Canadian oil giants emphasize climate change and diversity as they compete for investment

For executives at Husky Energy's headquarters in Calgary, there is a new wrinkle in how their pay is calculated: climate change.

This is the first year the company is linking greenhouse gas emissions to compensation as part of a new plan that also includesa goal to reduce carbon emissions by 25 per cent over the next five years and seta similar gender-diversity target for management.

The measures come at a time whenoil and gas companies around the world are competing for limited investment dollars, andthose investors are increasingly focused onenvironmental, social and governance (ESG) issues.

For the oilsands, in particular, its image is also on the line. The sector is making improvements on lowering its greenhouse gas intensity, but it's still known for producinga high-carbon source of oil. That's whypension funds, insurersandinvestment firms regularlyblacklistor curtail theirinvolvement in Alberta's oilsands.

Those in the industry say those divestmentdecisions have very little financial impact on the sector but do cause harm to its reputation.

"It's important that we move and that we show leadership, but it's also important that the entire Canadian industry shows leadership because we're out in a world where we are fighting for capital, and we need to show the world that we know howto manage these risks not just as Husky, but as an industry," saidJanetAnnesley,Husky's senior vice-president of corporate affairs and human resources.

WATCH | Husky's Janet Annesleyon achieving the GHG and diversity targets:

Husky Energy's climate targets are achievable, says Janet Annesley

4 years ago

Duration 0:49

The company has stress tested its 2025 goal of reducing emissions by 25%

How much of an executive's pay is tied to climate goals will vary depending on their responsibilities toward achieving the targets, Annesleysaid.

There are other factors that determine an executive's pay, such assafety.

In 2018, for example, compensation for Husky executives was reduced following several problems, including an oil spill at an offshore operation in Newfoundland, a reprimand for a close call with an icebergand a fire at a refinery inWisconsin.

Conversely, last yearthe company had its best safety performance ever and compensation increased as a result.

"As they say in business,what gets measured, gets done," Annesley said about the new climate goals."We've identified the key executives, and we're holding them accountable through our performance-based pay system to deliver on those targets."

One of the largest oil and gas producers in the country, Calgary-based Canadian Natural Resourcesbegan including carbon emissions as part of its executive compensation scorecard in 2013.

New gender target

Linking environmental goals with compensationisn't precedent-setting, but it puts Husky among leading companies in the oilpatch, said Michelle Tan, a partner withHugessenConsulting, which advises companies on executive compensation.

Husky's gender-diversity target of 25 per centwomen in senior leadership roles, she said, isunique.

"Tomy recollection, it's the first time I've seen an oil and gas company in Canadaput in a diversity target," said Tan, who added that it's more often seen in other industries like the technology sector.

WATCH | Michelle Tan on how rare a diversity target is in the oilpatch:

A gender diversity target in the oilpatch is rare, according to Michelle Tan

4 years ago

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Tan is a partner with Hugessen Consulting, which advises companies on executive compensation.

Canadian companies are playing catch-up to their European counterparts on most ESG issues, since most large oil companiesin Europe have already made major carbon-reduction decisions and have linked environmental performance to compensation for several years.

Royal Dutch Shell, a British-Dutch oil and gas company, and Spanish firm Repsol, for example, both baseabout 10 per cent of an executive'svariable compensation on carbon emissions performance.

Room for improvement

Canadian oil and gas companies need to go beyond improvingenvironmental performance, said Olaf Weber, a professor at the School of Environment, Enterprise and Development at the University of Waterloo in Ontario who researches sustainable finance.

"It's too little, too late," Weber said, explaining how the industry should have taken these types of environmental steps many years ago to reduce emissions.

"Ratherthan havingcompensation connected to reducing carbon emissions, the question is can youconnect it to figuring out what could be new business strategies?"he said, such as investing in renewables.

WATCH | Olaf Weber explains why investors care about climate change:

Investors don't want to be exposed to climate risks, says Olaf Weber

4 years ago

Duration 1:05

The University of Waterloo professor says investors have financial concerns about climate change.

Other experts see it differently, like Meghan Harris-Ngae, wholeads Ernst and Young's climate change and sustainability services practice for Western Canada.

Theoil and gas industryhas worked on environmental initiatives for many years, she said, but only now is it starting to get credit for what it's done.

"One of the things that I have seen is that a lot ofthe investments that have been made over the yearsdon't necessarily get the proper recognition in the capital markets, and a lot of that innovation is capital intensive," said Harris-Ngae, who is based in Calgary.

For example, Imperial Oil and other energy companies have developed new technology to use solvents in oilsands production as a way of reducing costs and greenhouse gas emissions.

Oilsands companies are not only looking to lower their emissions; they'realso trying to reduce water use, land impact and tailings ponds.

Taking action on ESG is the right thing to do, MEG Energy chief executive Derek Evans said last month during a virtual energy conference. It's also about ensuring thatoilsands companies, like his,havea future in a carbon-constrained world.

"We've got a 60-year reserve life, and to ensure that those assets aren't stranded, we need to continue to demonstrate that we're a leader in all aspects of ESG and that we don't have our head stuck in the sand, in that regard."