SHARE benchmark of oil & gas industry lobbying shows it is “as transparent as bitumen”

By Sarah Couturier-Tanoh and Anthony Schein

Last fall, we wrote about our plans to engage with leading Canadian oil & gas companies on their lobbying activities.

At the time, it was clear that some of the world’s largest resource companies were spending enormous sums lobbying to slow down, block, or water-down government action on climate change. We knew that Canadian companies were actively engaged in lobbying, particularly through their trade associations.  But as investors, we knew altogether too little about whether firms’ public statements about climate change are aligned with their lobbying activities.

Amid the Covid-19 pandemic and the oil price crisis, lobbying activity in Canada has only accelerated. In April, a leaked memo from the Canadian Association of Petroleum Producers (CAPP) revelated the industry’s push to delay action and reduce oversight. CAPP’s lobbying has been called out publicly by Shell and Total SA in their own reviews of climate-related lobbying by trade associations to which they belong – with Total SA leaving the association entirely this summer.

So, we at SHARE set out to benchmark Canadian firms’ disclosure on climate lobbying, including that done by trade associations like CAPP. Our goals were to gather relevant information for investors about the current state of play, best practices, and to identify areas of concern for future engagements with those same firms.

Unfortunately, the results of our first report show just how inadequate current disclosure is. With some exceptions, oil and gas lobbying in Canada is about as transparent as bitumen.

The good news is that engagement has already started to make a difference. In response to our inquiries, some firms have already increased their disclosure, and we expect to see more progress when we update this report in 2021.

Why the investor focus on lobbying?

Years of dire warnings about the devastating impact of the climate crisis have come into sharp focus – despite the haze of smoke – with record wildfires in the United States, Brazil, and Australia. The Climate Crisis is not only a social and environmental problem, but it is also a fiduciary and investment problem. Investors have a central role to play in addressing the crisis. There is a growing consensus that climate change represents a material risk to businesses and threatens shareholder value in the medium and long term.

When we speak about investors whose portfolios are at risk, we’re not speaking of billionaires. We’re speaking of the millions of Canadians who are counting on their pensions for a secure retirement. We’re referring to the non-profits who depend on grant-making from Canadian foundations. We’re thinking of the Indigenous Trusts that are planning for the economic and social development of future generations. Every Canadian is an investor – relying on the stability of the Canada Pension Plan to provide a base of dignity in their later life.

A failure to reach the Paris Agreement’s climate goals will result in massive costs that will ultimately be paid by society as a whole, including by investors.

Those costs can’t just be avoided by better portfolio construction – they are systemic. We need governments to provide leadership and effective regulatory frameworks if we’re going to address them at scale.

That’s why lobbying activity by corporations, both positive and negative, is highly relevant for investor engagement and corporate disclosure.

Report shows Canadian firms have significant opportunity for improvement

Our report benchmarks 22 companies listed in the S&P/TSX Capped Energy Index (TTEN) and analyzed these companies on their climate lobbying disclosure. Together, these companies constitute a representative sample of the Canadian oil & gas industry from an investor perspective.

The results leave investors with urgent and unanswered questions about the extent and content of most companies’ climate-related lobbying activity:

SHARE advances transparent and responsible lobbying practices through shareholder engagement

On behalf of the shareholders we represent – more than 50 Canadian institutions, with $23 billion in assets – we will be re-engaging with each of the 22 firms in our study in the coming months to work with them to improve their disclosure and address any misalignment between their public statements and their lobbying activities.

This spring, SHARE supported shareholder proposals on climate lobbying to the AGMs of ExxonMobil and Caterpillar Inc. We filed at both companies on behalf of the Fonds de Solidarité FTQ. At Caterpillar, the proposal asked Caterpillar to report annually on lobbying activity, including state-level and international lobbying, as well as contributions to trade associations used for lobbying purposes. Attention was focused on climate-related lobbying activity, asking that the company align its lobbying with the objectives of the Paris climate agreement. The proposal received 33.5% support from Caterpillar shareholders, more than doubling the vote from the last time the Fonds’ filed this proposal in 2017. The proposal at ExxonMobil, where the Fonds was a co-filer, received 37.6%.

Moving into 2021, SHARE will continue to work with the investors we represent and responsible investors in our international network to engage companies to take meaningful action to address the climate crisis.

Read: Climate Lobbying in the Canadian Oil and Gas Sector: Investor Benchmark of Oversight and Disclosure

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