Trudeau: Biggest wealth fund blacklisting Canadian oil a part of climate change fight

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Prime Minister Justin Trudeau said Norway’s decision to blacklist four Canadian oil firms from its massive US$1 trillion sovereign wealth fund underscores the growing importance of climate change risk to global investors.

Norges Bank Investment Management (NBIM), a branch of Norway’s central bank, said on Wednesday that it has excluded Canadian Natural Resources (CNQ.TO)(CNQ), Cenovus Energy (CVE.TO)(CVE), Suncor Energy (SU.TO)(SU), and Imperial Oil (IMO.TO)(IMO) due to “unacceptable greenhouse gas emissions.”

The ban is a first for managers of Norway’s giant portfolio of investments. The fund owns about 1.5 per cent of listed stocks worldwide.

“We’ve seen investors around the world looking at the risks associated with climate change as an integral part of investment decisions they make,” Trudeau said on Wednesday at a press conference.

“It is so important for Canada to continue to move forward on fighting climate change and reduce our emissions in all sectors. I can highlight that many companies in the energy sector have understood that the investment climate is shifting, and there is a need for clear leadership and clear targets to reach on fighting climate change to draw on global capital.”

The Trudeau Liberals have walked a fine line between support for Canada’s battered energy sector and making good on climate change goals since taking office. The latest test has come in response to the COVID-19 pandemic and Saudi-Russian oil price war, which has taken a heavy toll on energy producers. 

Ottawa’s aid to the sector has included a number of environmental links, including $1.7 billion for cleaning up abandoned oil and gas wells, and a $750 million Emission Reductions Fund. On Monday, the government announced broad financing support for large businesses, which include environmental conditions.

Cenovus president and CEO Alex Pourbaix said the move by the Norwegian fund does not account for environmental advances in the industry. He pointed to his company’s goal of reaching net zero emissions by 2050.

“Pulling investments from the oil sands and claiming it’s for climate change reasons is more about publicity than fact,” he said in a statement. “Cenovus has reduced the GHG emissions intensity at our oil sands operations by approximately 30 per cent over the past 15 years.”

Norway’s Government Pension Fund Global was set up in 1996, a product of wealth amassed as western Europe’s largest oil exporter. The Scandinavian nation’s revised budget for 2020 released on Tuesday calls for withdrawing US$37 billion from the fund to counter the economic slump brought on by COVID-19 and weak oil prices.

Excessive carbon emissions was listed as a criterion for exclusion from the fund four years ago. Last year, Norway announced a plan to divest from oil and gas stocks. Wednesday’s announcement marks the first time it has used its “excessive greenhouse gas emissions” rule to blacklist firms.

“The Council on Ethics recommended to exclude the companies because of carbon emissions from production of oil to oil sands,” NBIM said, referring to its ethics watchdog.

NBIM’s guidelines also include bans on investment in weapons firms and tobacco companies, and have observation rules assessing severe environmental damage, human rights and corruption. 

Norway’s decision to shut the door on some of the biggest names in Canadian energy comes as the sector grapples with COVID-19’s iron grip on demand. Meanwhile, global oversupply is stretching storage capacity to its max. 

West Texas Intermediate crude (CL=F) has recovered to above US$25 per barrel after briefly plunging into negative territory last month.

Canadian energy was not the only investment class to be blackballed by Norway on Wednesday.

NBIM also excluded petrochemical firm Sasol Ltd (SSL), German utility RWE AG (RWE.DE), Dutch company AGL Energy Ltd (AGL.AX), miners Glencore (GLEN.L) and Anglo American (AAL.L) over use and production of coal.

Egypt's ElSewedy Electric Co, Brazilian miner Vale SA (VALE), and Brazilian power holding Eletrobras were also excluded in the update. 

NBIM said ElSewedy breached “severe environmental damage” rules as a result of the electric firm’s involvement in a Tanzanian hydropower project. Mining giant Vale was cited for repeated dam breaches. 

Eletrobras was excluded due to “unacceptable risk that the company contributes to serious or systematic human rights violations.” 

BHP (BHP), Vistra Energy (VST), Enel SpA (ENEL.MI) and Uniper SE (UN01.DE) were placed on an observation list on Wednesday, all related to coal.

 Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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