Jantzi breaks new ground in SRI research

Oil and gas companies are generally not known for their environmental, social and governance practices, but in response to investor demand for such information, Jantzi Research has come out with a new report that analyzes and ranks producer performance across a broad range of ESG issues.

In the report, entitled Oil and Gas in a Bull Market: The Shifting Sands of Responsibility, the firm studies and ranks nine of the largest Canadian oil and gas companies alongside 14 of the largest international producers using Jantzi’s Best-of-Sector methodology. Broadly, scores are broken into four categories, including Community and Society, Health and Safety, Environment and Human Rights.

Overall, Canadian oil and gas companies fared relatively well, especially compared to their counterparts in the U.S. Three Canadian companies made the “top five” list, while accounting for only 39% of the overall sample. By comparison, of the U.S. companies that made up 35% of the overall sample, four ranked in the “bottom five” of worst ESG performers and none made the top five list of responsible producers.

Jantzi researchers say the report to evaluate the social and environmental performance of the largest oil and gas companies in the world came in response to a number of trends. For instance, there are now $65.5 billion worth of SRI assets in Canada, representing about 3% of the combined retail mutual fund and institutional markets, along with a growing recognition in investment circles that it is possible to achieve competitive returns by avoiding ownership in companies that operate in an irresponsible manner. Furthermore, they say strong social and environmental performance is correlated with, and in some cases predictive of, profitability and superior share performance.

“The specific purpose of the report is to describe the current and emerging social and environmental issues facing the oil and gas industry and to provide a clear picture of the relative performance of the major international companies in relation to these issues,” say the report’s authors. “It also provides a unique view of how Canadian integrated oil and gas companies and senior producers rate compared to the European and U.S. counterparts.”

In the community category, those with highest overall community performance scores had well-defined processes for community consultation, specific policies or management systems in place to deal with indigenous or aboriginal people, reported extensively on community relations and philanthropic activity and were not involved in projects that face significant community opposition. Top Canadian firms significantly outperformed their counterparts in this area, explained in large part by the fact that the companies have developed respectful and mutual beneficial relationships with aboriginal communities in Canada using formalized mechanisms for community engagement and consultation.

The report says “Canadian companies are also among the world’s best reporters of corporate social performance. However, it is also important to note that Canadian firms perform strongly in the community area, in part because they have relatively limited exposure to international community challenges.”

The extensive discussion of environmental issues facing oil and gas companies covers emissions and their effect on company revenues, land use and biodiversity including a discussion of natural gas reserves, pollution controls, issues related to coal bed methane — a recognized hazard in underground mining operations but also an increasingly valuable source of gas for energy companies — as well as environmental impact and reliance on finite resources.

Top performers in these categories have invested significant amounts in renewable energy initiatives and have articulated a clear strategy for these investments while level one and level two performers are either beginning to invest, but are relatively new players in the field of sustainability and do not have a clear renewable energy strategy, or they have made little or no investment and have no articulated plans to pursue renewable energy projects.

Jantzi also reviewed human rights indicators, such as policies and codes of conduct, and looked at each company’s exposure to human rights issues in different regions, providing background and a review of current laws, initiatives and conditions in each area.

“This information is important to most social investors, who often seek to avoid investing in companies that are directly responsible for, or complicit in, human rights abuses. Moreover, mainstream investors increasingly evaluate human rights issues in their desire to understand risks related to reputation, security of supply or legal action that a company might face if it finds itself on the wrong side of a challenging human rights situation.”

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com