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An inconvenient portfolio

Those mutual funds in your RRSPs aren't doing much good for the environment

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Humanity's impact on the planet is hard to ignore these days. Some may brush aside Sandy's horrific trail of destruction or record-breaking heat this past summer as natural blips in the weather cycle

But now even the flagship magazine for the most respected business news source in the world for the investment crowd -- Bloomberg Businessweek -- reflects a major shift in perception.

The magazine's post-Sandy issue recently featured the headline 'It's Global Warming, Stupid' on its cover.

If it sounds like a deliberate affront to those skeptical that climate change is real, that's indeed the point.

Of course, it's one thing to acknowledge climate change is occurring. It's quite another to do something about it.

Even people who understand its dire implications often find it hard to align their hearts and minds with their actions. And this is especially true when it comes to an investment portfolio.

The chances are if you own a mutual fund that invests in the Canadian stock market, you've got a stake in an oil, gas or mining company.

It's an unavoidable investment reality, says Bob Walker, vice-president of environment, social and governance services for Ethical Funds, one of Canada's largest socially responsible investment firms, which manages more than $4 billion in assets.

"With large cap companies in Canada, about half are in oil and gas and mining," he says. "A quarter or more would be the banks that invest in oil and gas and mining."

Of all these sectors, the oil sands often gets the most attention from environmentalists because of its their water and energy consumption, carbon footprint and impact on the landscape.

Walker says investors often ask him why Ethical Funds invests in the oil sands.

"And my response is -- not to be too obnoxious -- to ask them how they got here."

No matter how environmentally friendly we might want to become, the dirty reality is we're a civilization built on fossil fuels.

Everything, even green sustainable sources of energy, requires energy and in most cases, the source is fossil fuels -- natural gas, oil and coal, says Dr. Nader Mahinpey, an associate professor at the University of Calgary's Schulich School of Engineering.

Mahinpey is a chemical engineer researching greenhouse gas control technologies and biomass energy sources -- an abundant and environmentally friendly energy source. But the professor at the school's Energy and Environment Research Group says sustainable energy sources -- while plentiful -- remain only a small percentage of the overall sources of power on the planet.

"Fossil fuel is the No. 1 energy source," he says.

That's unlikely to change in the near future. The world consumes about 16 terawatts of power annually and more than 80 per cent of it comes from oil, gas and coal.

Energy consumption is increasing with population growth and as the developing world becomes more industrialized. Even if they weren't bad for the planet, fossil fuels alone cannot meet future supply.

"We will need all these sources of energy to meet demand," Mahinpey says. In the future, renewable sources -- wind, geothermal and biomass -- will make up a larger percentage of the supply than today, which is less than 10 per cent combined. Yet, it's not technology that limits renewables' development, Mahinpey says.

It's the cost. Companies -- including oilsands producers -- have invested in renewable energy or clean technologies such as carbon-capture processes to reduce their carbon footprint, but they don't have much economic incentive to invest heavily, says Jennifer Grant with the Pembina Institute, an environmental think-tank and consulting non-profit.

In Alberta, for example, large emitters are taxed on carbon emissions, including oilsands producers.

"We have a price on carbon in Alberta that is $15 a tonne that applies only to large industrial emitters."

But Grant says the price is too low and doesn't encourage widespread carbon-capture development by large-scale polluters.

The Alberta government, she says, indicates in its greenhouse gas reduction plan that carbon capture and storage costs $280 a tonne, so big polluters have little economic motivation to invest heavily in reducing their carbon footprint.

But oilsands producers -- one of the leading emitters in Alberta -- are constantly improving their processes, says Travis Davies with the Canadian Association of Petroleum Producers (CAPP). Since 1990, the industry has reduced its greenhouse gas emissions by more than 26 per cent, and the oilsands only make up 6.5 per cent of all emissions in Canada.

Davies says technology is key to reducing emissions, including the development of renewable energy to help extract the oil.

"Some oilsands companies -- Suncor, for example -- are among the largest investors in renewable-energy technology in Canada."

Yet, even with advances in technology, Grant says development of the resource is going at too fast a pace -- too quickly for Canada to meet its climate change obligations.

"We have a national target in Canada to reduce greenhouse gas emissions by 17 per cent below 2005 levels by 2020."

