The Canadian oil and gas companies that want to put the brakes on climate financial transparency
Without more transparency, regulators warn Canada's economy will balloon into a 'climate bubble' that may suddenly burst, causing severe economic disruptions — not dissimilar to recent Russian divestment. But companies such as Suncor and TC Energy want to delay some new mandatory reporting rules, according to an investigation by The Narwhal
By Carl
Meyer
March 23, 2022 18 min. read
While some economists warn Canada's economy is ballooning
into a climate bubble that may burst and provoke severe disruptions, dozens of
Canadian companies are pushing regulators of capital markets to delay new
climate transparency rules.
Mark Little wrapped up oilsands giant Suncor Energy’s
February 2022 earnings call by reassuring investors that shareholders would
have more cash in their pockets than the year before.
“We think we have a great company,” Little, Suncor’s CEO,
said on the Feb. 3 call,
which lasted about 40 minutes. “I’m strengthening the balance sheet [and]
making investments for our future to support the continued growth and cash flow
and shareholder returns for many years to come.”
Missing in the conversation that day, however, were any
specific details about how the company’s growth strategy could be thrown off by
the climate crisis, which is causing mass death of
species and stranding millions of people without food or water security, and
will be made worse by fossil
fuel production plans around the world — plans which Suncor, a major
player in Alberta’s oilsands, expects to contribute up to 790,000
barrels of oil equivalent every day.
Little did discuss how his company was focused on driving down carbon pollution from its operations, and Suncor has published information about climate-related risks and opportunities to its business.
But an investigation by The Narwhal has revealed that Suncor
— along with other fossil fuel firms and dozens of companies and organizations
from other sectors — is also pushing back against game-changing financial
disclosure proposals that, if implemented in Canada, would set clear standards
and force companies to be more transparent and specific about how climate
change could disrupt their operations and finances. The Narwhal reviewed the
positions of more than 100 companies and organizations and found the majority
were opposed to such standards.
Canadian regulators released their proposal last
fall, recommending that publicly listed companies should publish climate
disclosure reports with detailed metrics and targets, along with information
about how companies plan to deal with the climate crisis. The proposal was
largely based on recommendations first
made in 2017 by an international committee chaired by billionaire Michael
Bloomberg that calls itself the Task Force on Climate-related Financial
Disclosures.
Prime Minister Justin Trudeau speaks with Michael Bloomberg at COP26 in Glasgow on Nov. 1, 2021. Photo: Prime Minister’s Office / Flickr
New rules would mean public companies would need to
regularly publish additional climate information to participate in capital
markets, like the Toronto Stock Exchange, Canada’s largest stock exchange.
As regulators hammer out the fine print of new rules, an
avalanche of Canadian companies and special interest groups — representing a
range of sectors including the oilpatch, mining, manufacturing, utilities,
banking, accounting, investments and insurance — have pushed for a delay to
major reforms.
The pushback is laid out in written
submissions filed over the past several months to the provincial and
territorial regulators of Canada’s capital markets, where companies like Suncor
trade. Regulators of these markets work together to ensure no misconduct takes
place, and coordinate on rules nationwide under the banner of the Canadian
Securities Administrators.
Two-thirds of the companies and organizations that wrote to
regulators between October 2021 and February 2022 said they were opposed to key
measures that would force them to reveal more in their financial disclosure
documents about how they plan to deal with climate-related changes to their
business, according to an analysis by The Narwhal.
Submissions were gathered before the invasion of Ukraine
that has killed and injured thousands of people, upended global markets and led
to a scramble to pull out investments and suspend or shut down businesses with ties to Russia,
including Russian state-owned oil giant Rosneft.
The same scramble is lying in wait for Canadian companies
who cling to polluting assets for too long. The Bank of Canada and the Office
of the Superintendent of Financial Institutions — a federal regulator — also
flagged this threat in January when they released a report showing that if
Canada’s transition to a low-carbon economy is too abrupt or too late in the
game, that could destabilize the economy, send assets
crashing in value and threaten the jobs and retirement savings of
Canadians.
As a result of the looming threat of climate change,
Canadian regulators are trying to intervene in markets before they suffer the
fallout of climate-related shocks. That risk has been behind the push to make
companies much more transparent about the pollution their products are
generating and how their businesses could be disrupted by the climate crisis.
Without that transparency, regulators warn, Canada’s economy
will continue ballooning into a “climate
bubble” that will eventually explode in a disorderly, sudden way — not
dissimilar to how Russian divestment has unfolded.
