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 includes a goal to reduce carbon emissions by 25 per cent over the next five years and set a similar gender-diversity target for management.
The measures come at a time when oil and gas companies around the world are competing for limited investment dollars, and those investors are increasingly focused on environmental, 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 producing a high-carbon source of oil. That’s why pension funds, insurers and investment firms regularly blacklist or curtail their involvement in Alberta’s oilsands.
Those in the industry say those divestment decisions 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 how to manage these risks — not just as Husky, but as an industry,” said Janet Annesley, Husky’s senior vice-president of corporate affairs and human resources.
WATCH | Husky’s Janet Annesley on achieving the GHG and diversity targets:
How much of an executive’s pay is tied to climate goals will vary depending on their responsibilities toward achieving the targets, Annesley said.
There are other factors that determine an executive’s pay, such as safety.
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 iceberg and a fire at a refinery in Wisconsin.
Conversely, last year the 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 Resources began including carbon emissions as part of its executive compensation scorecard in 2013.
New gender target
Linking environmental goals with compensation isn’t precedent-setting, but it puts Husky among leading companies in the oilpatch, said Michelle Tan, a partner with Hugessen Consulting, which advises companies on executive compensation.
Husky’s gender-diversity target of 25 per cent women in senior leadership roles, she said, is unique.
“To my recollection, it’s the first time I’ve seen an oil and gas company in Canada put 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:
Canadian companies are playing catch-up to their European counterparts on most ESG issues, since most large oil companies in 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 base about 10 per cent of an executive’s variable compensation on carbon emissions performance.
Room for improvement
Canadian oil and gas companies need to go beyond improving environmental 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.
“Rather than having compensation connected to reducing carbon emissions, the question is can you connect 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:
Other experts see it differently, like Meghan Harris-Ngae, who leads Ernst and Young’s climate change and sustainability services practice for Western Canada.
The oil and gas industry has 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 of the investments that have been made over the years don’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’re also 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 that oilsands companies, like his, have a 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.”
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1 Must-Have Investment If You're Worried About a Stock Market Crash – Motley Fool
After a devastating crash earlier this year, the stock market made a stunning recovery in the months that followed.
However, the last few weeks have been rough on the market. The S&P 500, the Dow Jones Industrial Average, and the Nasdaq have all slid into correction territory, each dropping by roughly 10% since early September.
While nobody knows for certain whether a bear market is around the corner or not, it’s wise to prepare for a market crash anyway. And there’s one investment that will give your savings the best shot at recovering from even the worst market downturn: S&P 500 index funds.
S&P 500 index funds boast two major advantages: They provide instant diversification, and they’re extremely likely to bounce back from market downturns. Both of these perks can play in your favor if the market continues its downhill slide.
1. Instant diversification
When you invest in an S&P 500 index fund, you’re actually investing in 500 of the country’s largest companies at once. These organizations have a proven track record of success, making them more likely to survive tough economic times.
In addition, spreading your money across hundreds of different stocks can limit your risk substantially if the market continues to fall. Even if a few companies within the S&P 500 take a nosedive, it won’t cause your entire portfolio to plummet.
Of course, the S&P 500 itself could take a turn for the worse, and the index has already experienced a decline over the last few weeks. However, no matter what the market does, S&P 500 index funds are among the investments most likely to recover from a crash.
2. Almost guaranteed recovery
Nothing is ever guaranteed when it comes to the stock market, but S&P 500 index funds are about as close as you can get to guaranteed recovery after a market crash.
As their name implies, S&P 500 index funds track the S&P 500 — so whatever the S&P 500 does, the index fund will mimic it. Historically, the S&P 500 has always recovered from every downturn it’s ever faced. Even after the Great Recession in 2008, as well as the unprecedented crash earlier this year, the S&P 500 managed to bounce back stronger than ever.
Again, nobody knows whether the current market downturn will get worse in the coming weeks or months, but even if it does, there’s a very good chance the S&P 500 will recover. There will always be ups and downs over the years, but in general, the S&P 500 has experienced a strong upward trend over time. That means even if the market crashes, it’s extremely likely your index funds will recover.
Is it the right time to invest?
S&P 500 index funds are long-term investments, and there’s never necessarily a bad time to invest for the long term. In fact, market downturns are one of the best opportunities to invest, because stock prices are lower, so you can get more for your money.
The key is to make sure you can leave your money alone for years or even decades after you invest. S&P 500 index funds do see positive returns over time, but like any investment, they are subject to volatility in the short term. So to make the most of your money, your best bet is to invest and then sit back and wait.
A market crash may be looming, but that doesn’t have to be a scary thought. By investing in the right places and taking advantage of S&P 500 index funds, you can give your money the best shot possible at surviving a market downturn.
Former blockbuster investment funds fall from grace – Financial Times
Blockbuster funds that previously ranked as the largest in Europe have undergone a spectacular downfall over the past decade.
Former star funds managed by investment groups including Standard Life Aberdeen, BlackRock and Franklin Templeton have shrunk to a fraction of their former size after losing favour with investors as quickly as they earned it.
SLA’s well-known Gars fund, a multi-asset strategy that ranked as Europe’s largest fund as recently as 2017, when it managed a combined €38.6bn, now has just €4.5bn in assets, according to Morningstar, the data provider.
Franklin Templeton’s Global Bond fund, run by veteran fixed income investor Michael Hasenstab, has had a similarly pronounced fall. After dominating the investment industry in 2014, when it had €30.2bn in assets, the fund now stands at just €7.7bn.
BlackRock’s Global Allocation fund has shrunk from €35.8bn to €12bn in just three years, and Carmignac Patrimoine, run by veteran French investor Edouard Carmignac, stands at just €10.8bn, down from €30bn at its peak.
The trend underscores how popular funds’ sharp growth can also lead to their undoing. Investors pile in when managers perform well, but when funds grow to a large size, their returns tend to drop off, resulting in outflows.
“Large funds are vulnerable to boom and bust dynamics,” said Morningstar’s Ali Masarwah, who carried out the research. Not only do giant funds drive up the valuations of the securities they buy, which makes future outperformance more unlikely, they are also less flexible than smaller funds due to liquidity risk considerations, he added.
Just one out of eight former blockbusters analysed by Morningstar beat its benchmark in the period immediately after ranking as Europe’s biggest fund. The data excluded money market funds.
Separate research from data company Broadridge found that only a quarter of the 100 best-selling active funds in Europe continued to attract positive investor flows three years after peaking in size. “Today’s flow winner is tomorrow’s loser,” said Chris Chancellor, senior director at Broadridge.
The findings come after Pimco’s €57bn Income fund lost its place as Europe’s largest fund last month after taking a hit during the market sell-off sparked by the coronavirus pandemic.
Pimco Income now ranks behind Swedish equity fund AP7, which took the top spot after being boosted by the rally in global stock markets during the second quarter.
The Pimco fund’s performance has improved in recent months but investors have not piled back in at the same rate as before the March rout, said Mr Masarwah. He suggested that some investors were diversifying away from the fund because of concerns over its large size.
“Big is not always beautiful,” said Mr Masarwah. “Letting funds grow too large may be in the interests of fund companies but it is not in investors’ interests.”
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