But the Canada Emission Trends Report, an Environment Canada publication, has forecast a 73-million-tonne increase between now and 2020, so it's going to be very hard for us to reach our reduction goal, says Grant. Furthermore, much of that growth will come from oilsands production.

Today, the oilsands produce about 1.7 million barrels a day, most of which is exported to the U.S., but production could reach as much as nine million barrels a day based on existing, approved and announced projects, says Grant.

Rapid expansion is major concern for investors, too, including SRI funds such as Ethical Funds and large institutional investors such as public pension funds. Yet, instead of divesting in the oilsands and other large-scale emitting industries, they engage them in dialogue to encourage greater social and environmental responsibility.

"Our role as responsible investment managers is to ensure companies can provide a rate of return to investors," Walker says, adding Ethical Funds began meeting with oilsands producers in 2007. "But we also want to provide a rate of return to other stakeholders -- the companies' employees, their customers, the communities where they operate, their suppliers and future generations."

Many firms are receptive, but change through better technology will take time. Until then, environmentally conscious investors have to reconcile their beliefs with reality. To save for retirement, they're making a Faustian bargain. They invest in companies that provide them with both an indispensable product -- energy -- and, most importantly, a return on their money. At the same time, they are investing in companies making a product that threatens the very future they are saving up for in the first place.

"We are all complicit in this energy system and we're all burning oil, gas and coal every day in this global economy," Walker says. "This is the challenge that we share."

giganticsmile@gmail.com

Quick facts

 

Oilsands' impact isn't just on the climate: Oilsands operations are energy-intensive, but they also use a lot of fresh water. "The actual freshwater consumption for 2011 was around 170 million cubic metres for the oilsands, and that's equivalent to the residential water use of about 1.7 million Canadians," says Jennifer Grant with the Pembina Institute. New technology has led to a greater increase in recycling waste water or using other sources, but the majority still comes from the Athabasca River basin. And it doesn't get returned. "They're not releasing it because they can't. It's too toxic, so it sits in tailings ponds and some of it gets reused in the extraction process." Environmental organizations and other stakeholders concerned about water usage are urging government to increase regulations regarding water usage from the river, limiting it to times when water levels are high in the spring and summer, and restricting access in the winter when levels are low, she says. "What we've asked is 'Can we not implement an ecosystem-based flow, which is an absolute shut-off for water withdrawals during low-flow periods only -- rare events -- so we can protect the river?' "

 

Less water, more energy: You might have seen a Cenovus Energy TV ad about a new way of developing the oilsands, which has less direct impact on the land. It's called in situ bitumen extraction, and it doesn't involve open-pit mining and tailings ponds. It also uses less water, Grant says. In situ producers employ a technique called SAGD -- steam-assisted gravity drainage -- which uses steam to heat up the bitumen deep under the ground into a liquid so it can be pumped out of the ground. It may not be as ugly as mining, Grant says, but it is 21/2 times more greenhouse gas-intensive.

 

Big investors banding together for change: A group of ethical mutual fund firms, pension funds and other large international investors recently raised concerns in a letter addressed to oilsands producers about the rapid pace of development and impact on the environment and communities. Boston-based Ceres -- a coalition of investment and environmental groups -- produced the letter, which was approved by 49 different large investors, including funds controlled by the United Church of Canada and the Canadian Labour Congress. The letter calls for greater investment in technologies to reduce water usage, land impact and greenhouse gas emission, arguing that failure to address these issues could impact profitability because of legal action taken by affected First Nations and other communities and tighter greenhouse gas regulations in the U.S.

-- The Canadian Press

 

Global energy consumption by source:

Oil: 37 per cent

Coal: 25 per cent

Natural gas: 23 per cent

Nuclear: six per cent

Biomass: four per cent

Hydroelectric: three per cent

Solar, geothermal, wind and biofuels: two per cent

 

What is biomass? Biomass energy comes primarily from plant waste. It can be burned to produce electricity in turbines or chemically converted into biofuels. It's considered environmentally friendly from a greenhouse gas perspective because it's carbon-neutral, say Dr. Nader Mahinpey, a chemical engineer researching its uses at the University of Calgary. Biomass energy does release carbon dioxide into the atmosphere, but it's only returning gas that was absorbed as the plants grew. Some argue, however, that it's not truly carbon-neutral because of the amount of energy required to harvest, gather and convert the agricultural, yard and forestry waste into a usable energy.

Republished from the Winnipeg Free Press print edition November 10, 2012 B10

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