Canadian energy far from future-proof

Shareholders voted down climate-related targets at Cenovus Energy recently - Laura Gosset at SHARE, who worked to file to the proposal, discusses sector progress and steps to resilience

Ruth Saldanha 27 May, 2019 | 2:00PM

 

 

Ruth Saldanha: Last month, close to 90% of Cenovus Energy shareholders voted against a motion that would have required the oil sands company to set greenhouse gas emission targets in line with the goals of the Paris climate accord. Laura Gosset, Senior Analyst at the Shareholder Association for Research and Education which worked to file the proposal, is here today to talk about the vote and what happens next.

Laura, thank you so much for being here today.

Laura Gosset: Thank you.

Saldanha: To start with, why did you decide to file this proposal?

Gosset: Well, I think, that the important issue here that we're trying to address with this proposal was climate change. This is an urgent issue. We believe that this is also something that is critical for investors to look at as it poses risks to the financial markets and our economic system. So, with this proposal that was filed by our institutional investor client, the Fonds de Solidarité des Travailleurs du Québec, this proposal was requesting targets that specifically address climate-related risks. And the reasons why targets are really critical for a company like this is that it really allows them to track progress and really demonstrates to us as investors that they are really demonstrating their resilience in a low-carbon future. We believe that that's where Canada and the world is headed. We're going through a transition and we need companies to be looking at how they are going to transition and be resilient in the future.

We also found that other companies in this sector are releasing their targets. For instance, Imperial Oil and Suncor Energy, both have greenhouse gas emissions reductions targets that are public. Now, those are not perfect targets, but we do feel that that demonstrates to investors that these companies are taking action to look at their climate risks and manage them for the future.

And finally, what we look for from companies like Cenovus is consistent disclosure and quality disclosure. And when we looked into the company, we found that the company actually did have greenhouse gas emissions reduction targets that were set in 2016. However, those were subsequently removed from its reporting and there was no explanation as to why, which for us was a red flag and we wanted to understand, well, if those are not their targets anymore, what are their targets and where are they hoping to go in the low-carbon future?

Saldanha: Was this an expected outcome? And if so, what happens next with Cenovus?

Gosset: Yes, this would be within the range of the expected. Again, this is something where we believe the support will continue to grow and we hope to continue to engage constructively with the company. We want to see improved clarity from the company on where it's going with managing its emissions and its climate-related risks. There have been other proposals, similar proposals, that received a fair amount of support. For instance, earlier this week, at BP's AGM, a similar request for a Paris accord alignment that included a request for climate-related targets got 99% of the vote and that was supported by the Board. So, we are seeing similar requests at other companies and put forward by other investors and we just expect the trend to continue to grow, the support from investors and the response from companies.

Saldanha: Finally, in Canada, are you seeing companies being more receptive to ESG-related things, especially issues like this where investors are putting forward shareholder proposals?

Gosset: Our clients, institutional investor clients, are concerned with ESG. And we are seeing that grow in Canada. However, I think it's fair to say that we still have a long way to go when we think about ESG disclosure and performance in Canada. And when we think about climate change in particular, we are really wanting to see, but we haven't seen yet, is a response from companies on climate change that is proportional to the size and the urgency of the issue. Climate change is an urgent issue that we need to be acting on now and we really need companies to be setting targets, for instance, to reduce their carbon footprints and to shift to a low-carbon future. So, that's where we are aiming to get to.

Saldanha: Thank you so much for joining us today, Laura.

Gosset: Thank you.

Saldanha: Cenovus Energy is a four-star stock, meaning, it is currently trading below our fair value estimates; however, it does not have an economic moat. For Morningstar, I'm Ruth Saldanha.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BP PLC ADR39.35 USD0.31
Cenovus Energy Inc12.52 CAD0.89

About Author

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca