Canada is the United States' biggest oil supplier, and most of the oil the U.S. gets from Canada in the future is likely to come from oil sands deposits in the province of Alberta. Almost every major Canadian and international oil company has a stake there. But the environmental and social impacts from extracting oil from the area are enormous, and how companies deal with these risks could affect their future returns. A new report rates 13 publicly traded companies with Canada oil sands projects based on how they are handling such risks. Only two scored average or better in all categories.
They were Suncor and Petro-Canada, which merged earlier this year. The report, Lines in the Sand: Oil Sands Sector Benchmarking, was done by Northwest & Ethical Investments, which has $4.5 billion in assets under management and is Canada's largest provider of socially responsible mutual funds. Northwest did its research in summer 2009 and was supported in its efforts by Canada's National Union of Public and General Employees and Ceres, a coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges. Some companies appear better placed than others to mitigate the risks. "It's not a uniform picture. We need to encourage the leaders, and push the laggards to catch up," says Bob Walker, Northwest's vice president of sustainability.
Northwest rated the firms based on their risk in six areas: disclosure, aboriginal engagement, climate change and air pollution, water, land use and strategy for change. Overall, oil and gas companies operating in Alberta's oil sands are doing a poor job disclosing to investors on material environmental, social and governance (ESG) issues that could threaten the companies' long-term value, the report says.
"Investors are concerned that many companies seem to be moving ahead without a well-articulated plan to manage the environmental and social risks associated with the oil sands," says Mindy S. Lubber, president of Ceres and director of the $8 trillion Investor Network on Climate Risk (INCR). "Given the extra-long investment horizons of oil sands projects, it is especially important for companies to invest in solutions to these challenges upfront."
To read the report, click here.