Statement on the release of Climate Engagement Canada’s second annual net-zero benchmark
Statement from Shift: Action for Pension Wealth & Planet Health on the release of Climate Engagement Canada’s Net-Zero Benchmark Company Assessments
For Immediate Release: November 8, 2024
Toronto, ON | Traditional territories of the Wendat, Anishnaabeg, Haudenosaunee, Chippewas, and Mississaugas of the Credit First Nation.
Engagement can be a useful tool for motivating climate action and increasing shareholder value, but there are obvious limitations on display in Climate Engagement Canada’s (CEC) Second Annual Net Zero Assessment of Focus List Companies. In particular, the ongoing lack of progress on display from some of Canada’s highest-emitting publicly-traded energy companies undermines the case that sustained investor engagement is the path to delivering imperative decarbonization results.
Shift is strongly supportive and encouraged by CEC’s work with institutional investors to push for the alignment of some of Canada's highest-emitting corporations with science-based climate targets, while publishing much needed transparency on progress. This is important work. The ability to stabilize our climate and ensure Canada’s long-term economic success depends heavily on rapid change from Canadian corporations to transition their business models.
But, a close look at CEC’s first two company assessments results reveals problems with the “engagement only” approach taken by CEC members for some sectors-- a hard lesson already learned from Climate Action 100+ (CA100+), the global investor engagement initiative on which CEC is based. In 2023, the Church of England Pensions Board, the engagement lead for CA100+, divested fully from Shell after 5 years of high-profile investor engagement failed to move the needle. Shell’s directors are now being sued by institutional investors in the UK over the company’s flawed climate strategy.
One of these things is not like the others
Not all economic sectors have credible, profitable pathways to transition their business models to align with net-zero goals. It’s time investors stopped pretending otherwise. While a path for achieving zero emissions appears challenging for sectors like food retail, fertilizer production, electric utilities, mining, steel and manufacturing, it's possible to envision what credible, profitable pathways for doing so might look like. But for Canada’s oil and gas production and gas utility sectors, following a science-based pathway is obviously existential. By definition, the energy transition requires phasing out fossil fuels from our energy system as quickly as possible. Ready alternatives are already cost-effective and being deployed at scale. Pursuing fruitless engagement of these companies while continuing to finance fossil fuel expansion is not a credible plan for investors.
Climate aligned pathways for oil and gas producers require ending new capital investment for production growth, with a carefully managed wind-down of production over time, either returning capital to shareholders and/or redeploying capital into entirely different sectors. Oil and gas companies are not adequately incentivized to do this. Their enterprise value is expected to decline as the global energy transition accelerates, reducing demand for their products.
New investments in marginal, high-risk, short-term emissions reduction projects like carbon capture utilization and storage (CCUS) for oil and gas aren’t always attractive for investors and are not part of a long-term climate transition pathway. Such projects might allow companies to hit modest 2030 targets, but they will quickly become dead ends for decarbonization, unable to reduce the lifecycle emissions of the products produced, transported and sold by oil and gas companies. These projects carry the risk of stranding capital, reducing profitability and becoming structural barriers for Canada to achieve 2050 net-zero emissions goals.
This is likely why, despite incremental progress by companies in other sectors, oil and gas producers on CEC’s Focus List have made virtually no progress on CEC’s Net Zero Benchmark criteria. This was reinforced by two reports also released yesterday that showed that emissions from Canada’s oil and gas sector are expected to increase yet again.
CEC Net Zero Benchmark Assessments. “Dashboard - By Industry - Oil, Gas & Consumable Fuels”
Similarly, gas utilities on CEC’s Focus List are continuing to expand gas distribution, transmission and export infrastructure, while obstructing public policies to accelerate electrification and wean homes and businesses off gas. While some gas utilities are making false claims about the role of hydrogen in the future of their industry, they do not account for the technical, economic, competitiveness, safety and climate-related shortcomings of the use of hydrogen using gas infrastructure. The credible Paris-aligned pathway for gas utilities is early retirement of existing assets. This is why gas utilities on CEC’s Focus List have made little progress on CEC’s Net Zero Benchmark criteria, with both Fortis and TC Energy backsliding on some assessment criteria.
CEC Net Zero Benchmark Assessments. “Dashboard - By Industry - Gas Utilities”
Engaging fossil fuel companies ignores the basic reality that the only credible transition pathway is managed phase-out of production and early retirement of assets
Investors, like those in the CEC, appear to lack the adequate ownership power to force the required alignment of these companies. And even if they did, would they still think these companies were a sound investment? Long-term investment in these companies is too great a financial risk to justify a failing engagement strategy.
CEC is an important initiative. For sectors where engagement isn’t working or has little path for success, institutional investors will also need to escalate to using other tools (i.e. withholding finance) to protect the climate and their capital.
Adam Scott, Executive Director | Shift: Action for Pension Wealth and Planet Health
adamscott@shiftaction.ca, 416-347-3858