This past week marked a breakthrough for the fossil fuel industry’s attempts to reconcile protecting both their profits and the planet. After sustained pressure from a number of institutional investors such as the Church of England Pension Board and Robeco — an asset manager, the Anglo-Dutch oil giant Shell moved to tie it’s executives’ pay to emissions output, including emissions generated from the combustion of its own products. It also set targets to cut its net carbon footprint in half by 2050. Considering Shell is the 9th largest producer of greenhouse gases in the world and despite some criticism about the promise to reduce net emission through a cap and trade system, rather than reducing actual emissions, this can be seen as a major step in an industry that is proving not to be as monolithic as once thought. Canadian shareholders must now follow the lead of ethically driven investors in the US and the EU and demand energy companies to be more proactive in reducing their emissions and investing in renewable energy sources.
In Canada, banks and asset managers both foreign and domestic, are the largest institutional investors in the domestic fossil fuels industry. Despite increasing shareholder activism in the US and Europe, such action has been more limited in Canada. Canadian retail Banks remain significant investors in the domestic fossil fuel industry — the savings accounts of many Canadians, particularly TD, BMO and RBC customers are tied to some of Canada’s largest fossil fuel companies. RBC alone owns 5.17% of shares Canadian Natural Resources Ltdand 3.94% of Suncor Co , the country’s two largest energy companies.
Federal and provincial corporate law requires only 5% of shareholders to requisition a meeting to consider a shareholder proposal such as those brought to Shell by the Church of England Pension Board. As such institutional investors like RBC are uniquely placed to put additional pressure on the industry to reduce their carbon emissions. Many of these banks also have growing socially responsible investing funds, such as the RBC Vision Fund, that attract customers who want their investment portfolio to actively do good. There will be a point in the not too distant future whereby Canadian institutions must manage their mainstream portfolios as they manage their socially responsible ones, as is the case for Triodos Bankbased out of the Netherlands.
Similarly, Canadian investors have been less publicly active in holding the fossil fuel industry accountable for their carbon emissions, compared to their US and European counterparts. American passive investing giants like Vanguard and BlackRock, who are also on the list of shareholders of the publicly traded Canadian fossil fuels companies, have recently wielded their combined weightto push firms like Exxon to publish more in depth data on how global measures designed to keep climate change to 2 degrees centigrade will affect their business. The motivation for this intervention was more economic than environmental — they must protect their investors from changing government regulation and consumer trends. Nevertheless, it highlights the influence that large asset owners can exercise when they so choose to.
It is worth noting that financial intuitions like RBC may have taken index positions in major energy companies making it difficult for them to divest, as their capital is tied up in accordance to the wishes of their customers. That being said, there is still plenty they can do without divesting. Large players like banks and pension funds have the ear of managers and non-executive and can vote their shares at AGMs and EGMs. They can also drive for shareholder resolutions as was the case with Shell. As of yet it would appear that Canadian financial instructions remain relatively passive in this sense.
The US is also taking the lead with institutional divestment initiatives, New York City municipality recently announced it would divest $5 Billion of fossil fuel investments from its various pension funds. Despite growing environmental activism and increasing pressure by members on pension funds trustees and managers little has changed and there has been limited divestiture. Some of Canada’s largest funds including the Canada Pension Plan Investment Board — which is the top 10 largest pension funds globally- and the Ontario Teachers’ Pension Plan, have not budged on their fossil fuels investments. Canadian universities are divesting at a rate slowerthan institutions around the world.
Given the urgent call from the recent IPCC report, that states we we have just 12 years to keep global warming at a maximum of 1.5C, or else risking cataclysmic flooding, droughts, mass-migration and poverty, drastic and unprecedented changes to the global economy are required. It is clear Canadian investors can and must do more.