Analysis: Pension fund support for Enbridge scope 3 emissions disclosure should be a no-brainer
In deciding whether or not to support a shareholder proposal calling for full disclosure of Enbridge’s scope 3 emissions on May 8th, Canada’s largest pension funds need look no further than their own policies, reports or membership in Climate Engagement Canada.
On May 8th, Enbridge is holding its Annual General Meeting (AGM), where the shareholders and executives of Canada’s largest fossil fuel pipeline company will gather to make key decisions about the coming year. Shareholders will be voting on a proposal asking the company to “annually disclose all of its scope 3 emissions using accepted definitions and in absolute terms.”
Canada’s largest pension plans own a combined $822 million in shares in Enbridge, which is urging shareholders to reject the proposal. Several Canadian pension funds, including AIMCo, HOOPP, IMCO, OMERS, PSP and UPP, are also members of Climate Engagement Canada (CEC), a coalition of institutional investors that “drives dialogue between the financial community and corporate issuers to promote a just transition to a net zero economy.” Enbridge is one of CEC’s “Focus” companies, and CEC advocates for company emission reduction targets to cover “the most relevant scope 3 emissions for the company’s sector, where applicable.”
Enbridge says that responding to climate risk disclosures is “time-consuming and distracting” and claims that scope 3 emissions are not material. Enbridge also says that it continues to enhance its approach to measuring scope 3 emissions, but claims that it can’t reliably track and measure the emissions from burning the oil and gas moved by its pipelines.
Canada’s big public pension plans own a combined $822 million in shares in Enbridge.
Enbridge has not explained how its pipeline business can be decarbonized in line with Canada’s climate goals under the Paris Agreement. That’s because the only credible pathway to decarbonization for Enbridge is the phase-out of its giant oil and gas pipeline network. This presents significant long-term financial risks for Enbridge’s investors, including pension funds, that need to understand if companies in their portfolio will stay profitable as the energy transition accelerates.
As Duncan Kenyon of Investors for Paris Compliance (I4PC), which filed the shareholder proposal, says:
“Many shareholders actually understand that Scope 3 isn’t just a greenhouse gas reporting metric, it’s actually a trend metric showing where the company is going in terms of adopting and responding to the energy transition. It’s a metric that highlights the exposure risk of the company to energy transition.”
In particular, companies and their investors must be scope 3 category 11 emissionsA recent analysis by I4PC of Enbridge’s scope 3 emissions, using conservative assumptions based on publicly available data, demonstrates these escalating climate risks. The analysis shows that Enbridge’s scope 3 emissions have increased by 76% since 2014 to a total of 805 million tonnes, an amount 20 times greater than the company reports. Furthermore, if all of Enbridge’s currently planned projects go ahead, the company will add a further 217 million tonnes, an increase of 27% over its 2023 scope 3 emissions.
Photo credit: Investors for Paris Compliance, March 13, 2024.
At issue is whether the company needs to account for the downstream emissions of the products in its pipeline infrastructure, also known as category 11. Reporting guidance is clear, however, that if those emissions are necessary to the business of the company, then they should be reported. For Enbridge, these emissions, and the associated downside risk, is off the charts.
Canada’s big public pension funds seem to believe that they can manage this transition risk by “engaging” with Enbridge. Investors claiming to be engaging with companies to better disclose and manage climate-related risks should at minimum be requiring Enbridge to accurately disclose its emissions. Any honest accounting would include measuring and reporting all scope 3 emissions, including the huge amount of carbon pollution from burning the oil and gas that travels through Enbridge’s pipelines every day. This information is key to understanding the financial risks facing the company.
For pension funds, supporting this proposal is simple: follow your own policies
This year’s Enbridge AGM is a clear opportunity for our pension funds to deliver on their promise to “engage” Enbridge and make the pipeline company explain if it can profitably align with a safe climate– which is necessary to protect our retirement security.
A review of pension funds’ annual reports, climate strategies, sustainable investing reports, TCFD reports and proxy voting guidelines shows Canadian pension funds have every reason to support this shareholder proposal. Pension funds regularly cite a lack of company scope 3 data disclosure as an impediment to reporting their portfolio footprints and setting absolute emissions targets, while their proxy voting guidelines universally say that they will support shareholder proposals that enhance climate risk disclosure.
For Canada’s pension sector, voting for the scope 3 emissions proposal at Enbridge’s AGM should be a no-brainer.
What do Canadian pension managers and investor engagement groups say about scope 3 emissions and climate risk disclosure?
Climate Engagement Canada
Based on the CEC Net Zero Benchmark and CEC’s Company Assessment of Enbridge, one would expect all CEC members to support the shareholder proposal calling on Enbridge to “annually disclose all of its scope 3 emissions using accepted definitions and in absolute terms.”
Enbridge “does not meet criteria” for “net-zero emissions by 2050 (or sooner” ambition). Enbrige’s net-zero GHG emissions ambition (does not cover) the most relevant Scope 3 emissions categories for the company’s sector, where applicable.”
