Suncor-oilsands

How do you make oil investments attractive in a climate crisis? Hire a pension executive

Lisa Baiton, the new head of the Canadian Association of Petroleum Producers, wants to sell Canada as an ethical landing pad for global capital

At the end of June, Lisa Baiton took the stage for her first public speech in her new role as president and CEO of the Canadian Association of Petroleum Producers.

Baiton’s message to political and industry figures at a Calgary conference, organized by lobbyist group New West Public Affairs, was at once familiar and new. 

Canadian oil was still the most ethically produced, according to Baiton, but now it was seeing a “shift from survival to hope” as the Alberta-based energy giants swelled from the returns of high prices after almost a decade of leaner years. 

The calls for more support for a struggling industry were gone, replaced with the pitch for more investment in an oilpatch she says could fill a void left by Russia and help wean the world off more ethically questionable barrels.

“In just one year, Canada’s oil and gas sector has gone from an industry facing its own crisis, to one positioned to help solve a global crisis as a provider of some of the world’s most responsibly-produced energy,” Baiton said. 

To get there, however, will require capital, she said.

Coming directly from the Canada Pension Plan Investment Board where she was the head of global public affairs, that sort of sales pitch will come easily to Baiton as she positions the association to go after growth after years of industry contraction. But the pitch will face enormous challenges from a public increasingly wary of the impacts of the climate crisis, and an investment ecosystem — pensions among them — looking at ways financial heft can shift away from fossil fuels that drive that crisis.

Lisa Baiton, the president and CEO of CAPP
Lisa Baiton, the new president and CEO of the Canadian Association of Petroleum Producers, came to the industry group after more than a decade as an executive at the Canada Pension Plan Investment Board. Photo: Supplied by CAPP

CAPP shifts its messaging

The Canadian Association of Petroleum Producers declined a request to interview Baiton about her priorities going forward, instead pointing to that June speech. 

The speech demonstrates a notable shift for the industry association after pleading for life support — and reduced regulations — over the pandemic years and price downturns of the past eight years.

As oil continues to hover around $100 per barrel and natural gas sits near five-year highs, Baiton’s own association estimates investment in Canadian oil and gas will soar 22 per cent this year, reaching $32.8 billion. 

But the Canadian Association of Petroleum Producers figures also show another trend: Canada is losing its share of global investments, down to six per cent from a high of 10 per cent in 2014.

That drop could hurt Baiton’s ambitions for Canada to be a more significant global player.

The oilpatch has been busy using some of its windfall over the past year to buy back shares, pay down debt and provide dividends to shareholders, but also to expand and improve operations and look for ways to reduce emissions intensity.

Reducing those intensities — how much is emitted per barrel of oil produced even if overall emissions rise from increased production — is a key component of the message Baiton message delivered to that conference crowd in June and could be an important factor in trying to attract investment as pressure mounts to move money away from fossil fuels. 

Some of the pressure comes from a world Baiton knows well — public pensions.

CPP and Caisse take vastly different investment approaches

Baiton’s efforts to highlight what she says are the achievements of energy companies, such as reducing their emissions intensities and investing in new technologies that could be exported across the world, is a good fit with her former employer — despite the fact emissions intensities rose 10 per cent between 1990 and 2019, largely due to a reliance on high-emitting oilsands.

The Canada Pension Plan Investment Board has been vocal about its philosophy when it comes to investments in fossil fuels. But its ongoing belief in fossil fuel investments isn’t without caveats and a reduction in overall interest.

“High-emitting companies that successfully navigate the economy-wide evolution to a low-carbon future will preserve and deliver embedded value for patient long-term investors like CPP Investments,” said Deb Orida, global head of real assets and chief sustainability officer, in a news release from December 2021. 

“This new investment approach complements the fund’s ongoing commitment to investing in companies that have the potential to develop innovative climate technologies around the world and furthers our existing capabilities in technologies that enable the energy evolution.”

