Financial actors with significant stakes in Canada含羞草研究社檚 fossil fuel industry have been unlikely to use their influence to push for transitioning to a lower-carbon economy, according to a new study.
The recently published work, authored by former and current University of Victoria researchers, states financial markets will play a key role in enabling or constraining the low-carbon transition that含羞草研究社檚 needed in order to stave off the worst impacts of climate change.
The researchers looked at financial backers of the 含羞草研究社渂ig five含羞草研究社� fossil fuel companies that together account for 80 per cent of Canada含羞草研究社檚 bitumen operations.
They concluded that just 14 shareholders hold significant leverage on Canada含羞草研究社檚 fossil fuel industry, and in the last decade that equity ownership has been increasingly consolidated by foreign entities. Seventy per cent of those influential shareholders are based outside of Canada.
含羞草研究社淲hat this means is Canada in some ways has lost that domestic oversight,含羞草研究社� said Truzaar Dordi, the study含羞草研究社檚 lead author.
The largely foreign investors also may be less engaged in achieving the country含羞草研究社檚 climate commitments, the study said. That could have global implications as Canada含羞草研究社檚 fossil fuel operations are expected to emit 36 billion tonnes of emissions under current policies 含羞草研究社� an amount that would eat up 16 per cent of the world含羞草研究社檚 remaining carbon budget by 2050.
含羞草研究社淚f a key stakeholder puts up barriers that certainly plays a significant challenge for, nationally as well as globally, us meeting our climate targets,含羞草研究社� Dordi said. 含羞草研究社淭hey can be a voice for change and they should be a voice for change.含羞草研究社�
Capital markets can enable unsustainable fossil fuel production and consumption at levels that will contribute to climate instability, the study said. Canada is especially vulnerable as the authors point to how the costs associated with oil and gas extraction are much higher compared to operations in other parts of the world.
The study found the five firms are highly sensitive to the influence of their external financiers as they all have debt-to-capital ratios of around 60 per cent, which is about twice as much as the global average.
The authors argue shareholders are unlikely to advance the low-carbon transition as they have to put a lot of money into the largely fixed assets making up the Canadian oil and gas sector, so they含羞草研究社檒l want to maximize their returns.
含羞草研究社淧art of the problem with that is investors don含羞草研究社檛 really want to see investments stranded, they don含羞草研究社檛 want to see stranded assets,含羞草研究社� Dordi said.
But that also opens shareholders to risk if low-carbon policies are accelerated in response to the worsening impacts of climate change being seen. The study found interventions that direct capital in a more sustainable direction could restrict the activities contributing to the climate crisis, while also mitigating financial risks.
The authors call on Canada to strengthen its climate change fight and send clear signals to the market by using supply-side policies to align the financial system with the low-carbon transition. The study said that could include limiting fossil fuel exploration or extraction 含羞草研究社� through production taxes or revoking subsidies 含羞草研究社� to reduce the risk of carbon lock-in and stranded assets.
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