University of Waterloo to divest from oil and gas, but has accepted millions from oil and gas donors

Decision goes against the view of most Canadian institutional investors

By Deborah Jaremko
Getty Images photo

The University of Waterloo plans to divest its pension and endowment funds from oil and gas, while its donor list includes millions from oil and gas related companies.

The university’s donors of at least $1 million each cumulatively include Imperial Oil, the Imperial Oil Foundation, the Suncor Energy Foundation, Petro-Canada, petrochemical products manufacturer 3M Canada, and Brookfield Asset Management, a unit of which is now in a billion-dollar bidding war for Calgary’s Inter Pipeline Ltd.

Donors of at least $500,000 include ConocoPhillips Canada, TransCanada Corporation and TransCanada Pipelines (affiliates of the company now called TC Energy), and donors of at least $100,000 include Dow Chemical and Shell Canada.

That Waterloo in particular has made the decision to divest is a meaningless blow to innovation in Canada, says Gina Pappano, former head of market intelligence with the Toronto Stock Exchange.

“The University of Waterloo is the best engineering school in Canada and perhaps one of the best in the world. The solutions are supposed to be coming from this school, not the virtue signal of divestment,” says Pappano, executive director of InvestNow, a not-for-profit working to spread the message that investment in oil and gas, not divestment, benefits Canadians.

“They should be focused on coming up with technology to reduce emissions. This signal that the board of governors has sent does nothing to reduce emissions.”

Engagement favoured

The decision also puts the university in the minority of institutional investors in Canada. Just five per cent see divestment as an effective tool for environmental, social and governance (ESG) investing, according to RBC Global Asset Management’s 2020 Responsible Investment Survey.

In contrast, 54 per cent of institutional investors and consultants view “engagement,” or investing and working with companies, as the more effective tool to achieve ESG goals, the survey found.

It’s a point of view highlighted by Queen’s University in its decision not to divest from oil and gas. Like many others, Queen’s University has rejected pressure to divest, describing it as a symbolic and ineffective tool in addressing climate change.

Queen’s was particularly concerned about the signal divestment could send to the people who have made their life’s work in oil and gas, and who view their job as delivering energy to meet consumer demand.

“These are the corporate leaders the university would most want to engage in finding solutions, not push away,” the university said in a statement.

A changing attitude

The University of Waterloo’s approach to energy solutions appears to have changed.

For example, the Waterloo Institute for Sustainable Energy, which lists improving conventional generation methods (ie. oil and gas) as one of its main research themes, played a prominent role in arguing for divestment, says professor Jatin Nathwani. He served as executive director of the institute until December 2020 and remains a member of the program.

“I have now come of the view that we need to exit fossil fuels in a hurry; it is not just me, the global trend has gained momentum,” he says.

Investing in innovation

While Waterloo will divest its oil and gas interests, many of its donors see the benefit of hydrocarbons to Canada and the value of innovation.

For example, Brookfield and competing bidder Pembina Pipeline see a massive opportunity in Inter Pipeline ownership, including the $4-billion new petrochemical plant the company is building near Edmonton.

From abundant supplies of propane, the Heartland Petrochemical Complex will produce plastic used in everyday items like car components, medical equipment and textiles – with greenhouse gas emissions expected to be 65 per cent lower than the global average thanks in part to the innovative approach of using on-site hydrogen-augmented power.

“This is the insight that I wish a lot of my students and colleagues would understand, that the essence of technological innovation is creating lesser problems than those that existed before,” says Pierre Desrochers, an associate professor of geography at the University of Toronto Mississauga who has written about the problems with the divestment movement.

He describes the activism as morally questionable because it implies no sacrifice on the part of consumers, futile because it will have no impact on the production of carbon fuels or greenhouse gas emissions, and misguided because curtailing the use of fossil fuels in the absence of better alternatives will harm both human society and the environment.

While anti-oil and gas activists often compare themselves to anti-tobacco campaigners, “anti-tobacco activists were not smokers. I’ve yet to see the kids be willing to make real sacrifices,” Desrochers says.

“Virtue signaling is cheap, especially when you don’t want to boycott the products you despise.”

Missing out on big returns

The world is certainly not boycotting oil and gas. Global oil demand has rebounded sharply from pandemic lows in 2020, reaching 94 per cent of pre-COVID levels in May, according to the U.S. Energy Information Administration. The EIA forecasts oil demand will exceed pre-pandemic levels by September 2022.

Global natural gas demand, less impacted by the pandemic, is expected to fully recover to 2019 levels this year, according to the International Energy Agency.

Prices for both commodities are rising as demand picks up, with both above pre-pandemic levels and oil at the highest it’s been in more than two-and-a-half years, according to EIA data.

Canadian oil and gas companies and their investors are benefitting from the boost to commodity prices. The group is expected to generate a whopping $70 billion in free cash flow this year even after operating costs and payments to shareholders, according to ARC Energy Research Institute.

“Those that divested are going to feel it because they missed out on large returns,” Pappano says.

Despite increased investment in renewables over the last decade, the share of oil and gas in global energy markets has barely changed, according to the Renewables 2021 Global Status Report. While the share of “modern renewables” increased to 11.2 per cent in 2019 from 8.7 per cent in 2009, the share of fossil fuels barely budged, at 80.2 per cent in 2019 compared to 80.3 per cent in 2009.

The IEA forecasts that global demand for both oil and gas will continue going up in the coming decades. If Canadian companies aren’t able to supply the demand, it will be met by less responsible jurisdictions including Russia and the OPEC nations, which aren’t as committed to transparency ESG standards.

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