Tourmaline Oil, Pembina Pipeline lament ‘burden’ of
climate transparency rules
Of all the voices pushing for regulators to delay or abandon
reforms to climate transparency rules, oil and gas companies have been
particularly vocal.
In written submissions reviewed by The Narwhal, company
executives frequently cite the “burden” of the workload that would stem from
having to comply with climate transparency rules.
This comes at a time when oil and gas companies are
announcing billions of dollars in profits in recent earnings reports, with the
sector sitting on about $75 billion in cash. Corporate profits
in Alberta soared
by 147 per cent in 2021, and that was before crude oil prices skyrocketed due
to supply disruptions caused by Russia’s assault on Ukraine.
In February, Suncor announced $1.53
billion in profits, but a month earlier Suncor wrote
a letter to provincial regulators arguing it wouldn’t be “useful” to
publicly reveal one of the proposed transparency exercises, which would have
the company publish what’s known as climate scenario planning.
A view of Wapisiw Lookout in Alberta in June 2010 at a Suncor Energy oilsands operation. Photo: Suncor Energy / Flickr
The premise of climate scenario planning is simple — a
company must explain how it would fare in a world committed to substantially
less carbon pollution. A company might, for example, lay out a scenario in
which the world meets the Paris Agreement goal of holding global average
temperature increases to below two degrees Celsius above pre-industrial levels.
Scenario planning can illustrate both the physical impacts
of climate change and the economic transition ushered in by climate policies.
For example, one scenario, dubbed the “hot house world”
scenario, contemplates how a company’s business will fare if climate policies
fail to slow significant global warming and “critical temperature thresholds
are exceeded leading to severe physical risks and irreversible impacts like
sea-level rise.”
Not one of the oil and gas companies that made submissions
to regulators wrote clearly in favour of immediate mandated disclosure of
climate scenarios. Their submissions also indicate that none of the companies
actually know the full extent of how the climate crisis will damage their
businesses.
For example, while Suncor says it does some internal
analysis of future scenarios and describes this as “beneficial for investors as
it relates to our view of risk,” the company argues it would not “be useful at
this stage” to share this planning with members of the public “because it is
overly complex” and would require making a number of assumptions.
Suncor and others who are pushing back against immediately
implementing tougher rules also argue that because international standards are
still being finalized, any information they do reveal runs the risk of being
inconsistent, especially across different sectors, leading to the potential for
misleading conclusions to be drawn by investors.
Tourmaline Oil, which bills itself as Canada’s largest
natural gas producer, has similar concerns. Tourmaline reported $2
billion in net profits in 2021, but the company complained
to regulators of the “cost” and “burden” to undertake scenario
planning, as well as of another transparency measure that would require the
company to calculate and publish the carbon pollution generated when its
natural gas is burned by consumers. (Suncor also does not support this measure,
citing a lack of guidelines on how emissions would be calculated or reported.)
Baytex Energy, which is active in conventional drilling and
fracking in both Alberta and Texas, also argued the mandatory preparation and
disclosure of the emissions from burning its products “would be particularly
burdensome.”
The company wrote in its submission to
regulators that climate scenario planning “should not be required” to be
publicly revealed because the information used to prepare the exercise is
“inconsistent.” Like Suncor, Baytex too said the results would not be “useful.”
Pembina Pipeline, which operates over 18,000 kilometres of
pipelines carrying crude oil, natural gas and other petroleum products in
Canada and the United States, told regulators in a letter that
while the company recognized the value of climate scenario planning and used
the tool internally, it also believed it should not be required to reveal it to
the public.
There were a number of assumptions required to complete this
exercise, the company wrote, and so it would provide “little benefit to
investors, especially when weighed against the significant costs that would be
incurred by [companies] to prepare such information.”
These oil companies have been backed up by industry lobby
groups. The Canadian Gas Association told
regulators scenario planning requirements should be “excluded in all
cases” because it could lead to “confusing modelling and reporting for
investors and market participants.” The Canadian Association of Petroleum
Producers said in its submission that it was “premature” to mandate scenario
planning as it was “difficult to compare and contrast” scenarios from different
companies.
In response to The Narwhal’s requests for comment, the
Canadian Association of Petroleum Producers said it had nothing further to add
on the topic. Tourmaline Oil, Baytex Energy, Pembina Pipeline and the Canadian
Gas Association did not respond to requests for comment.
How burdensome is climate scenario planning?
Though oil and gas companies repeatedly cite the “burden” of
new scenario planning regulations, whether the effort required is overly
burdensome is a matter of debate.
