On April 28, 2016, Suncor Energy’s board of directors will address shareholders at the company’s AGM, explaining why it requested that shareholders back our proposal asking the company to report on its strategic resiliency in a low-carbon world. That Canada’s biggest energy company and the largest oil sands operator in the world will be making this pitch is unprecedented, and perhaps counter-intuitive. But this is indicative of the dynamic nature of the policy environment in Canada and elsewhere as well as the palpable momentum for action on climate change.
With a tip of the hat to the Aiming for A campaign and the inspiration those resolutions have provided, we believe that the concept of a management supported proposal will to continue to cause ripples in the RI space into the future.
For those that know Suncor well, it is perhaps not a surprise that it would show leadership on this front. Suncor has been publicly asking policy makers to implement a price on carbon; has been a leader in carbon disclosure for years; has ongoing investments in renewables and has fostered a well-developed innovation strategy for low-carbon technology solutions. For NEI, the resolution encapsulates the deep dialogue we’ve been engaged in with the company for many years. In many respects, we already know the company is approaching the topic of low-carbon resiliency in a substantive and genuine way. So why file a proposal?
First and foremost, despite the leadership that Suncor has shown on many issues – including climate change related topics – there remains great uncertainty that the company will successfully manage the transition to a low carbon economy. It faces some daunting challenges: from the trend towards increasingly stringent climate regulations to the rapidly expanding renewables sector to ongoing social licence issues. With the current travails of the coal industry serving as a stark warning to oil sands companies about the risks of stranded assets, how will the company navigate these tricky waters? Investors are within their rights to expect that the company explain to shareholders how it is managing these risks.
Suncor asserts that it plans to be the “last man standing” in a world with diminished demand for fossil fuels. It is now incumbent upon the company to provide shareholders with the vision that will make this a reality. The focus in the proposal on ongoing reporting is meant to make this vision an integral part of the company’s pitch to investors. We hope to see this strategy addressed in everything from quarterly analyst calls to the company’s annual reports.
But shareholders need to be receptive to this vision for it to ever take root. This is the second reason we worked with Suncor to get a management supported proposal into the proxy.Without broad shareholder support for this energy transition vision, the company will be too hamstrung by shareholder expectations to move quickly enough to make the vision a reality. In our mind, that is a key risk to any company’s energy transition strategy – the inertia of investor expectations.
The stark reality that any energy company (let alone an oil sands company) faces is that there is no path to a low-carbon future that does not require significant innovation. And with innovation comes risk. In this case, we believe that doing nothing represents a much greater risk than embracing a low-carbon strategy. And the conversations we had with Suncor management leading up to this proposal give us reason to think that the company shares this belief.
This question of embracing risk is not a trivial one. If we are to stay close to the two degree path the energy company business model needs to change dramatically. It is almost a certainty that not everyone will make it through the transition. There might be some room for the business as usual model in the oil and gas sector in the near to mid-term, but only just, and not for everyone. As such, the discussion that Suncor is opening with its shareholders is an existential one. Every investor in the company should be tuned in as a result.
Disruptive, game changing business models seldom come from established players; despite their often significant advantages (such as easy access to capital, massive revenues, sizeable human resources, the ear of policy makers, and more). There are likely many reasons for this, but chief among them is a reluctance to change a business model that has been working for shareholders.
So, there are two things that Suncor shareholders can do to change this paradigm. Obviously, we want shareholders to follow management’s recommendation and vote for the proposal. But just as importantly, shareholders should be communicating with the company to explicitly state this support and to commend the company for taking this action. Hard questions should of course be posed about how the company plans to live up to the proposal’s asks, but it is very important for the company to get an overwhelming signal from investors that they back the company’s aspirations for low-carbon resiliency.
Expressing support is a relatively small action for an investor to take. If only a few shareholders contact the company the impact of these interventions may also be relatively small. Taken collectively, explicit investor support (beyond just voting for the proposal) across the breadth of its shareholder base will send an unmistakable signal to management that it has the mandate to act boldly. All it takes is a call.
Jamie Bonham is Manager, Extractives Research & Engagement at NEI Investments.