NEI Investments barely squeaks into the top 100 shareholders in Suncor. But last month, the C$6.4bn (€4.3bn) asset manager landed a significant victory when its engagement resulted in Canada’s biggest energy company issuing its first Climate Change Report.
According to Suncor, the 18-page document “provides information on how the company assesses climate risk and outlines its plans to build long-term resilience in a low-carbon economy”.
“Suncor already had good disclosure,” says Jamie Bonham, head of corporate engagement at NEI. “But it didn’t have a coherent story about its low-carbon future. We wanted that to facilitate a deeper long-term conversation. And we also wanted to set a standard for the industry: once you have Suncor doing this, then the pressure is on for everyone else.”
While Cenovus Energy – another Canadian oil producer targeted by NEI – committed to climate disclosure via its proxy, Suncor supported NEI’s move to file the proposal as a formal resolution.
“We were only going to file a resolution if Suncor wanted to go there,” explains Bonham. “We were happy with the fact they had made a commitment, but we were also of the belief that there is huge value in going through the resolution process, and in the end they agreed.”
That value, he says, is that the resolution allows “broader market dialogue” and extends the engagement process from a bilateral one between NEI and Suncor, into one between Suncor and its investors.
“A company may show positive signs during engagement, but its shareholders are often not as progressive. A resolution gives the company a chance to talk to all of their major shareholders about how important these decisions are to the future success of the company.
“What would have held us back in the past is how shareholders are valuing the company,” he continues. “They’re valuing Suncor as an oil sands company. Until you have the investors and analysts on board with the principle of having a long-term strategy involving renewable energy, for example, the company cannot do it – you risk a plunge in share price when mainstream investors are faced with information about Suncor buying into wind, for example, and analysts panic because they don’t know how to value it anymore.”Bonham says he’s “happy” with Suncor’s Climate Change Report, but there is still progress to be made. “It’s a good first attempt and there is potential there for it to be on a viable transition path. It’s the first time they’ve really laid out why they think an oil sands company has a long-term advantage in the climate context over a conventional oil company, for example.”
However, more focus on renewable energy and low-carbon innovation would improve the disclosure in future years, he adds.
“The idea will win the day.”
For some investors, Suncor’s efforts are simply not adequate. Last month, Danish pension fund PKA divested the company as part of a wider exclusion of some oil and gas companies. Head of Responsible Investment, Pelle Pederson, said at the time “we have to accept what is happening right in front of our eyes”.
But Bonham argues that engagement is the only way to move the sector to a more sustainable economic model. “Suncor is a reality. That’s also right in front of my eyes. The onus is on us using our position as shareholders to shift it. We could divest, or not own them, which is always a consideration from a financial risk perspective, but it would have no effect on the fact that this company is still making a product that isn’t low carbon.”
Following its successes at Suncor and Cenovus Energy, NEI is engaging with other oil companies, and the Financial Stability Board’s Taskforce on Climate-Related Financial Disclosure’s guidelines are already helping. “We’re already using it dialogue. It gives a unique chance to say: ‘it’s not me, it’s them – they’re asking me to gather this information, so you need to give it to me’.”
The remaining names on his list are “a little harder to convince”, he says, and so he’s reaching out to other shareholders for support. “We can all engage with the companies separately – it’s just crucial that the message is consistent. But you don’t always need a huge amount of assets behind you to influence these companies: you just need to make the financial point clearly. The idea will win the day.”