Enbridge “does not meet criteria” for “long-term (2036-2050) GHG reduction target(s)”. Enbrige’s “Scope 3 GHG emissions target (does not cover) at least the most relevant Scope 3 emissions categories for the sector, and the company has (not) published the methodology used to establish the Scope 3 target.”
Enbridge “does not meet criteria” for “medium-term (2027 and 2035) GHG reduction target(s).” Enbridge’s Scope 3 GHG emissions target “(does not cover) the most relevant Scope 3 emissions categories for the company’s sector (for applicable sectors), and the company has (not) published the methodology used to establish any Scope 3 target.”
Enbridge “does not meet criteria” for “short-term (up to 2026) GHG reduction target(s).” Enbridge’s Scope 3 GHG emissions target “(does not cover) the most relevant Scope 3 emissions categories for the company’s sector (for applicable sectors), and the company has (not) published the methodology used to establish any Scope 3 target.”
- Climate Engagement Canada, Company Assessment: Enbridge.
Alberta Investment Management Corporation (AIMco)
“As an active member of Climate Action 100+ and Climate Engagement Canada,* AIMCo expects investee companies to demonstrate transparency and accountability by adopting appropriate, industry-specific, environmental reporting protocols, such as the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which have been incorporated into the International Sustainability Standards’ Board Standards.” - AIMCo, Proxy Voting & Corporate Governance Principles, p.14.
“We continue to evaluate Scope 3 data to allow for greater comparability, coverage, transparency and reliability for future reporting.” - AIMCo, Climate-related Financial Disclosures, p. 14.
“While Scope 3 (downstream) GHG emissions accounting continues to have challenges, it can represent the majority of an issuer’s lifecycle emissions throughout the value chain. Recognizing this, AIMCo agrees that a comply-or-explain approach to Scope 3 emissions is appropriate at this time. Regardless of whether the firm chooses to disclose its Scope 3 GHG 3 emissions or explains why it has not done so, we recommend it disclose its overarching strategy to meaningfully reduce its Scope 3 GHG emissions. AIMCo recognizes that carbon accounting is a field that continues to evolve and that the market requires time to build expertise around Scope 3 measurement and reporting.” - AIMCo, Consultation – National Instrument 51-107 Disclosure of Climate-related Matters, p.3.
British Columbia Investment Management Corporation (BCI)
“We generally support requests in shareholder proposals when at least one of the following is present: … there has been controversies, litigations or fines stemming from its treatment of environmental and social risks; there is growing consumer concern and increasing regulation around product use; the proposed actions and policies are likely to enhance its reputation as a market leader and its long-term ability to operate; or it is related to climate change risk and adopting best practices.” - BCI, Proxy Voting Guidelines, p.23.
“BCI supported a climate-related shareholder proposal (in 2022) requesting that Enbridge Inc. strengthen its net-zero commitment with a science-based net-zero target. While the proposal was prescriptive, we supported it based on our belief that the company should strive for science-based targets, including Scope 3 emissions and absolute emissions reduction targets. The proposal received 23 per cent support.” - BCI, 2022 ESG Annual Report, p. 29
“We also support the SEC’s requirement to disclose Scope 3 emissions as it aligns with the International Sustainability Standards Board (ISSB) proposed Scope 3 disclosure standards.” - BCI, 2022 ESG Annual Report, p. 21
Caisse de dépôt et placement du Québec (CDPQ)
“In (the context of CDPQ’s climate change strategy), it is vital for CDPQ to obtain the relevant information from companies. Accordingly, we will generally support proposals that require: Disclosure of the governance, strategy and measures adopted by a company in relation to climate change and management of the related risks;” - CDPQ, Policy Governing the Exercise of Voting Rights of Public Companies” p.14.
“In 2022, CDPQ conducted a detailed analysis of the Scope 3 GHG emissions data of our portfolio companies. The data represent supply chain emissions and are tied to use of the company’s products. Our analysis revealed inconsistencies in the quality and coverage of the data disclosed by our companies and data providers. This limits our ability to calculate this data at the portfolio level.” - CDPQ, 2022 Sustainable Investing Report, Appendix 4 - 11 - Disclosure according to the TCFD.
“Despite the fact that Scope 3 emissions are more difficult for a company to control and more complex for it to calculate, we continue to encourage our portfolio companies to disclose these emissions. When the data is of good quality, it can be used in a risk assessment, more specifically in files associated with fossil fuels.” CDPQ, 2022 Sustainable Investing Report, Appendix 4 - 11 - Disclosure according to the TCFD.
Canada Pension Plan Investment Board (CPPIB)
“We support alignment of reporting with the International Sustainability Standards Board (ISSB) IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures standards.”* - (CPP Investments, Proxy Voting Principles and Guidelines, (p.12, 22).
*The IFRS S2 Climate-related Disclosures standards include 15 categories for scope 3 emissions reporting that include fuel- and energy-related activities not included in Scope 1 greenhouse gas emissions or Scope 2 greenhouse gas emissions; upstream transportation and distribution; downstream transportation and distribution; processing of sold products; and use of sold products.
