SHARE Engagements in Focus: Addressing climate risk

With the recent signing of the Paris Agreement on climate change, Canada has committed to limiting the increase in global average temperatures below 2°C, and to pursue efforts to limit the temperature rise to 1.5°C. The years ahead promise physical, regulatory, financial and reputational risks for companies and investors related to climate change. Successful firms and investors will have to adjust to thinking of the long-term sustainability of their operations and how to transition to a lower carbon economy.

The companies leading the way in addressing climate change have not only disclosed their approach and performance on GHG emissions management; they are also preparing for a lower-carbon economy by setting goals and targets to bring down future emissions and addressing climate change in business planning and capital expenditure decisions.

SHARE’s Engagement

In 2015, SHARE had discussions with Canadian corporations in energy, utilities, industrials, REITs, retail, banking and grocery sectors regarding climate risk. SHARE encourages Canadian companies to respond to the annual CDP questionnaire, which provides a common framework for climate risk measurement and disclosure. Last year we spoke with companies that had low CDP disclosure scores and outlined the key indicators that are most significant for investors. Four laggard companies we engaged with improved their scores by an average of 16 points, and one began reporting for the first time.

In 2015, we began a conversation with Brookfield Asset Management on climate risk and reporting. The company agreed to increase the scope of properties included in its GHG emissions assessment and reporting to include the company’s entire retail portfolio. Using this example, SHARE will engage with other REITs to broaden their own GHG emissions accounting, a first step in reducing their overall climate impacts. Similarly, SHARE asked Loblaw Companies Ltd. to take a leadership role among food retailers by making its CDP response public in 2015. Now that Loblaw has done so, we will engage its competitors to disclose their submissions as well.

In the transportation sector, SHARE asked Canadian Pacific Railway to meet or exceed the emissions record of its rival Canadian National. The company earned a higher disclosure score by improving its CDP reporting and achieving a 4% decrease in absolute emissions despite a 2% growth in gross ton miles. Although CN still has a more efficient locomotive fleet, CP achieved a higher year-on-year improvement in fuel efficiency.

Companies that do not report to CDP can still take action to address climate risks. In response to a shareholder proposal filed by SHARE client the United Church of Canada, Fortis Inc. – a utility company that has not responded to the CDP or produced a sustainability report in the past – agreed to prepare an annual report with data on greenhouse gas emissions, GHG intensity, and water use. SHARE has provided feedback on key indicators and we expect that the report will be published early in 2016.

In the energy sector, SHARE’s engagements focused on addressing climate risks in business planning. Husky Energy began a company-wide carbon risk assessment in 2015 and is incorporating carbon risk into its business projection models. SHARE urged Teck Resources to shelve plans for its Frontier oil sands project in 2015, which alone would have doubled the company’s carbon emissions, exacerbated conflict with nearby First Nations, and increased already-high debt levels. Citing financial concerns, the company has now postponed the project.

Proxy Voting and Climate Risk

Companies face growing pressure to report on their exposure to material risks related to their greenhouse gas emissions and on how they plan to reduce those emissions. SHARE has been active in voting to support these proposals. For example, SHARE voted for a shareholder proposal filed with Royal Dutch Shell by “Aiming for A”, a coalition of 52 institutional investors. The proposal asked Shell to expand its annual reports to include information related to climate change, including how the company manages its greenhouse gas emissions, its public policy positions on climate change, and the inclusion of climate-change-related performance goals in its executives’ incentive bonus plans. Shell agreed to adopt the proposal before its annual shareholders’ meeting. SHARE will be monitoring to see how Shell implements this proposal in 2016.

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