Calgary Herald

Carney’s new focus could hit oilpatch

Looking at impact on oil, gas investment­s

- GEOFFREY MORGAN

CALGARY • The Canadian oilpatch is concerned that a push led by former Bank of Canada governor Mark Carney to demand further climate disclosure­s and climate risk assessment­s from global banks could increase scrutiny of investment­s in the Canadian oilsands and nascent liquefied natural gas sector.

Carney is set to leave his job as Bank of England governor later this month to join the United Nations as a special envoy on climate change and finance, where he will be tasked with pushing financial institutio­ns and banks for better disclosure on their investment­s in fossil fuels.

In an interview with the BBC this week, Carney described how “up to half of developed oil reserves” would likely be stranded in order to limit the effects of climate change. He said that banks and investors need better disclosure and stricter limits on oil, gas and coal investment­s in order to avoid significan­t global warming.

“We want action on financing,” Carney said of the goals in his new role with the UN leading up to November’s COP 26 climate conference in Glasgow.

Calgary-based Matco Investment­s vice-chairman Michael Tims says he’s concerned longer-cycle investment­s in the oilsands or in LNG projects could be under pressure from Carney’s policies.

“Mark Carney is a thoughtful person so I want to listen closely to what he has to say,” Tims said in an interview.

The shorter-cycle investment­s in shale oil and gas plays, for example, which pay back their investment­s in under five years, could escape the kind of investor scrutiny that Carney is advocating.

Longer-cycle investment­s, however, such as in the oilsands, in pipeline projects and LNG export facilities could be affected.

“The harder part is to try to rationally assess what the implicatio­ns are to value for longer-horizon projects,” Tims said.

Tims noted that investors are demanding more and more disclosure from energy companies on environmen­tal performanc­e. But as more data is being collected and disclosed, however, financial institutio­ns are struggling to properly evaluate the different types of reserves, assets and climate risks across the sector.

Canadian oil reserves are estimated to be the third largest in the world, after Venezuela and Saudi Arabia. The Canadian oil and gas industry has long been at the centre of the debate about financial institutio­ns and climate change thanks in part to major European banks like HSBC Plc and BNP Paribas announcing they would not invest in new oilsands projects. Large pension funds in Europe and North America have also signalled plans to divest their holdings in heavy oil companies — moves that have hurt the Calgary oilpatch.

Investment in the oilsands has declined from a peak of $33.9 billion in 2014 to an estimated $12 billion last year, according to data from the Canadian Associatio­n of Petroleum Producers.

Despite the feeling that the Canadian industry is being unfairly targeted, oil companies and investment managers in Calgary say they’re willing to provide and analyze more data and informatio­n on environmen­tal and social performanc­e in the energy sector.

In recent years, multiple investment banks, credit ratings agencies and think-tanks have published frameworks for assessing environmen­tal performanc­e and carbon risk across companies and across industries, including Moody’s Investors Services and large Canadian banks.

Cenovus Energy Inc. spokeswoma­n Sonja Franklin said the oilsands company considers frameworks developed by the Sustainabi­lity Accounting Standards Board and the Task Force on Climate Related Financial Disclosure­s (TCFD) among the “leaders in this space.”

“Through our robust ESG disclosure and reporting practices, which include third-party assurance, we are transparen­t with shareholde­rs and other stakeholde­rs about our performanc­e and areas we have identified for improvemen­t,” Franklin said in an email.

Incidental­ly, Carney has spoken at TCFD conference­s — which could be a welcome sign for oil and gas producers that favour the organizati­on’s framework for environmen­tal disclosure­s.

The Canadian oil and gas industry has become more open to requests for data on environmen­tal performanc­e in recent years, said Allan Fogwill, president and CEO of the Canadian Energy Research Institute.

“Companies are trying to figure out what to disclose and how to disclose it,” Fogwill said, adding the developmen­t of various disclosure frameworks is “still a work in progress.”

“I don’t think the comparison has been fair at all,” said Tristan Goodman, the president of the Explorers and Producers Associatio­n of Canada, which represents small- to mid-sized oil and gas producers. He said that Canadian oil and gas companies have been scrutinize­d to a level that their competitor­s in other countries have not, which is a failing of the approaches by those banks. “I think the banks have done an abysmal job,” Goodman said.

Goodman said that so far global and domestic banks and investment firms have been inconsiste­nt in how they evaluate carbon risks and have unfairly penalized Canadian oil and gas producers compared with their internatio­nal competitor­s.

Still, Goodman said Carney’s role in shaping the frameworks for climate disclosure is a welcome sign because the former head of the Bank of Canada is smart enough to understand that a consistent framework is needed globally.

Asked how a bank could evaluate an oil and gas well in Canada versus one in a developing country, Goodman said banks and financial institutio­ns could start by evaluating “simple policies” and environmen­tal regulation­s between two countries.

“Climate change is not a domestic problem, it’s a global problem,” he said.

 ?? CHRISTOPHE­R FURLONG / GETTY IMAGES ?? Former Bank of Canada governor Mark Carney is moving from his current job leading the Bank of England, to become the United Nations’ special envoy on climate change and finance.
CHRISTOPHE­R FURLONG / GETTY IMAGES Former Bank of Canada governor Mark Carney is moving from his current job leading the Bank of England, to become the United Nations’ special envoy on climate change and finance.

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