk long term that if you keep your money in the oil patch that
Starting point is 00:15:39 that's a possibility I suppose the most important question here is if the goal of these environmental groups pushing this is to stymie the expansion of the oil sands. Is it working? What effect has this divestment movement been having here? You know, we do hear about these divestment announcements by various funds. You know, they happen periodically. And every time it happens, you know, it's hard to make a big deal out of just one announcement. But cumulatively, when you add them all up, it's definitely having an impact. I asked Mark Little about that. He's the chief executive of Suncor Energy, a big oil sands player, also owns the Petro Canada chain.
Starting point is 00:16:40 And he said, yes, it's making a difference. and he said yes it's making a difference i think if you go and look at the percentage of the oil industry and you compare it to its percentage of the marketplace and and the stock market and such going forward it's kind of like okay the the industry is just literally a fraction of what it was before uh the businesses are still generating a lot of cash. So I would say, yes, it's having an impact. But part of the thing is, I think that the world is kind of realizing that, okay, this is way more complicated. So how are we going to make cement? How is steel going to be made with no CO2 emissions? mean for long haul airlines trying to fly 300 people across the ocean. It's kind of like, well, a wind farm can't be the solution to every problem. It's not. But he also sees this as a pretty complex issue. And he doesn't think that weakening the oil patch is necessarily a good thing. He sees the energy sector as being pretty critical for the future. You know, how is the world going to transition to cleaner sources of energy? Who's going to build these, you know, massive new
Starting point is 00:17:52 projects that we'll need? Maybe that's electricity storage projects. Maybe that's more transmission lines. Maybe that's using hydrogen. So he sees the oil patch as playing a pretty critical role, you know, just considering all the expertise that the oil patch has, all the engineers and so on. But do you think it's possible that these moves to divest and the pressure and even the consequence of some investors divesting could really like push these companies to change quicker? divesting could really like push these companies to change quicker? It could. You know, when I talk to investors, they basically say there's like two main strategies. You know, one is divestment, as we've talked about. The other is remaining as a stakeholder, but using that position to push for change. You know, you have a seat at the table and so you can leverage that to try to push for change. You know, you have a seat at the table and so you can leverage that to try to push
Starting point is 00:18:45 for environmental change. I spoke with Alex Letko about that. He's a partner with Letko Brosseau, an investment firm here in Canada that manages 19 billion dollars in assets. He says every money manager in the world is hearing from clients about this issue and his firm just finished asking itself the big question, should we still be investing in oil? So the firm did an analysis. They looked at electric vehicle trends. They also looked at forecasts for the amount of oil used in many industries such as marine shipping and plastic production. At the same time, the group considered the ethics, describing climate change as an urgent problem posing an existential threat to our livelihoods. In the end, they decided to stay the course, at least for now.
Starting point is 00:19:33 And so really for us, it's about, you know, what is our place as investors and as stewards of capital? And what is the best thing that we can do and the greatest difference that we can make. And so, you know, we believe that actually having a voice at the table is more conducive to positive change than not. Now, that said, the world is always changing. So the firm is going to keep evaluating that stance as technology changes and just as the world changes. As you mentioned before, the world is still super dependent on oil. And I wonder if there might be some unintended consequences, a move away from the Canadian oil sands, too. You know, it's really interesting.
Starting point is 00:20:37 If you think about where oil comes from around the world, most of it comes from state-owned producers. around the world, most of it comes from state-owned producers. So think about, you know, the state-owned companies in Russia and Saudi Arabia and many other countries. So there is some thought that if you squeeze out oil and gas companies in North America and Europe, then you're left with state-owned producers. And this raises some geopolitical issues. And how do the environmental groups respond to that? Well, for them, they say that they're lobbying both sides of the equation, both supply and demand. So they're trying to keep oil from coming out of the ground, but they're also trying to lobby for society to be less dependent on oil and gas. So they're trying to promote, let's say,
Starting point is 00:21:27 electric vehicles instead of, you know, the traditional vehicles running on gas and diesel. So they see it as trying to push both sides of the equation, not just trying to oppose oil and gas companies, but also with that, also trying to make sure that society is changing as well. The next UN Climate Summit, COP26, is in November. The UK is hosting. And the former Bank of Canada Governor Mark Carney has been brought in as an advisor. I understand he said that part of the meeting will focus on how the private financial sector can take climate change into account when making their financial decisions. And I wonder, just before we say goodbye, Kyle, where do you think that this is going? The pressure on banks and other financial institutions,
Starting point is 00:22:22 it's not going away. And Jamie, when firms do decide to turn their backs on the sector, it's usually permanent. It's pretty rare for them to change their minds. Okay. All right, Kyle, thank you so much. This was such an interesting discussion. We're really, really appreciative to have you on the podcast. My pleasure. All right, that is all for this week. FrontBurner is brought to you by CBC News and CBC Podcasts. The show is produced this week by Imogen Burchard, Elaine Chao, Shannon Higgins, and Ali Janes, and Mariam Khacha. Our sound design was by Derek Vanderwyk and Devin Nguyen and Mackenzie Cameron. Our music is by Joseph Shabison of Boombox Sound.
Starting point is 00:23:02 The executive producer of FrontBurner is Nick McCabe-Locos. I'm Jamie Poisson. Thanks so much for listening. We'll see you on Monday. For more CBC Podcasts, go to cbc.ca slash podcasts.

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