Bloomberg’s task force produced a “guidance” document in
2020 stating that “getting started using scenario analysis is not difficult.” A
typical process, they wrote, “often takes only a handful of full-time staff and
less than a year (often three to nine months) depending on the size of the
company and the scope of the decisions under consideration.”
The British Columbia Investment Management Corporation, a
large institutional investor in Canada with $199 billion in assets under management,
also argued
in its letter to regulators that “scenario analysis does not need to
be an exhaustive process,” that requires companies to start from scratch. The
corporation wants to see a requirement for scenario planning transparency “for
at least some companies.”
In a Feb. 14 response to The Narwhal’s questions, Suncor
media and social advisor Leithan Slade pointed out that the task force itself
has acknowledged its
guidance document on scenario planning is not meant to be a “checklist of
everything a company should do” to meet transparency standards.
Suncor has “an extensive history of reporting in our annual
report on sustainability and our climate report,” Slade wrote. “Suncor is
committed to credible, transparent and industry-leading sustainability
reporting.”
Slade also said Suncor has prepared a scenario in line with
its support for the task force and Paris Agreement, published
in its climate report, which looked at “a plausible pathway to keep global
temperatures from rising [two degrees Celsius] or less by 2100.”
That scenario analysis is one page long and mostly discusses
the impact on global energy markets. Its section on disruptions to the company
itself is 39 words long and related to growing the firm’s electricity and
hydrogen business, “transforming” the carbon footprint from its oil production
and commercializing unspecified climate “solutions.”
It is difficult, however, to gauge what strategy Suncor is
deploying to address the risks it recognized as part of the exercise, or what
detailed changes Suncor may be considering to its business model — both central
elements to climate scenario planning, according to the task force’s guidance.
Over half of respondents against rules revealing
emissions from their products
Michael Bloomberg and the task force he chairs are not alone
in calling for increased climate transparency in financial disclosures — and
time is of the essence, according to proponents.
Regulators must adopt the task force’s key measures if
Canada has any hope of sticking with its plans to limit pollution and slow
climate change, according to Principles for Responsible Investment, a United
Nations-supported initiative that counts over 4,300 pension funds, insurers,
investment managers and other financial industry entities around the world,
including more than 200 headquartered in Canada. The initiative collectively
represents hundreds of trillions of dollars in assets.
“Nothing less than an ambitious, significant and concerted
whole-of-government approach to regulatory action will be enough to meet the
challenge of Canada’s 2030 and 2050 targets,” the initiative wrote in a letter to
regulators. “This not only applies to decarbonizing Canada’s energy system, but
also leveraging the financial sector to enable and drive deep decarbonization
of the economy.”
Despite this, 84 of the 130
submissions made in response to the regulators’ proposal take issue
with at least one of several key climate transparency measures, The Narwhal has
found.
Almost half of the organizations that responded to
regulators were against requiring companies to start disclosing their scenario
planning when the new rules kick in, while under a third were in favour. The
remainder of the respondents either did not discuss scenario planning or The
Narwhal could not determine their position.
Over half of the respondents said they were against rules
that would make them start revealing emissions from their products, while a
third were in favour and another sixth could not be determined.
U.S. Securities and Exchange Commission unveils climate
transparency proposal
Meanwhile, the push for more transparency could soon affect
companies trading on American stock exchanges.
The U.S. Securities and Exchange Commission (SEC) unveiled a proposal on
March 21 that would establish climate-related disclosure requirements, such as
details on how climate-related risks have affected a company’s “strategy,
business model and outlook.”
The U.S. proposal would ask companies to disclose details of
any existing scenario planning already underway. This could include disclosing
any projected financial impacts.
It would also ask a company to publish details of the
emissions from the burning or use of its products if it has set a climate
target that includes these emissions.
“Today, investors increasingly want to understand the climate risks of the companies whose stock they own or might buy,” commission chair Gary Gensler explained in a March 10 video on Twitter, providing an overview of the proposal.
“A lot of companies are already providing such information
about climate risk, but investors representing literally tens of trillions of
dollars are looking for more consistent and comparable information so they can
make informed decisions about where to put their money — and that money is
often the money they are investing for us.”
The European Commission and the United Kingdom are also
pursuing similar regulatory changes.
When the British government carried
out its own public consultations on potential climate-related
financial disclosures in spring 2021, they also asked companies and
organizations about what they thought of rules that would require firms to
publish climate scenario planning.
