NEI Investments divests from Enbridge because of Gateway
After more than seven years of intensive dialogue about the risks that First Nations’ opposition pose to the Northern Gateway Pipeline project, we have made the difficult decision to divest of our Enbridge holdings in the Ethical Funds portfolio. We have taken the dialogue as far as we can and have been part of some important developments as a result of our efforts. But in the end, we reached an impasse with the company that we couldn’t overcome.
Our recent meeting with Enbridge’s board of directors left us with several distinct impressions. On the one hand, the company is clearly aware that it faces a challenge unlike any it has faced in the past. That has been one of our key messages and we are pleased that the company has internalized this reality. Enbridge has also recognized that the level of support for our recent shareholder proposal is indicative of widespread investor concern over the way the company is managing the project. On the other hand, the company still fails to grasp the magnitude of the challenge and remains, in our view, overly optimistic about its chances of winning over First Nations communities.
It is important to note that the pipeline has not been built yet — nor has it even been granted approval. Our engagement over the last seven years has been undertaken with the goal of convincing the company to alter its trajectory on the Northern Gateway project. To that end, our efforts have not been fruitless. We have twice received substantial support from investors for our proposals (32% in 2009, 28% support plus 11% in abstention in 2012), showing that we have been successful in getting mainstream investors to seriously consider what would traditionally be considered a social risk as an investment risk. We think this has greatly increased the pressure felt by the company.
And to be fair to the company, it has responded. While a number of First Nations communities want no part of the equity ownership offer from Enbridge (one of our earliest recommendations), the offer itself represents an important precedent for large capital projects in First Nations’ territories.
As well, we have been asking the company to strengthen the link between environmental, social and governance (ESG) performance and executive compensation, arguing that its social licence to operate — and thus its profitability — depends upon this performance. Enbridge has responded by making the strongest ESG performance/compensation links of any of its peers. Forty per cent of the business unit scorecard used to determine executive bonuses is now linked to safety and environmental performance. This is a significant change that should have a ripple effect in the industry.
In the end, our decision to divest came down to our concern that the board — and thus the company — does not see substantial First Nations opposition as a reason to walk away from the project. That means potentially trying to build the pipeline over the objections of First Nations communities and, more importantly, ignoring First Nations’ concerns about aboriginal and treaty rights.
To be clear, we don’t believe this project will proceed. The legal, operational and reputational challenges of building in the face of this opposition have doomed it from the start. We could be proven wrong, but in the meantime we hope the company will take our advice and state that it has no intention of building the project in the face of significant First Nations’ opposition.
That’s called knowing when to fold ‘em.
Access article here: http://www.neiinvestments.com/NEIFiles/PDFs/5.1.4%20Sustainable%20Investing%20Update/ESG%20Newsletter%202013/ESG_01_13_En_web.html#par1