Multinationals face investor skepticism on oil sands

As shareholders gather in London, UK, this week for BP’s annual general meeting, American and British investors are coordinating a unique effort putting pressure on four major oil multinationals over their controversial investments in the Canadian oil sands.
Investors from both sides of the Atlantic have filed resolutions for the BP, Shell, ConocoPhillips and ExxonMobil annual general meetings this spring which ask the companies to report on the financial, environmental and social risks associated with their oil sands investments. FairPensions UK, the California State Teachers Retirement Fund (CalSTRS), and Boston-based Green Century Capital Management (Green Century) are coordinating the shareholders’ efforts.
Canada’s oil sands are the second largest oil resource in the world, comprising some 173 billion barrels in reserves. Extraction and conversion of oil sands into usable fuel is energy-intensive and environmentally damaging, requiring deforestation, extensive water use, and the creation of massive amounts of toxic waste. Even using the most conservative life-cycle analysis, oil from this source emits between 15% and 40% more greenhouse gases than the average of conventional sources.
Investors and independent analysts have raised doubts about the long-term economic viability of oil sands development given the high costs of extracting and converting oil sands along with risks to future profitability presented by rising carbon costs and oil price fluctuations.
Shareholders also point to legal and regulatory risks arising from environmental damage and impairment of indigenous community livelihoods. Local indigenous communities affected by oil sands pollution and ecological harm, such as the Beaver Lake Cree Nation, have filed legal challenges that could drastically slow or halt oil sands development.
“The environmental risks associated with oil sands development come with long-term financial risk for the CalSTRS portfolio,” states Jack Ehnes, lead filer on the resolution at ConocoPhillips. “We support all resolutions requesting greater disclosure on oil sands-related risks and encourage institutional investors to vote YES in support of these proposals.”
“Oil sands extraction has significant ecological consequences and companies are increasingly being forced to pay the price for environmental damage,” states Emily Stone, Shareholder Advocate for Green Century and lead filer on the resolution at ExxonMobil. “Shareholders must know how companies are preparing for these costs and mitigating future risks.”
Louise Rouse, Director of Investor Engagement for FairPensions, states: “The fact that resolutions are pending at four oil majors this AGM season shows that oil sands is a major mobilizing issue for investors around the world, and will be for years to come. The international coordination effort seen in this campaign has been crucial in encouraging investors on both sides of the Atlantic to come on board and vote in favour of the BP and Shell resolutions.”
Shelley Alpern of Trillium Asset Management Corporation, which filed the first shareholder proposal addressing the oil sands in 2008 at ConocoPhillips and continues to be a co-filer, agreed that disclosure is essential to dispelling investors’ rising doubts. “Companies’ silence on these questions may indicate that they have no ‘Plan B’.” She noted that the ConocoPhillips resolution received significant support from shareholders from the start, averaging 30% in 2008 and 2009.
“Investors are concerned that many companies seem to be moving ahead without a well-articulated plan to manage the environmental and social risks associated with the oil sands,” said Mindy S. Lubber, president of Ceres and director of the $8-trillion Investor Network on Climate Risk (INCR). “Given the extra-long investment horizons of oil sands projects, it is especially important for companies to invest in solutions to these challenges upfront.”