The British government said it received “mixed feedback” to
this question. Out of 107 responses, respondents were split almost evenly on
whether companies should be forced to reveal this information, with slightly
more in favour of disclosures.
Though the British government was initially reluctant to
mandate climate scenario planning, the survey results and “compelling
feedback” prompted a “reconsideration” of its approach. Scenario planning
requirements will be part of new financial transparency rules that will come
into force in April.
Ernst & Young believes climate scenario planning to
form ‘global baseline’ for standards
Climate scenario planning is also part of a new
suite of financial disclosure measures developed in 2021 that
accounting firm Ernst & Young believes will form the basis of a “global
baseline” for transparency standards this decade, according to its Feb.
15 letter to
Canadian regulators.
The new suite of measures were developed by a coalition
of experts which included Bloomberg’s task force, and
were published in November 2021 — a month after Canadian regulators’ proposal
was published.
Unlike the Canadian proposal, these measures do recommend
that companies publish a “diverse range” of climate-related scenarios — asking
firms to reveal step-by-step details such as the assumptions the company made
as it went about preparing its findings.
In its letter, Ernst & Young urged Canadian regulators
to align their rules with the international standards being developed by the
new International Sustainability Standards Board — including rules related to
climate scenario planning.
“We believe scenario analysis should be required to be
disclosed as it would enhance the competitiveness of Canadian companies
internationally, given certain jurisdictions have already mandated disclosure,”
the firm wrote.
Reforms softened to be ‘sensitive to concerns’ of
companies: Canadian Securities Administrators
The Canadian regulatory proposal itself,
as written in October 2021, excludes certain groups like investment funds from
the new transparency requirements.
The proposal would also not force companies to disclose
their scenario planning, publish the emissions from the products they produce,
or require their emissions to be independently audited.
In the proposal, regulators wrote they deviated from
international recommendations because they were “sensitive to concerns related
to the regulatory burden and additional cost” that companies would bear if
forced to be more transparent.
A number of fossil fuel companies agreed that regulations
should not require them to be transparent about how climate change would
disrupt their businesses
“This approach is appropriate,” wrote Whitecap Resources, a
Calgary-based oil and gas company focused in Western Canada, in a letter to
regulators, referring to their decision not to make climate scenario
disclosure mandatory.
TC Energy made similar comments, writing
in their own letter, “while scenario analysis is useful internal analysis,
we support the exclusion of scenario analysis as required disclosure in the
proposed instrument.”
TC Energy also said they were against requirements to
disclose emissions from the burning of its oil and gas products.
A representative from TC Energy’s media relations declined
to answer questions. Whitecap Resources did not respond to The Narwhal’s
request for comment.
An energy industry worker stands on the doc at the Trans Mountain pipeline terminal in B.C. Photo: Trans Mountain / Handout |
The regulators’ approach surprised Engineers and
Geoscientists BC, the professions’ regulatory body, which wrote in its
own submission that
it was “not clear” why regulators had taken a different path than the
international Bloomberg-led task force.
“The future we are heading into is not well represented by
past data or trends, and in this absence of experiential evidence, scenario
planning is known to be an effective risk management tool,” the group added.
The comment period over the new disclosure rules ended in
February, and regulators now plan to consider all the comments over the next
several months. The proposal suggests a one-year and three-year phase-in
period.
Alberta Securities Commission says some smaller companies
have ‘very real resource constraints’
Tonya Fleming, senior counsel with the Alberta Securities
Commission, has been working with regulators across the country on the proposed
new disclosure rules, and has stressed that the proposal is still being worked
out.
During a Jan. 20 online information session the
commission postedon its YouTube channel, she said it was “very likely” the final version of
the rules “will look a bit different than what we talk about today.”
Fleming said the team has been “meeting with Alberta
companies to talk about what we’re thinking in terms of the proposed rules,”
and listening to their “feedback.”
She said large Alberta companies are “absolutely leading the
way” when it comes to climate-related disclosures “but some of our smaller
[companies] just haven’t started down this path yet.” They may have “very real
resource constraints” preventing them from having the ability to produce the
material, she said.
“We want to respond to the investor needs and align with the
international developments, but we are also cognizant of regulatory burden and
the additional cost that our companies will bear when they respond to these new
climate disclosure rules,” Fleming said. “We listen, we hear from industry and
from investors as to what they’re looking for.”
“We consult with and listen to both investors and issuers
when considering new rules, which is the approach we took on the proposed
climate-related rules,” said Theresa Schroder, senior advisor for
communications at Alberta Securities Commission, when asked for comment on
Fleming’s statements.
