Investing in Canada’s Tar Sands Gets Sticky

U.S. President Barack Obama stepped lightly around the tar sands issue this afternoon as he wrapped up his first official foreign trip and visit with Canadian Prime Minister Stephen Harper.

Obama said the leaders discussed the need to act on climate change and agreed to work together on developing technology capable of cutting greenhouse gas emissions and delivering clean, renewable energy to both countries. He stressed "clean energy," saying its development and use was one of the most pressing challenges of our time:

We can't afford to tackle these issues in isolation.

How much political pressure the Obama administration will actually put on its northern neighbor to scale back greenhouse gas emissions from the tar sands projects – and how much the U.S. will reduce its consumption of Canada's tar sands oil – remains be seen. Right now, most of the bitumen squeezed out of the tar sands is turned into fuel oil and then shipped to the United State at a rate of about 2 million barrels per day.

While the politics plays out, investors with tar sands holdings are trying to balance new developments that are rocking their world.

The dramatic fall in oil prices and the global economic crisis have slowed project development expenditures to its slowest pace in 10 years, and the time-frame for recovery is murky. Investors also see a U.S. carbon price on the horizon.

In that environment, a new pressure-point is emerging as a force to be reckoned with – shareholder activism.

Investors everywhere are looking closely at their portfolios for unnecessary risk, and carbon is taking its place as a growing concern in energy-intensive industries.

Some of the United States’ largest institutional investors, including public pension funds with hundreds of billions of dollars in assets, are now using their shareholder status to force companies involved in the tar sands to publicly assess the financial, environmental and social risks of the ventures. Their efforts, to protect their own investments and the planet, could make corporate involvement in the Canadian tar sands an increasingly sticky prospect.

Already this year, an investor coalition coordinated by Ceres has filed dozens of shareholder resolutions with 57 companies – including two deeply involved in the tar sands – seeking greater disclosure of the companies’ financial risk exposure in light of the changing political, social and regulatory environment on the issue of climate change.

Ceres President Mindy Lubber didn’t mince words about the tar sands:

Extracting oil from tar sands is a dead end on the road to a clean energy future, and a risky venture for investors.

Tar sands developers Chevron and Canadian Natural Resources were both added this week to the investor group's  “climate watch” list of nine companies whose competitiveness could be hurt by their lack of action on climate change.

Exhibit A: Chevron

Investors have been trying for over a year to force Chevron to disclose the potential financial and environmental risks associated with extracting oil from the tar sands.

The energy giant holds a 20 percent stake in the huge Athabasca tar sands project in Alberta. More worrisome to investment advisor Green Century is Chevron’s 60 percent stake in the smaller Ells River project, which is developing an even more energy-intensive form of tar sands oil extraction referred to as in situ that uses heat and steam.

A shareholder resolution calling for a comprehensive, public risk assessment from Chevron got 20 percent support last year. Green Century is trying again at Chevron's next shareholder meeting, likely in May. Its resolution lays out the problems: