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Business Commentary If Jason Kenney won’t lead on climate, investors and industry should

Kevin Thomas is executive director and Laura Gosset is a senior analyst at Canada’s Shareholder Association for Research and Education (SHARE).

A flare stack lights the sky from the Imperial Oil refinery in Edmonton on Dec. 28, 2018.

Jason Franson/The Canadian Press

The election of Jason Kenney in Alberta should give both companies and investors reason to reassess our current efforts to address climate-change risks in Canada. Mr. Kenney’s hostility to climate-related regulations and lack of any discernible climate-change plan suggests that leadership on the issue won’t be forthcoming from his government any time soon.

This will leave Canadian industry and investors to bear the costs of that inaction, unless we step up and show the leadership governments seem to be lacking.

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A recent government-backed scientific report warns that Canada’s climate is warming at twice the rate of the global average. If we don’t curb our greenhouse gas emissions, we face more heat waves, increasing risks of drought, wildfires and loss of glacier ice that could result in water shortages in summer. At the same time, in some areas increased average precipitation and more intense rainfalls could result in more floods.

The report illustrates the enormous social and financial costs of inaction, and our window of opportunity to act is closing fast.

As institutional investors with portfolios that cover the full range of Canadian economic activity, our members understand the importance of emissions reductions to maintain sustainable long-term returns and many have been acting to measure and reduce the climate impact of their investment portfolios.

Canada’s oil and gas sector, our highest emitting sector, has also been taking steps to reduce its emissions levels over time.

Yet, the federal Environmental Commissioner recently warned that Canada is not doing enough to meet its emissions-reduction target of 30 per cent by 2030 from 2005 levels under the Paris Agreement.

Indeed, the latest federal greenhouse gas projections indicate a 19-per-cent reduction at best.

The ambition level amongst companies and investors is still insufficient if Canada is going to meet the Paris Agreement targets, which also limit the average temperature increase to no more than 1.5 degrees.

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For example, very few oil and gas companies have measurable methane emissions-reduction targets. Methane is a particularly potent greenhouse gas that has more than 70 times more global-warming potential than carbon dioxide in the short term. Almost half of all methane emissions in Canada come from the oil and gas sector’s upstream activities, and that figure is likely much higher due to gross inaccuracies in measurement that have been detected in recent peer-reviewed research.

Reducing methane emissions from the oil and gas sector is a key measure under Canada’s climate plan, and our ability to meet Canada’s commitment under the Paris Agreement depends on reductions from this sector.

Moreover, there is a clear business case to reduce methane emissions because it is a marketable commodity and efforts to reduce fugitive emissions increase operational efficiency.

Yet actions and commitments from Canadian companies have lagged behind their international peers.

In part, this is because lengthy policy debates delayed methane-related rule-making at the federal and provincial levels, and companies were awaiting clarity on the regulatory landscape. But now that both federal and provincial governments have finally issued targets for industry-wide methane reductions, those targets have come up short.

With a new tug-of-war over climate policy brewing between the new Kenney government and Ottawa, real ambition on emissions reduction is unlikely.

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That’s why we need new leadership from industry to put us on track to meeting the Paris Agreement, and to keep global warming within a safe limit.

We need ambitious targets.

Some international corporations, pushed by their shareholders, have stepped up to the plate. Italian company ENI set a target of 80-per-cent reduction for fugitive emissions from its oil and gas assets by 2025. Shell set a target to maintain methane emissions intensity below 0.2 per cent by 2025. BP made similar commitments. Chevron pledged to reduce methane and flaring intensity by up to 30 per cent by 2023 and plans to link this to executive compensation.

So, on behalf of our growing group of Canadian institutional shareholders, we will be attending corporate annual meetings this spring calling on Canada’s top natural-gas producers to step up and adopt those same kind of ambitious short- and long-term methane-reduction targets, and to report annually on progress toward these targets.

We’ll be asking the largest emitters to neither wait for governments to act, nor perform at the lowest level required by regulations. We’ll be asking for leadership.

Because without our industry’s leadership, supported by investors, we may get the kind of “worst-case scenario” Canada predicted by Canadian climate scientists. With clear, measurable commitments to real reductions, however, we can get emissions levels where they need to go before it’s too late.

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