Oil sands and ethical investing at a price

April 16, 2010

A greenpeace activists protests outside the BP Canadian offices in downtown Calgary, April 15, 2010. The Greenpeace activists were "greenwashing" a tar sands sign outside in protest while similar protests were happening in London.At BP’s AGM on Thursday, ethical investors including the Co-Op and Calpers failed in their effort to convince BP to review its biggest planned investment in Canada’s oil sands.

Nonetheless, 9 percent of investors voted in favour of a review — a much bigger venting of shareholder angst about a single project than oil companies are used to hearing.

Was this a vote for the environment or a vote for ethical fund managers’ own businesses?

The oil sands business produces even more CO2 than traditional oil and the investor group, which also included environmental and faith groups, said they were concerned that if governments sought to fight climate change by hiking charges for emitting CO2, the Sunrise project may turn prove an economic catastrophe for BP.

Analysts don’t see a serious risk of this but the oil sands industry could still be an economic catastrophe for socially responsible fund managers.

With environmental groups successfully marketing oil sands as the dirtiest end of a dirty business, ethical fund managers will come under more pressure to exclude big oil companies – most of which now invest in squeezing crude from Alberta’s bitumen-drenched soil – from their funds.

That’s Citgroup’s view at least: “Institutions promoting “climate aware” products will continue to come under pressure if found to be exposed to the (oil sands) sector,” the bank said in a research note on Wednesday.

However, oil companies make up a big chunk of most developed countries’ stockmarkets and when the oil price is rising, they offer some of the best returns. If a portfolio manager ignores them, he or she risks dramatically underperforming the broader market indices. In the fund management business that’s even worse than losing money for your investors.

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