Investors Increasingly Concerned With Climate Change Risks
Would a BP style disasterhappen to a company you invest in? That’s a question increasingly
asked by Canadian investors.
A range of
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proposals and resolutions has been filed in
the past two years by shareholders to management of Canadian
companies in various industries. What do shareholders want? How
does management respond? What are the trends? Let’s take a
look.
While disasters in BP scale are unlikely to happen to other
companies-BP’s investors have lost a staggering $70 billion since
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the oil spill-investors are increasingly concerned
how their investment may be affected by risks related to climate
change, environment, and sustainability.
They want to see that management has evaluated those risks.
Management needs to respond appropriately to keep attracting
capital.
According to
target=”_blank”>guidance document from Chartered
Accountants of Canada, investors want management to:
- have business strategy for climate change in place
- have risk strategy for climate change in place, including
physical risks, regulatory risks, reputational risks, and
litigation risks - measure and disclose past and present greenhouse gas emissions
and anticipate future emissions - disclose financial aspects for all of the above
The Ontario Securities Commission Staff Notice 51-716 (
target=”_blank”>PDF) provides guidance on what
public companies should be disclosing regarding environmental
matters. The notice came after the OSC reviewed a sample of public
companies and found environmental disclosure inadequate.
The OSC reaffirmed that environmental risks are material to
investors and that audit committees have fiduciary responsibility
to review such disclosures while providing oversight of the
underlying risk control framework.
Recent shareholder to management proposals and resolutions
related to climate change, environment, and sustainability issues
have involved Suncor Energy, Encana, Great-West Life, Potash
Corporation, Viterra and Agrium.
Other Canadian companies that shareholders have approached
management on climate change related issues since 2009 include
Canadian Natural Resources, Canadian Oil Sands Trust, Enbridge,
Husky Energy, Intact Financial, Nexen Energy, Petro-Canada,
Brookfield Asset Management, Crombie Real Estate Investment Trust,
RioCan Real Estate Investment Trust, Saputo, Sherritt
International, Talisman Energy, Teck, and Rogers
Communications.
The trend from investors is that sustainability is more than a
moral issue. It is also a financial issue. According to Jennifer
Coulson, Manager of Corporate Engagement at
target=”_blank”>Northwest & Ethical
Investments, “investors are increasingly concerned that
environmental, social, and governance issues are material to the
financial bottom line.”
Since the target=”_blank”>United Nations Environment Program
launched its
target=”_blank”>Principles for Responsible
Investment in 2006, more individual investors are using
the UN framework to team up with other investors to resolve their
common concerns.
When approached, most Canadian companies are very receptive,
according to Coulson. Most CEOs and board of directors are aware
that climate change related risks are potentially large. It is best
to evaluate these risks properly and put appropriate
business strategy in place.
This is good for shareholders relation, good for attracting
investment capital, and good for peace of mind. Afterall, no CEO
wants their company to be the next BP.
Derek Wong is a Toronto based climate change and
sustainability consultant. Formerly with PricewaterhouseCoopers,
Derek holds an Engineering degree from University of Melbourne and
is a CSA America certified greenhouse gas professional.
Source: www.carbon49.com
