Oil multinationals face global investor skepticism on oil sands
UK and US investors challenging four oil majors to disclose oil sands risks
April 13, 2010 - As shareholders gather in London 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 plc*, Royal Dutch Shell*, ConocoPhillips Company* and ExxonMobil Corporation* 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 (also known as tar sands) are the second largest oil resource in the world, comprising some 173Bn 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 lifecycle 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, regulatory and reputational 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, CEO of the $140BN CalSTRS and 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.”
The campaign is attracting mounting international support from NGOs, faith groups, politicians and celebrities, including Radiohead’s Thom Yorke. Institutional investors from across the globe associated with the United Nation’s Principles for Responsible Investment (PRI), such as Boston Common Asset Management, Co-Operative Asset Management, Ethos Foundation, Unison Staff Pension Scheme, and Walden Asset Management, have expressed their public support for BP’s and Shell’s oil sands resolutions.
About the resolutions
The resolutions have been filed for the AGM of BP plc in London on 15 April 2010, the AGM of Royal Dutch Shell plc in The Hague and London on 18 May 2010, the AGM of ConocoPhillips on 12 May 2010, and the AGM of ExxonMobil Corporation on 26 May 2010.
The resolutions at BP and Shell were filed by individual and institutional investors from around the world including The Co-operative Asset Management, Boston Common Asset Management, the UNISON Staff Pension Scheme, Rathbone Greenbank, CBIS Global, the Ecumenical Council for Corporate Responsibility (ECCR) and other fund managers, foundations and faith groups. The resolutions ask the companies to commission and review reports setting out the assumptions made by both companies in deciding to proceed with oil sands projects regarding future carbon prices, oil price volatility, demand for oil, anticipated regulation of greenhouse gas emissions and legal and reputational risks arising from local environmental damage and impairment of traditional livelihoods. The resolutions ask that the findings of the report and review be reported to investors in 2011.
The resolution at ConocoPhillips asks the company to prepare a report on the environmental damage that would result from the company’s expanding oil sands operations in the Canadian boreal forest. The resolution states that the report should consider the implications of a policy of discontinuing these expansions. One hundred percent of ConocoPhillips additional proved reserves in 2009 came from the oil sands.
The resolution at ExxonMobil asks the company to prepare a report discussing possible long term risks to the company’s finances and operations posed by the environmental, social and economic challenges associated with the oil sands. ExxonMobil owns 70% of Imperial Oil, the largest Canadian oil company and a major player in the oil sands, and is also a joint owner-operator of the $8B Kearl oil sands mining project in conjunction with Imperial. Nearly 25% of ExxonMobil’s liquid reserves come from the oil sands.
Green Century Capital Management is an investment advisory firm focused on environmentally responsible investing. Founded by a partnership of non-profit environmental advocacy organizations in 1991, Green Century's mission is to provide people who care about a clean, healthy planet the opportunity to use the clout of their investment dollars to encourage environmentally responsible corporate behavior. Green Century believes that shareholder advocacy is a critical component of responsible investing and actively advocates for greater corporate environmental accountability. Green Century manages the no-load environmentally responsible Green Century mutual funds.
*As of December 31, 2009, neither the Green Century Balanced Fund nor the Green Century Equity Fund held BP plc, Royal Dutch Shell, ConocoPhillips Company, or ExxonMobil Corporation. Portfolio composition will change due to ongoing management of the Funds. Please refer to the Green Century Funds website for current information regarding the Funds' portfolio holdings. These holdings are subject to risk as described in the Funds' prospectus. References to specific investments should not be construed as a recommendation of the securities by the Funds, their administrator, or their distributor.
You should consider the Funds' investment objectives, risks, charges, and expenses carefully before investing. For a prospectus that contains this and other information about the Funds, call 1-800-93-GREEN, visit www.greencentury.com or email email@example.com. Please read the prospectus carefully before investing. Investments are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
The Green Century Funds are distributed by UMB Distribution Services, LLC 4/10
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