- CPP Investments, 2023 Report on Sustainable Investing, p.41.
Healthcare of Ontario Pension Plan (HOOPP)
“HOOPP is a founding member of Climate Engagement Canada (CEC) and a member of the Steering Committee,” so one would expect the pension fund to vote for disclosure of material scope 3 emissions.
“We have initiated the calculation of our Scope 3 [portfolio carbon footprint] for a portion of our portfolio.” - HOOPP, 2023 Climate Disclosure.
Investment Management Corporation of Ontario (IMCO)
“This year, for the first time, IMCO’s investment portfolio emissions calculation includes Scope 3 emissions of our holdings. Approximately 29% of the holdings in our portfolio by market value report Scope 3 emissions. This limited disclosure is indicative of the low data quality and coverage for Scope 3 emissions, affecting the quality of the final figure. We continue to advocate that companies disclose Scope 3 emissions where material.” - IMCO, 2022 ESG Report, p.21.
Ontario Municipal Employees Retirement System (OMERS)
“While our portfolio emissions reporting covers scope 1 and 2 emissions, we are beginning to track scope 3 emissions. Currently this is challenging due to limited disclosure, with only 25% of the companies in our in-scope portfolio by market value disclosing this information. This limited disclosure is indicative of the wider challenge of scope 3 emission measurement which itself is divided into 15 different categories covering both the upstream and downstream value chain of a company.
As an investor, we continue to advocate that companies disclose scope 3 emissions where material. We will also continue to update our portfolio footprinting and reporting as methodologies evolve and scope 3 emissions data become more readily available.” - OMERS Climate Action Plan, p.28.
Ontario Teachers’ Pension Plan (OTPP)
“As standards and common understanding of net-zero targets continue to evolve, we expect companies’ targets to cover scope 1 and 2 emissions and include scope 3 when those are material to the company.” - OTPP, 2022 Responsible Investing and Climate Strategy Report, p.29.
“As a purpose-driven investor we are continuing to focus on our climate goals to best manage our portfolio and to create a sustainable, positive impact in the world by: … . Developing a more complete accounting of financed emissions for sovereign debt and portfolio company scope 3 emissions.” - OTPP, 2023 Annual Report, p.41.
“In our assessment of a company’s climate-related efforts, we rely on clear, relevant and complete disclosure to understand the risk profile and opportunity set.” - OTPP, 2023 Proxy Voting Guidelines, p.11.
“We will assess shareholder proposals on a case-by-case basis and will typically support shareholder proposals that we believe strengthen the company’s climate change-related practices. Some examples of shareholder proposals that we may support are proposals related to… the stronger disclosure of decision-useful climate related information;” - OTPP, 2023 Proxy Voting Guidelines, p.32.
Public Sector Pension Investment Board (PSP)
“We generally support shareholder proposals seeking enhanced climate-related disclosures… By expressing our expectations to companies on climate-related policies and practices, we encourage companies to increase the credibility of their transition efforts in order to protect shareholders’ interests. For example, we expect a sound climate-related governance structure, accountability for oversight of climate commitments, a transition plan aligned with climate science, and enhanced disclosure of decision-useful information.” - PSP Investments, Corporate Governance and Proxy Voting Principles, p.16.
“Investee companies’ Scope 3 emissions cover other indirect sources such as the extraction and production of purchased materials and fuels, outsourced activities, business travel and waste disposal. At this stage, investee companies’ Scope 3 emissions are excluded from the calculation because the comparability, coverage, transparency and reliability of Scope 3 data is generally insufficient in the marketplace. We intend to include more Scope 3 data as it becomes more widely available and reliable.” - PSP Investments, 2023 TCFD Report, p.14.
“We will also continue to develop and improve the taxonomy, including adding portfolio companies’ Scope 3 data to get the fullest understanding of their impact on climate. At present, Scope 3 data collection methodologies are not standardized across the market and will be added to the Green Asset Taxonomy when a sufficient critical mass of such information exists.” - PSP Investments, Climate Strategy Roadmap, p.12.
University Pension Plan (UPP)
“Goals [for engaging with high-emitting Canadian companies]: 1. Set and disclose long-term and interim science based GHG reduction targets covering at least 95% of Scope 1 and 2 emissions (direct operations and purchased energy) and material Scope 3 emissions (indirect from upstream and downstream value chains)”- UPP, Climate Stewardship Plan, p.4.
“Goals [for engaging with oil companies with outsized carbon footprint impact]: 1. Set and disclose long-term and interim GHG reduction targets covering at least 95% of Scope 1 and 2 emissions (direct operations and purchased energy) and material Scope 3 emissions (indirect from upstream and downstream value chains).” - UPP, Climate Stewardship Plan, p.4.
“Through our climate policy advocacy, we aim to: 1. Contribute to establishment of mandatory standardized, economy-wide disclosure of scope 1, 2 and material scope 3 emissions, and transition plans from all medium and large enterprises.” - UPP, Climate Stewardship Plan, p.6.