Canadian oil giants focus on climate change and diversity as they compete for investment

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For executives at Husky Energy’s Calgary headquarters, there’s a new flaw in the way their wages are calculated: climate change.This is the first year that the company has linked greenhouse gas emissions with offsetting under a new plan that also includes a target to reduce carbon emissions by 25% over the next five years. and a similar gender diversity goal for management.

The measures come at a time when oil and gas companies around the world are competing for limited investments, and these investors are increasingly focusing on environmental, social and governance (ESG) issues.

For the tar sands in particular, its image is also at stake. The sector is making improvements to reduce its greenhouse gas intensity, but it is still known to produce a high carbon source of oil. This is why pension funds, insurers and investment companies regularly blacklist or reduce their stake in the Alberta oil sands.

Industry players say these divestment decisions have very little financial impact on the industry, but damage its reputation.

“It’s important that we move and show leadership, but it’s also important that all of Canadian industry show leadership, because we’re in a world where we fight for capital, and we need to show the world that we know how to manage these risks – not just as Husky, but as an industry, ”said Janet Annesley, senior vice president of corporate affairs and human resources at Husky.

WATCH | Janet Annesley of Husky on meeting GHG and diversity goals:

The company has tested its 2025 goal of reducing emissions by 25% 0:49

The portion of an executive’s compensation tied to climate goals will vary depending on their responsibilities in achieving the goals, Annesley said.

There are other factors that determine an executive’s compensation, such as security.

In 2018, for example, Husky executive pay was slashed following several issues, including an oil spill in an offshore operation in Newfoundland, a reprimand for a close call with an iceberg and a fire in a Wisconsin refinery.

Conversely, last year the company recorded its best performance in terms of safety and compensation increased accordingly.

“As they say in business, what gets measured gets done,” Annesley said of the new climate goals. “We have identified the key executives and we hold them accountable through our performance-based compensation system to achieve these goals.

One of the country’s largest oil and gas producers, Calgary-based Canadian Natural Resources, began including carbon emissions in its executive compensation scorecard in 2013.

New gender target

Tying environmental goals to compensation isn’t a precedent, but it places Husky among the top companies in the oil industry, said Michelle Tan, a partner at Hugessen Consulting, which advises companies on executive compensation.

According to her, Husky’s goal of gender diversity of 25% of women in leadership positions is unique.

“In my memory, this is the first time that I have seen an oil and gas company in Canada set a goal of diversity,” said Tan, who added that this was done more often in other industries like the technological sector.

WATCH | Michelle Tan on the rarity of a diversity target in the oil field:

Tan is a partner of Hugessen Consulting, which advises companies on executive compensation. 0:50

Canadian companies are catching up with their European counterparts on most ESG issues, as most of the major European oil companies have already made major decisions on carbon reduction and have linked environmental performance to offsetting for several years.

Royal Dutch Shell, an Anglo-Dutch oil and gas company, and Spain’s Repsol, for example, both base around 10% of an executive’s variable compensation on carbon emissions performance.

Room for improvement

Canadian oil and gas companies must go beyond improving environmental performance, said Olaf Weber, professor in the School of Environment, Enterprise and Development at the University of Waterloo, Ont., Who studies sustainable finance .

“It’s too little, too late,” Weber said, explaining how the industry should have taken these types of environmental measures many years ago to reduce emissions.

“Rather than having offsets tied to reducing carbon emissions, the question is, can you tie it to what new business strategies might be? He said, like investing in renewable energy.

WATCH | Olaf Weber explains why investors care about climate change:

The University of Waterloo professor says investors have financial concerns about climate change. 1:05

Other experts see it differently, such as Meghan Harris-Ngae, who leads Ernst and Young’s Climate Change and Sustainability Services practice for Western Canada.

The oil and gas industry has worked on environmental initiatives for many years, she said, but only now is it starting to be recognized for what it has done.

“One of the things I’ve found is that a lot of the investments that have been made over the years are not necessarily recognized in the financial markets, and a lot of that innovation is high. capital intensive, ”said Harris-Ngae, who is based in Calgary.

For example, Imperial Oil and other energy companies have developed new technology to use solvents in oil sands production as a way to reduce costs and reduce greenhouse gas emissions.

Oil sands companies are not just looking to reduce their emissions; they are also trying to reduce water use, impact on land and tailings ponds.

Acting on ESG is the right thing to do, MEG Energy chief executive Derek Evans told a virtual energy conference last month. It’s also about ensuring that oil sands companies like hers have a future in a carbon-limited world.

“We have a 60 year lifespan and to make sure these assets aren’t stranded we need to continue to demonstrate that we are a leader in all aspects of ESG and that we don’t have our heads stuck. . in the sand, in this regard. ”

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