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NorthAmOil                                   COMMENTARY                                          NorthAmOil


                                                                                                  Social and governance
                                                                                                  aspects of energy
                                                                                                  production may be
                                                                                                  more challenging to
                                                                                                  measure than the
                                                                                                  environmental aspect.



























                           Other organisations’ findings also illustrate  What next?
                         how extensive investments in Russian oil and  The findings of the CIBC report have added to
                         gas have become. Until recently such invest-  pressure on investors to reconsider how highly
                         ments were not widely seen as cause for concern  they prioritise the environmental aspect of ESG.
                         – or at least not on environmental grounds when  But this could come with its own challenges.
                         compared to the oil sands. Bloomberg said data   Purpose Investments’ chief operating officer
                         it had compiled showed that ESG funds held at  and head of product, Vlad Tasevski, was quoted
                         least $8.3bn in Russian assets prior to the start  by Yahoo Finance as saying the ‘E’ within ESG
                         of the invasion of Ukraine last month. Indeed,  was likely being over-emphasised because it was
                         the news service had recently reported that Van-  more challenging to measure social and govern-
                         guard Group and Northern Trust had upped  ance variables.
                         their stakes in Sberbank, Russia’s largest bank,   “I think we are going to see a reassessment
                         through their respective index-based ESG funds  both by investors, and the data providers of
                         in January.                          information for ESG factors,” he told Yahoo
                                                              Finance. “Work on the ‘S’ and ‘G’ has been
                         Ongoing battle                       around for a while, but it’s still newer. They’re
                         The report highlights something Canada has  maybe not as straightforward as the environ-
                         been trying to draw attention to for years. The  mental factors.”
                         country has long sought to emphasise its cre-  Tasevski added that Canadian producers had
                         dentials as a Western democracy, saying that  been “overwhelmingly negatively impacted by   The report
                         its resources could be used to lessen reliance on  the ESG movement”, even as the industry has
                         countries whose politics were perhaps not in  shrunk its carbon footprint.   highlights
                         alignment with investor views.        More broadly, the challenges of ESG investing   something
                           It appears to have been fighting a losing bat-  appear to be becoming clearer. CIBC said global
                         tle for some time, with more and more inves-  flows into ESG funds were down more than 50%   Canada has been
                         tors of different kinds pulling back from the  over the first two months of 2022, after setting
                         oil sands, citing the industry’s high emissions  records in 2020 and 2021. Flows out of ESG   trying to draw
                         intensity compared with other types of oil and  funds have outpaced net outflows from other
                         gas. But now, while environmental pressure  asset classes, according to CIBC.  attention to for
                         is unlikely to go away altogether, it could be   “Perhaps the recent uptick in ESG fund out-  years.
                         eclipsed by pressure to exit Russian invest-  flows is simply a reflection of investors becom-
                         ments, at least in the short term.   ing aware that simple ‘black box’ metrics, such
                           And as oil importers, especially in Europe,  as ESG scores, often used in security selection,
                         try to lessen their dependence on Russian  are inadequate for a topic as multifaceted as
                         crude, Canadian oil could find itself better  ESG,” the analysts wrote.
                         positioned. Indeed, the Canadian govern-  This comes, however, amid a broader push to
                         ment has already said it would aim to ramp  encourage ESG reporting. Also this week, the
                         up oil shipments to the US Gulf Coast, from  US Securities and Exchange Commission (SEC)
                         where its crude can be exported to other des-  proposed a new rule requiring publicly traded
                         tinations, including Europe. (See NorthAmOil  companies to disclose their direct and indirect
                         Week 11)                             contributions to climate change.™



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