Kinder Morgan is providing potential investors with shoddy information, according to a complaint filed with the Alberta Securities Commission by Greenpeace Canada last week.
The formal complaint contends the company’s draft prospectus — a legal document prepared for investors ahead of its massive $1.75 initial public offering (IPO) — failed to properly disclose future Asian oil demand and the financial impacts of climate policy.
It turns out that Kinder Morgan used demand forecasts that assume “business as usual” for oil consumption, which effectively means no serious attempt to keep global warming below two degree celsius.
“There are other demand forecasts that they haven’t used which aren’t as rosy,” says Keith Stewart, head of Greenpeace Canada’s climate and energy campaign. “The International Energy Agency has two other scenarios where governments actually do more to try to meet keeping warming below two degrees. In both of those, demand for oil drops significantly.”
In other words, Kinder Morgan is telling potential investors that it doesn’t expect Canada and the world to try to meet their Paris Agreement targets.
The funny thing is that the 148-page Kinder Morgan document did disclose a number of others risks to investors. Those included government regulations, permits, public opposition, blockades, injunctions, judicial reviews, cost overruns, significant increase in debt and even bad weather.
But climate policies were only mentioned once, almost in passing: “Change in the regulatory environment or governmental policies (including in relation to climate change) may have an impact on the supply of crude oil and other products.”
That’s a serious understatement.
In Suncor’s 2016 climate report concluded the “450 ppm” scenario required to keep temperatures below two degrees of warming would result in a situation in which “new oil sands growth projects are challenged and unlikely to proceed” and “no new export pipelines are built out of the Athabasca Oil Sands region.”
The report was created in the wake of an approved shareholder resolution that called on Suncor to more transparently address the challenges of a low-carbon economy for energy producers.
“What we want to do is have companies have to confront the fact that our business model only works if the world fails to act on climate change,” Stewart says.
“Particularly for long-lived infrastructure like pipelines. If you’re going to spend $7 billion now and you’re planning to recoup that over the next 40 years, you’re banking on the world not reducing oil demand. And that’s increasingly risky.”
— DeSmog Canada (@DeSmogCanada) May 25, 2017
Laura Zizzo — lawyer and CEO of Zizzo Strategy, which specializes in climate risk disclosures and carbon-informed investments — said in an interview with DeSmog Canada that the Greenpeace challenge is the first she’s aware of that involves direct interaction with a securities regulator with respect to climate change in Canada.
But that doesn’t mean it arrived out of nowhere.
“This all comes on the heels of a lot more shareholder and stakeholder activism with respect to securities disclosure and climate risk,” Zizzo says. “There’s lots happening in this space right now generally.”
For instance, there’s the recent vote by BlackRock — the largest asset manager in the world — to require Occidental Petroleum to disclose climate risks.
And Bank of England governor Mark Carney recently launched a task force on climate-related financial disclosures chaired by former New York City mayor Michael Bloomberg.
In December 2016, Carney and Bloomberg wrote in a column for the Guardian: “We believe that financial disclosure is essential to a market-based solution to climate change. A properly functioning market will price in the risks associated with climate change and reward firms that mitigate them. As its impact becomes more commonplace and public policy responses more active, climate change has become a material risk that isn’t properly disclosed.”
In late March, the Canadian Securities Administrators — which includes the Alberta Securities Commission — announced it was conducting a review of climate risk disclosures by public companies.
It’s why Zizzo says the Greenpeace challenge makes sense, noting it’s a legal requirement to disclose material information to investors and “if you’re an oil and gas company, climate-related issues are likely material.”
“I personally think Greenpeace’s claims were valid,” she says.
“The question is: ‘Do we think we’re going to meet the Paris targets? Do we think we’re actually going to do something about climate change?’ Kinder Morgan, in their projections, are kind of saying ‘no.’ They don’t think they will.”
Stewart admits he doesn’t know exactly what’s going to happen next. After all, this is reportedly the first time this has happened in Canada.
In response to e-mailed questions a spokesperson from the Alberta Securities Commission told DeSmog Canada: “We have received Greenpeace’s submission and we will give it the consideration we deem appropriate.”
The regulator could ask Kinder Morgan to effectively resubmit its prospectus with more disclosure, which would be “pretty serious in a Canadian context,” Zizzo says.
Stewart says Kinder Morgan still has to put out a final prospectus before the IPO is marketed (to TD Bank and RBC, before being sold off to large institutional investors) and that Greenpeace will be watching to see what kind of changes are made in the language of that document.
In addition, the formal challenge might increase the chances of a class-action lawsuit from shareholders in the future because Kinder Morgan was advised to disclose risks and they chose not to, or may result in climate risk getting “priced in” and make the project less attractive to investors.
“It’s basically trying to use the discipline of market regulation to work in favour of action on climate change, whereas traditionally it has not,” Stewart concludes.
“This is a way to move things forward by entrenching some of these rules and actually making sure that investing in fossil fuel infrastructure isn’t just a bad thing to do, it’s a money-losing thing to do.”
Kinder Morgan didn’t respond to a request for an interview.
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