The Narwhal asked the Canadian Securities Administrators why
the proposal deviated from the Bloomberg task force’s recommendations, and
which industry associations expressed concerns to them about a “regulatory
burden.”
Pascale Bijoux, senior advisor for communications and
stakeholder relations, said in an email the proposed disclosures are “the
result of engagement and discussion with advisory committees, [Canadian
Securities Administrators] members and a wide range of stakeholders,” noting
the organization also takes approaches from around the world into account.
State of Canada’s climate-related disclosures ‘sorely
inadequate’: finance industry veterans
Climate scenario planning is a crucial exercise meant to
test the resilience of a business strategy, according to the Canadian Institute
of Actuaries, the governing body for the profession that measures risk and
uncertainty. Without it, there’s “no incentive” for companies to start down a
path of increased climate transparency, the group argued in a letter submitted
to Canadian regulators.
The Canadian Climate Law Initiative, a collaboration between
the University of British Columbia and York University, agreed, saying in their
submissions it would be difficult for companies to strategically plan without
using climate scenario analysis. The group has released
a legal opinion concluding “pension fund trustees have obligations to
consider climate change as part of their fiduciary duty.”
The Bank of Canada and the Office of the Superintendent of
Financial Institutions have explained in their own climate scenario planning
why the absence of tougher rules could lead to a disastrous market failure and
massive job losses.
“Meaningful disclosures matter,” Ben Gully, assistant
superintendent for regulation at the Office of the Superintendent of Financial
Institutions, said during
a media briefing on Jan. 14. “Improving disclosures helps financial
system stakeholders respond to clear, comparable and consistent information
about climate-related risks and opportunities.”
Gully made the comments as the Office of the Superintendent
of Financial Institutions — which regulates banks, trust companies, loan
companies, fraternal benefit societies and insurance companies — and the Bank
of Canada released a
report confirming concerns among some analysts who believe Canada’s
climate data from businesses is either incomplete or mediocre.
A joint review
by regulators in six provinces in 2021, for example, found that over
four in 10 companies studied had produced “boilerplate, vague or incomplete”
language on climate risks, while a quarter avoided examining the financial
impact of climate change entirely.
Canadian pension managers view the current state of
climate-related disclosures as “sorely inadequate,” Sara Alvarado, executive
director of the Institute for Sustainable Finance at Queen’s University, chair
Sean Cleary and research director Ryan Riordan, wrote in a letter to
regulators. They pointed to a 2020
statement by Canada’s eight largest pension funds calling for better
financial transparency over environmental factors.
Canadian businesses leaving themselves vulnerable to
‘climate bubble’
Beyond the pressing need for corporations to become more
transparent about their actions and their products so Canadians can see the
planet-warming potential of their businesses, the Canadian Institute of
Actuaries has
also pointed out how this transparency is necessary to connect the
dots between the drivers of climate change and the “volatility” climate change
is causing in insurance claims.
Insurance claims from climate-related disasters have been
substantial. The Insurance Bureau of Canada reported $2.1
billion in insured damage across the country in 2021 connected to
severe weather — the sixth-highest tally since 1983. It represents what the
insurance bureau dubs the “financial costs of a changing climate.” Worldwide,
natural disasters caused overall
losses of US$280 billion in 2021, according to one estimate.
In Canada, last year’s wildfires, droughts, floods and heat domes
hammered home the reality of climate change for many Canadians.
The B.C. government declared a state of emergency on Nov. 17 as severe flooding caused by an atmospheric river cut off all access routes into a number of cities and towns. Photo: B.C. Ministry of Transportation and Infrastructure / Flickr
Federal scientists warn Canada is warming at more
than twice the global rate, and the risks of flooding, wildfires, heat
waves, rising sea levels and other physical dangers will only increase in the
coming years, affecting Canadians’ health and wellbeing in addition to
influencing practically every economic sector.
But the vacuum of information from Canadian businesses on
how they will weather this coming storm has resulted in a chorus of banks,
financial experts, pension funds and regulators themselves warning the economy
is vulnerable to a ‘“climate
bubble” that, when it bursts, could be financially devastating for families
and communities.
None of that conversation, however, was present on Feb. 3
during Suncor’s earnings call, where executives discussed how diesel demand was
“back to normal,” and how the company’s oilsands assets “contributed record
annual funds” in 2021.
“Suncor is well positioned in 2022 to deliver higher
production,” Little said, adding he anticipated the company’s plans would
“accelerate shareholder returns.”
— With files from Fatima Syed
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