Canadian ESG opportunities

Ruth Saldanha: Increasingly ESG and responsible investing are important for investors. In Canada, where should you invest and how should you look at ESG screens? John Bai, Vice President and Chief Investment Officer of NEI Investments is here today to talk about this.

John, thank you so much for being here today.

John Bai: Thank you Ruth for having me. Really excited to be here.

Saldanha: In Canada, we are heavily reliant on energy. Are we prepared for an ESG positive outlook going ahead here in Canada?

Bai: Yeah, that's a really good question. There’s really two answers. A short answer to this is no, we're not really that prepared. The long answer is, like, don't count out Canadian companies just yet. And what I mean by that is at NEI we've been working with Canadian companies for many, many years. I'll take the example of Suncor (SU). We've been engaging them to help them prepare for that transition to a low carbon future. And in fact, in 2016, we tabled a shareholder resolution asking Suncor to go and disclose what are some of the measurements around global climate change and how they are they're going to be making that transition to that low carbon future. Suncor to many of the people's surprise actually backed their shareholder resolution. It got passed. In the year later, they actually did that report. And they became actually one of the first large oil and gas companies globally to disclose these metrics. Again – and we're seeing now with that we're now seeing real momentum. Just last week, we saw Cenovus (CVE) do the same thing where they said that they would cut their carbon emissions intensity. Suncor is committed to cutting it by 30% by 2030. Cenovus said that they'll cut it by 30% by 2020. And in fact, they said that they would actually try to be net neutral in carbon emissions by 2050. This is an engagement that we had with Cenovus for a while. After we talked to Suncor, we actually went to Cenovus. They actually reneged on some of this a little bit initially, but we continued to push and with the help of other shareholders like Share, they agreed in our last meeting with them. In fact, actually, they agreed to put a target date on net zero emissions which is really, really exciting.

Saldanha: This is great news for Canadian investors. Do you still see pockets of value from an ESG perspective for Canadian investors now? And if so, where are they?

Bai: Yeah. Again, you know, I think that when we talk about pockets of value, I did mention value, well, we do see value and value. We talked about global investing. I think there's value in global investing as well. I'd point to those two areas for sure.

Saldanha: What are your top three stock picks from an ESG standpoint?

Bai: Well, from an ESG standpoint, I really – instead of going to stock picks, what I'd like to talk about is maybe some themes that we talk about. Because we're now in the 2020s and so, I'd like to talk about – the 2020s will be the decade of impact where we're going to see real impact. I think that – and I saw this headline somewhere, but it said something to the fact that in 2019 the global climate changed and that really encapsulates for me, not so much what's happening on the physical side, but really the dialogue around climate change has really taken to the next level. You've seen the regulators pay attention to this theme. You've seen central banks now – Canada joined 50 other central banks to say that they're now studying climate changes and its impact on financial stability in this country. We've also seen companies like the Business Roundtable, for instance, acknowledge that the shareholder isn't the only stakeholder they need to pay attention to, but they need to pay attention to employees and suppliers and the community and other things other than just the shareholder. So, I think that you'll see some great impact.

And the one data point I look to on is that in 2019, the U.S. electrical grid in April actually had more power being sourced from renewable energy than from coal energy, which I think is – that's the type of impact that we're talking about where companies like ourselves can invest in these companies to drive change. And so, that's the decade of impact. We also think that there's a real opportunity for the separation, what I call, the separation between the pretenders and the committed. And on that front, for us, responsible investing is not just about scoring companies in terms of their ESG, are they leading or lagging; it's also about some of the corporate engagement that we talk about with Suncor and Cenovus, as well as the proxy and the way that we vote our proxies, as well as the policy work that we put together. So, encompassing all of that I think you're going to see great opportunity for investors. And not only just having an impact on their investments in terms of funding their retirements, but also impact on making the planet better.

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

Bai: Thank you very much Ruth for having me.

Saldanha: For Morningstar, I'm Ruth Saldanha.