Thursday, June 3, 2010

Canadian Responsible Investment Conference Preview: SRI in the oil sands: a contradiction in terms, or a challenge we can meet?

By Michelle de Cordova – Manager, Sustainability Research, Northwest & Ethical Investments L.P.

It has been labelled by NGOs as “the world’s dirtiest oil.” Few would dispute that extracting oil from Alberta’s oil sands has serious environmental and social impacts. But are the oil sands really the bottom of the barrel in social and environmental terms? If there ever was any “clean” oil, it is fast disappearing. As conventional reserves become scarcer and harder to access, the major oil companies are focusing on a diverse array of “unconventional” asset types – from oil sands and shale gas to ultra-deep offshore production. Each poses its own set of environmental and social risks, as the unfolding environmental disaster in the Gulf of Mexico has demonstrated so clearly. The search for new sources of supply also has companies venturing into increasingly fragile ecosystems, and into countries vulnerable to conflict, or where the company risks complicity in corruption and human rights violations.

Yet companies are not absolved from the responsibility to address oil sands impacts, just because oil is getting “dirtier” in general. Investors are becoming increasingly aware of those impacts – including aboriginal rights concerns, community challenges, greenhouse gas emissions, air pollution, water access, land use and reclamation issues, and the tailings legacy of mined oil sands. Uncertainty as to whether these impacts can be mitigated, and at what cost, has some analysts questioning the long-term financial viability of oil sands investment.

But the fact remains that investing in the oil sands is difficult to avoid – particularly for investment institutions that must generate competitive returns, and are widely invested across the economy. Oil and gas companies account for some 20% of the total market capitalization of the Toronto Stock Exchange and the TSX Venture Exchange. The biggest Canadian oil and gas companies all have oil sands interests – and the biggest global public companies in the sector are now joining them. Many Canadians are concerned about oil sands impacts – but many Canadians also depend on the oil sands for their livelihoods.

All this adds up to a major challenge for socially-responsible investment institutions trying to chart a path through Alberta’s oil sands – one that will allow them to meet societal expectations and fulfill responsible investment mandates, while respecting fiduciary duty.

Some institutions seek to address oil sands risk by avoiding investment in the oil sands completely, while others call for engagement. Which approach is the best way to make a real difference? At Northwest & Ethical Investments L.P., our change strategy is to engage oil sands companies. I look forward to sharing some of our early results during the session “Engaging with the Oil Sands Sector” on Monday, June 14 at the Canadian Responsible Investment Conference. The panel discussion also features Todd Hirsch, Senior Economist, ATB Financial, Calgary and Karina Litvack, Head of Governance & Sustainable Investment Team, F&C Investments, London.

Michelle de Cordova manages research on sustainability issues as well as sustainability policy and standards work under the Sustainable Investing Program at Northwest & Ethical Investments L.P. (NEI). She authored NEI’s 2008 report, Unconventional Risks, on environmental, social and governance (ESG) investment risks associated with the oil sands, and co-authored its 2009 follow-up report Lines in the Sands, benchmarking oil sands companies’ ESG risk. Currently she is working on research projects relating to oil sands policy and regulation, and to establishing and maintaining “social license to operate” for extractives projects. Prior to her role with NEI, Michelle has worked for the UK Diplomatic Service, WWF, Oxfam and as an environment and development consultant in Canada, Europe, Asia and Africa.

This is the first in a series of articles on the 2010 Canadian Responsible Investment Conference. Subscribe to SRI Monitor for more pre-conference articles over the next couple of weeks and full blogging coverage during the three-day conference.

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