Frank Switzer, the managing director of investor relations at  CPP Investments, pointed to that release in response to a question from The Narwhal about the fund’s policy on fossil fuel investments, indicating CPP’s desire to guide companies to work toward decarbonization by having a seat at the table and investing in things like renewable energy. 

The pension fund, which invests all those dollars that come off Canadian paycheques outside Qué​​bec, is worth over half a trillion dollars, making it the largest pension fund in the country. 

The dollars invested in fossil fuel producers is up, according to Switzer, rising from $14.52 billion in 2017 to $21.72 billion in 2022, but as a share of the fund’s total it’s down from 4.58 per cent in 2017 to 4.03 per cent in 2002.

The fund’s interest in renewable energy producers has shot up from 0.01 per cent in 2017 to 1.91 per cent in 2022 — a $10 billion jump.

Switzer declined to comment on whether the pension fund considers dire warnings from organizations including the International Energy Agency about the considerable risk for stranded oil and gas assets when making investment decisions, or what steps are being taken to mitigate those potential losses. 

Selling the green bona fides of the Canadian oil and gas sector could be an appealing pitch to the pension and to financial institutions, including the country’s big banks and their evolving environmental, social and governance mandates known as ESG. 

Of Canada’s big five banks, three increased investments in fossil fuels over 2019 (before the pandemic slowed the industry and investment tapered in 2020), while Bank of Montreal and TD both reduced their investments, according to a yearly report on banks and climate change. 

But other big money players will be harder, or impossible, to win over. 

The second largest pension fund in the country is the Caisse de dépôt et placement du Québec, the CPP Investments equivalent for Canadians living in that province. 

It takes a different approach to fossil fuel producers, pledging in 2021 to eliminate its investments by the end of this year. In response to questions from The Narwhal, the fund said it would not reconsider its pledge despite current prices and geopolitical instability. 

The Caisse is valued at $420 billion.

The pension risks of stranded oil and gas assets

Those two investment strategies by the two largest pension funds represent the dynamic at play when investment, climate change and public interest collide. Baiton and the Canadian Association of Petroleum Producers will have to try and play that dynamic to their own benefit. 

A recent paper co-authored by Gregor Semieniuk, a professor of economics at the University of Massachusetts and researcher at the school’s Political Economy Research Institute, traces the possible financial impact on oil and gas companies and investors as climate policies take hold across the world. 

The authors calculated US$1.4 trillion in oil and gas assets could be stranded if governments follow through on their reduction pledges.

The greatest impact, according to the analysis, is to individual private investors, but those losses pass through a complex network of owners and investors, including pension funds. 

“All of these companies, they don’t make up the whole economy so it’s not like we’re going to be poor because of that,” Semieniuk says in an interview with The Narwhal. “But if you happen to be one of the few thousand pensioners who are in a defined contribution pension scheme that is not smart enough to divest from this early enough… That’s one problem.”

The other, and perhaps more significant issue, according to Semieniuk, are the vested interests at play when hundreds of billions of dollars are on the line and what that does for motivated action on climate change. 

The paper he co-authored also argues the influence of those who stand to lose the most in wealthy countries could also result in a bailout from governments for any losses.  

This image shows the Sturgeon refinery in Alberta.
The Sturgeon refinery complex near Edmonton feeds captured carbon into the Alberta Carbon Trunk Line, which whisks it hundreds of kilometres south where it’s used to force oil out of old wells. The industry is eager to sell itself as a greener alternative in the chase for global capital. Photo: Alberta Carbon Trunk Line

“The upside is that these people have a lot of influence over where this is going. They could also responsibly manage these investments,” he says.

While Semieniuk cautiously sees an upside to investors using their influence to shift fossil fuel companies in a greener direction, Adam Scott, the director of Shift: Action for Pension Wealth and Planet Health, does not. He says the oil and gas sector has been a cash cow for the country’s financial system for years. 

