By Mike Toulch, Senior Analyst, Shareholder Engagement and Policy
Following a longstanding engagement between SHARE and Cenovus Energy Inc., the company has committed to reducing its greenhouse gas (GHG) emissions intensity by 30% by 2030 (from a 2019 baseline), and to keep absolute GHG emissions flat during that same period. It also announced an “ambition” of reaching net zero emissions by 2050. The overall emissions reduction target includes scope 1 (direct emissions) and scope 2 (indirect emissions from purchased energy) emissions from operated facilities only.
These commitments come on the heels of a shareholder proposal filed by SHARE last April on behalf of the Fonds de Solidarité FTQ asking the company to publicly commit to targets aligned with Paris Agreement Goals, which received 10.55% of shareholder votes in 2019. When the company had still not set targets, SHARE re-filed the proposal last fall and engaged in further discussions with the company.
Cenovus’s emissions targets are a step in the right direction and are amongst the more ambitious GHG emissions reduction targets when compared with those of its sector peers both in terms of clarity and ambition. As such, SHARE and the Fonds have agreed to withdraw their shareholder proposal this year and continue engagement on outcomes.
We are also encouraged by the company’s new commitments on Indigenous reconciliation, environmental reclamation and water use, which addressed other concerns we’ve raised in discussions with the company.
Despite this encouraging progress, significant work remains in order to push companies in the Canadian energy sector towards aligning their operations, emissions reduction and target setting efforts in-line with Paris Agreement goals. Specifically, most companies in the Canadian energy sector have yet to report on or address scope 3 emissions in any capacity, nor make any commitments related to absolute emissions reductions, despite the fact that several major global companies in the sector have already done so (e.g. Shell & Total).
Cenovus itself has set targets that it believes it can meet, but which are not Paris-aligned. A target that reduces production-related emissions intensity while keeping absolute emissions from production flat – could still result in more fossil fuels being produced and burned, which is the primary source of the sector’s overall GHG impacts. It also bears mention that, as a replacement for earlier emissions intensity targets that Cenovus had quietly shelved in 2018 (and which led SHARE to file its proposal in the first place) these targets are actually less ambitious – although the company has a clearer plan for actually meeting them. And while the company’s longer-term net-zero ambition is promising, the scope of emissions included and the lack of a clear pathway to reach that ambition is worrisome. It also remains to be seen, in light of current price wars and demand changes that have significantly altered the current economic environment, how potential production curtailments and lower capex commitments will affect the scale and timeline for meeting intensity targets.
The company knows this,s and has committed to continuing to work with its investors to ratchet up its capability and ambitions as it works on implementing the existing targets.
SHARE will continue its engagement with Cenovus and the rest of the sector on emissions reduction implementation and on raising the target-setting ambition based on experience.
We are also planning a workshop for investors on the issue of target-setting to outline how to identify Paris-aligned targets versus the wide variety of other measures that are being announced by companies. With a range of baselines, methodologies and phrasing, institutional investors will need to be vigilant to separate green-washing in corporate reporting from genuine progress on climate change mitigation and adaptation.
The Paris Agreement sought to limit global average temperature increase to well below 2 degrees Celsius relative to pre-industrial levels
