A small subset of predominantly foreign, corporate owners hold substantial control over Canada’s oil and gas industry, and are unlikely to push for carbon cuts unless mandated to do so, a new study concludes.
That means it’s up to Canadian policy-makers to introduce new rules that compel big investors to actively support the low-carbon transition, say the authors of the study, A voice for change? Capital markets as a key leverage point in Canada’s fossil fuel industry
- Concise headlines. Original content. Timely news and views from a select group of opinion leaders. Special extras.
- Everything you need, nothing you don’t.
- The Weekender: The climate news you need.
“A few large shareholders stand to gain substantially through monetizing the destruction of the world’s climate and will continue to engage with the industry in a manner that contradicts effective climate solutions,” the researchers write. “However, capital can also be used to reshape society if the power is regulated accordingly by financial supervisors.”
So far, the Canadian government has been a “leader and a laggard” in the transition to a low-carbon economy, say the authors. Despite ambitious emissions targets, they maintain, Ottawa continues to allow—and support—oil and gas production and expansion.
“Policy discourse in Canada remains dominated by demand-side solutions like carbon pricing, energy retrofits, and electrification,” they write. But the country also needs supply-side policy to rein in oil and gas production like Environment and Climate Minister Steven Guilbeault’s recently-unveiled plan to phase out “inefficient” oil and gas subsidies.
“Supply-side policies could also slow private investment in fossil fuel production, limiting carbon lock-in and reducing stranded asset risk,” they write.
To explore “the role of financial actors as high-leverage intervention points that may be used to limit the production and expansion of Canada’s fossil fuel industry,” the authors sought to clarify how susceptible the largest fossil fuel firms are to shareholder influence, how their ownership structure has changed over time, and which owners have the greatest potential influence over the governance of Canada’s fossil fuel firms.
They found ownership of Canada’s largest fossil fuel firms increasingly concentrated among a small group of predominantly foreign and corporate equity owners. In fact, foreign ownership has grown substantially in the past decade, so that more than 70% of major shareholders are from other countries, notably the United States.
The study pinpoints 14 influential shareholders who hold substantial stakes in five major corporations within Canada’s oil and gas industry. Their combined influence significantly shapes the corporate governance of these companies.
The rate of consolidation did not follow the commodity cycle and may not be influenced by it—“rather, it seems the largest shareholders are simply gaining more control over Canada’s fossil fuel industry,” leaving individual smaller shareholders largely unable to influence the industry.
But that’s not to imply that smaller shareholders have no role to play, lead author Truzaar Dordi, an assistant professor at the University of York in England, told The Energy Mix. Those who want to push for a lower-carbon transition should continue to engage.
“Groups of engaged shareholders can also be quite effective,” he said. “But it’s sort of important to recognize that just a small group of these 14 companies do have sizable holdings in all five of the companies we’ve looked at here.”
Because of this substantial foreign ownership, policies that limit oil and gas demand will be insufficient to align the Canadian industry with climate targets, the study suggests. Shareholders would still be able to profit from Canadian oil and gas production by marketing in other jurisdictions. So supply-side policies are a key tool for Canadian policy-makers to scale back fossil fuel production.
The study also finds that, for various reasons, shareholders are unlikely to disrupt a status quo marketplace that favours their investments, and thus unlikely to push for changes towards a low-carbon economy. For one, the large debt loads of fixed assets increase financial risks for fossil fuel companies.
“Part of the problem with that is investors don’t really want to see investments stranded,” Dordi told Saanich News.
“Prominent shareholders are unlikely to use their voice to curtail carbon emissions in Canada’s fossil fuel industry, unless mandated to do so,” conclude the authors, but that insight can be used “to drive effective decision-making and change.”