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Backgrounder on the churches’ engagement with Imperial Oil
Over the past several years, Canadian church representatives have been in dialogue with major Canadian oil companies on the issue of climate change, a prime focus for ecumenical work both within Canada and internationally, as it is an issue with profound ethical implications. The change in our global climate is due in large part to the polluting emissions of rich industrialized countries. The consequences, however, will be suffered disproportionately by poorer developing nations and by future generations. It is, therefore, a matter of international and inter-generational justice. Originally through the Taskforce on the Churches and Corporate Responsibility, and more recently through KAIROS – Canadian Ecumenical Justice Initiatives, church shareholders have raised questions regarding various companies’ policy positions on climate change. In particular, questions have been asked about the actions being taken to reduce greenhouse gas emissions, what steps are being taken to move beyond exclusive reliance on fossil fuels, and what role the various companies see for themselves in broader public discussions. These questions have sometimes been asked in the boardroom with senior management, and sometimes from the floor at annual general meetings of shareholders. The filing of a shareholder proposal, also known as a shareholder resolution, is another strategy that has been employed by the churches to raise awareness of and seek change to a particular corporate practice. In the dialogues that church representatives have held with a number of companies, Imperial Oil Ltd. has distinguished itself by consistently attempting to minimize the concerns raised and actively opposing the expressed views of shareholders regarding its policies and practices on climate change management. In particular, Imperial Oil has both questioned the science of climate change and actively lobbied the federal government not to ratify the Kyoto Protocol.
Imperial Oil Ltd. is Canada’s largest integrated petroleum company, and is 69.6% owned by ExxonMobil, the U.S. multinational that is the world’s largest oil company. In 2001, Imperial Oil’s total revenues were $17,245 million, its net earnings were $1,244 million and it had 6,740 employees. Given these numbers, it is clear that Imperial Oil is a major player in the Canadian economy. Imperial Oil is also an influential player in the Canadian Association of Petroleum Producers (CAPP) which led a strong campaign against ratification of the Kyoto Protocol. Even though other member companies, such as Shell and Suncor, were much more supportive of ratification of the Kyoto Protocol, the Association reflected Imperial’s position. Both Imperial Oil and CAPP advised the federal government against ratifying the protocol. Under the Kyoto Protocol, Canada committed to reducing its greenhouse gas emissions by 6% of 1990 levels by the year 2012.
There is increasing concern among governments, business leaders, and institutional investors that climate change has the potential to adversely impact social development, economic growth, corporate cost structures, and stock market valuations. As producers and retailers of fossil fuels, these developments pose significant potential financial liabilities for integrated oil and gas companies, including: · Increasing regulatory pressure to reduce operational emissions of greenhouse gas emissions; · Potential long term disruption to core company business as growth in fossil fuel usage is dampened by government regulatory action to curb GHG emissions; · A market shift away from GHG-intensive fuels; · Loss of competitive position due to the development and distribution of cleaner and/or more efficient fuel substitutes; · Potential litigation due to failure to disclose potential financial risks from global warming; · Reputational and brand damage if companies are identified
as laggards on the issue of GHG reduction. In March 2003, the Carbon Disclosure Project, sponsored by 35 institutional investors with assets in excess of US$4.5 trillion, released a report entitled “Carbon Finance and the Global Equity Markets". This report analyzes the elements of "carbon risk" in different industrial sectors and outlines steps companies are taking to address climate change. The study supports the assertion that this risk is material, and that it varies between companies. For more detail, please see the following reports: “Changing Oil: Emerging Environmental Risks and Shareholder
Value in the Oil and Gas Industry”: World Resources Institute,
2002 (accessed April 15, 2003 at http://pdf.wri.org/changingoil_full.pdf
) “Climate Change – A Risk Management Challenge for Institutional
Investors” by Mark Mansley and Andrew Dlugolecki for the Universities
Superannuation Scheme (UK), 2001 “Carbon Finance and the Global Equity Markets", Carbon
Disclosure Project: Innovest Strategic Value Advisors. (accessed
April 15, 2003 at www.innovestgroup.com/pdfs/CDP_Report.pdf
“Value at Risk: Climate Change and the Future of Governance,”
CERES Sustainable Governance Project Report prepared by Innovest
Strategic Value Advisors, 2002 (accessed April 15, 2003 at www.ceres.org/pdf/climate.pdf
Shareholder proposals can be effective tools for gaining the attention of corporate management. At last year’s annual general meeting of ExxonMobil, a shareholder proposal which called on the company to adopt a plan for renewable energy resources garnered an impressive 20.3% of the vote, more than double the 8.9% vote that the same resolution achieved in 2001. Instrumental in this increase was significant religious shareholder activism. Given that ExxonMobil is the parent company of Imperial Oil, this increase in shareholder activism on climate change issues in the United States bodes well for a successful proposal in Canada.
The rules of the Canada Business Corporations Act (CBCA), which govern the filing of shareholder proposals, were changed in November 2001. In previous years, companies could reject the circulation of shareholder proposals to shareholders for a wide range of reasons. These restrictions made it very difficult for shareholders to raise legitimate issues with both the company and other shareholders. In 2001, provisions of the CBCA were changed so that it is now
much more difficult for companies to refuse to circulate shareholder
proposals. By law, both registered and beneficial shareholders of
a corporation, who meet certain eligibility criteria, are entitled
to submit a resolution to a company, have it circulated to other
shareholders, and have it voted on at the company’s annual
general meeting. While there are certain grounds upon which a company
may refuse to circulate the proposal, these grounds are limited
under the changed legislation. As a result there has been a significant
increase in the number of shareholder proposals filed with Canadian
companies in 2002 and 2003.
A similar proposal on embedded climate risk has been filed with Petro-Canada by Real Assets Investment Management Inc. and Ethical Funds Inc. This proposal will be voted on at Petro-Canada’s annual shareholder meeting on April 29, 2003. In addition to Imperial Oil and Petro-Canada, shareholder proposals had also been filed with EnCana Corporation and Nexen. Ultimately, each of these proposals were withdrawn by the filers given the positive response that the filers received from the companies.
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