Difficult to invest in green energy in Canada without Big Oil

If you thought the divestiture movement was losing steam, Norway's recent announcement shows there still is momentum around the world to stop investing in fossil fuels.

The country has confirmed that its hefty $900-billion government pension fund, considered the largest sovereign wealth fund in the world, will purge some of its fossil fuel stocks.

Many other organizations have made similar moves in past years.

Concordia University in Montreal launched a $5-million fund dedicated to divestment, social and ethical investing. Stanford University in California pledged not to make direct investments in companies whose principal business is coal for energy. The Rockefeller Brothers Fund pledged to reduce investments in coal and the oilsands projects to less than one per cent of its portfolio.

But in Canada, divestiture may not be the best method of promoting renewable energy development.

The reason is that, outside of government, it is the traditional oil and gas companies that are constructing much of the green energy projects in the country, such as wind, hydro and solar.

For instance, the largest wind and hydro projects in Alberta are owned in whole or in part by traditional oil, gas and coal companies.

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Capital Power is an example of a private sector company with a mixed bag of energy projects. It's a leader in renewable energy development and uses fossil fuels too. The Edmonton-based company has more than 20 wind and solar power plants in North America. It also operates a coal mine as well as several coal- and natural gas-fired plants.

"There are campaigners that want Steve Williams, the CEO of Suncor, to be the Koch brothers. And he isn't the Koch brothers, he's been out there in favour of a price on carbon," said Robert Walker, with NEI Investments in Vancouver.

Walker describes the fossil fuel divestment campaign as inapplicable in Canada because the industry operates differently here than elsewhere in the world. It's difficult to invest just in wind or solar energy. He argues that a more effective strategy is to invest in traditional fossil fuel companies and work with them to improve their environmental performance. But he does say their progress is too slow.

"We do have investments in the oil sector. But we have avoided some companies historically that have denied climate change and opposed any rational policy response," said Walker.

That's the approach recommended by former Reform Party leader Preston Manning, speaking at a recent responsible investing conference in Banff. Manning says, in general, industry is shifting its focus from economic development to environmental protection

"I wouldn't apologize for Alberta's natural resource base. We should be proud of what we are endowed with," said Manning.

War on carbon

Divestiture is all about reducing carbon emissions around the globe. While the world needs to reduce greenhouse gases, people still need oil and gas to function. That's why some experts are wary of the divestiture movement, arguing it's not a simple black and white issue.

"It's similar to the war on tobacco," said Todd Hirsch, chief economist with ATB Financial. "Except society won't fall apart without tobacco. Certain individual lives may fall apart, I don't know. But carbon is not the same way. Every person in North America, in some way or another and some more than others for sure, we all depend on hydrocarbons. The economy would essentially collapse, not just Alberta's."

The divest movement has even been described as "intellectually lazy" by University of Calgary business professor Loren Falkenberg.

​Risks of Big Oil

While Hirsch, Manning and Walker all suggest investors try to engage traditional fossil fuel companies, others disagree with the philosophy.

"I fear that if you invest in those companies now, in the hope of supporting green energy, your dollar kind of gets cancelled out by the much larger investments that they are making in the carbon intensive side of energy," said Andrew Logan, director of the oil and gas industry program at Ceres, a non-profit that advocates for sustainable business practices.

He suggests companies such as Shell and BP have not followed through on the robust commitments made to developing renewables.

"A couple of years ago, there were few vehicles for institutional investors, let alone individual companies, but that's beginning to change," said Logan.

Instead of divesting carbon assets from a portfolio, investors can choose to underweigh heavy carbon interests. Some investment firms crunch the numbers and analyze how much direct and indirect carbon emissions companies are producing. Evaluating a company's carbon intensity is not difficult to do, according to Yulia Reuter, senior research analyst with MSCI.

While Canadian oil and gas companies are working to improve their environmental performance, current low oil prices may hinder the process. Money is tight and several companies are bleeding cash. With low commodity prices, alternative energy projects can seem less appetizing for investors. That's exactly what happened with vehicle sales, once prices dropped at the pump. Sales of gas-guzzling SUVs took off.