“If they truly understood climate science, they would be much more honest about what needs to happen now, which is to flow capital out of that sector and into solutions as quickly as possible,” he says of the Canada Pension Plan.

Shift has tracked the entanglements between the country’s pension funds and fossil fuel companies and Scott says it raises serious concerns about the impartiality of the funds when board directors have interests in the financial health of oil and gas. 

“If you’re a pension fund you’re supposed to be a long-term investor, and so they need to be thinking ‘okay, will this asset hold any value in 10 years?’ ” Scott says. 

“At the same time, that company, that asset, is actually hurting people around the world. It’s causing real climate impact. And it’s actually harming the people whose pensions you’re saving for.”

He views the appointment of Baiton to head the industry’s main lobby group as just another link in the chain that binds fossil fuels to the country’s financial sector. 

But, Scott says it also shows the oil and gas industry is serious about trying to sell itself as a greener alternative as investors increasingly take ESG promises seriously and turn away from companies and industries that can’t or won’t improve.

He points to pledges for fossil fuel divestment by the Dutch pension fund ABP and the Caisse de dépôt in Québec as examples of what his organization wants to see and how it’s realistic. He says engagement through ownership is one thing, but it needs to be heading toward rapid changes, otherwise it is a waste of time. 

“If one of those companies decides they want to become a renewable energy company, then great, okay, that’ll work,” he says. “But short of that they can’t continue digging up and exporting fossil fuels indefinitely. That’s not a credible transition pathway.”

The CAPP connection

The Canadian Association of Petroleum Producers won’t be marching into the Canada Pension Plan headquarters and pitching them on investments — that’s not the way investment decisions are made. 

But they won’t necessarily be strangers either.

The fund does engage with stakeholders, and that can include organizations like the one Baiton now heads. 

Should those paths cross, it’s clear Baiton will bring a message that combines the ethical oil claims of the Canadian oilpatch, alongside claims that current geopolitical instability is not some short-term problem. 

“As capital leaves the energy market in Russia and potentially other authoritarian regimes, Canada can proudly offer a safe landing for that investment,” she said in the June speech.

“We can drive down global [greenhouse gas] emissions, provide a safe and responsible source of energy to the world and enhance the geopolitical influence of Canada as well as our global allies in Europe, the UK and even the United States.”

Whether that message can penetrate an increasingly climate-skittish financial sector even as prices soar remains to be seen. 

“They’re going to try to come in, they’re going to try to tell a different story about the oil and gas industry, and that’s not the problem,” Scott says. 

“They don’t have a problem with their communications, they have a problem with their pollution, and their inability to thrive and in a zero-emissions world. So it’s quite interesting to see what happens next.”

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Investigating stories others aren’t. Diving deep to find solutions to the climate crisis. Sending journalists to report from remote locations for days and sometimes weeks on end. These are the core tenets of what we do here at The Narwhal. It’s also the kind of work that takes time and resources to pull off.

That might sound obvious, but it’s far from reality in many shrinking and cash-strapped Canadian newsrooms. So what’s The Narwhal’s secret sauce? Thousands of members like John who support our non-profit, ad-free journalism by giving whatever they can afford each month (or year).

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We hear it time and time again:
“These are the stories that need to be told and you are some of the only ones telling them,” John, a new member of The Narwhal, wrote in to say.

Investigating stories others aren’t. Diving deep to find solutions to the climate crisis. Sending journalists to report from remote locations for days and sometimes weeks on end. These are the core tenets of what we do here at The Narwhal. It’s also the kind of work that takes time and resources to pull off.

That might sound obvious, but it’s far from reality in many shrinking and cash-strapped Canadian newsrooms. So what’s The Narwhal’s secret sauce? Thousands of members like John who support our non-profit, ad-free journalism by giving whatever they can afford each month (or year).

But here’s the thing: just two per cent of The Narwhal’s readers step up to keep our stories free for all to read. Will you join the two per cent and become a member of The Narwhal today?

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