In 2003, Northwest and Ethical Investments (NEI) filed two shareholder proposals with Encana, one respecting climate change issues and the other pointing up ESG concerns in relation to a specific company project. NEI urged Encana to report the scope of potential financial liability associated with greenhouse gas emissions, to detail the strategy drawn up to reduce this liability, and to provide an estimate of the costs and benefits of reducing annual greenhouse gas emissions substantially through a range of reasonable carbon pricing scenarios, including the possible role of investment in renewable energy.
NEI also addressed concerns over Encana’s Oleoducto de Crudos Pesados (OCP), a heavy crude oil pipeline project in Ecuador. NEI asked the company to prepare a report to shareholders, the object being to detail the extent of potential financial liability associated with the OCP project, to specify compensation and mitigation measures taken to offset the loss of natural habitat, to disclose risk assessment procedures, to outline management systems intended to engage stakeholders, and to itemize local community consultation efforts relating to proposed development projects.
The company responded and NEI agreed to withdraw both proposals in exchange for dialogue. NEI met with Encana officials twice in 2003.
In December 2003, NEI wrote to Encana to seek closure on the year’s dialogue, while supporting and advising on the development of the company’s Corporate Responsibility Policy scheduled for 2014. Issues addressed included as follows: OCP compensation claims, drawing up of a Human Rights Policy in accordance with international and United Nations (UN) principles, free prior and informed consent, environmental policy, climate change, market opportunities for renewables, and progress towards sustainable reporting based on the principles of the Global Reporting Initiative (GRI).
In 2004, NEI met with Encana to discuss the company’s operations in Ecuador and raise questions over topics such as the following: waste disposal, toxicity levels, flaring, seismic testing in the vicinity of waterways, community relations and consultations, as well as establishment of a formal community complaints procedure.
In December 2004, NEI filed a shareholder proposal, together with Boston Common Asset Management, requesting that Encana commit to adopting the Global Reporting Initiative format for the company’s 2005 Corporate Social Responsibility (CSR) report. NEI subsequently withdrew the proposal when the company agreed to meet and discuss input on the GRI format, and to state in its 2005 report that Encana intended to draw inspiration from the GRI framework and work to expand the number of indicators used to profile social and environmental performance.
In 2005, NEI secured commitment from Encana with respect to GRI-inspired reporting for 2006.
NEI also initiated dialogue with Encana on human rights policies and management systems. That same year, Encana divested itself of its Ecuadorian assets, greatly reducing exposure to human rights risks. The company also agreed to further discussion about developing biodiversity policies.
In 2006, NEI filed two shareholder proposals with Encana.
The first proposal sought assurance that Encana would negotiate impact and benefit agreements with First Nations communities, respect treaty rights and protect biodiversity with a view to ensuring the preservation of all such rights. NEI withdrew this proposal when Encana confirmed that, with the exception of one non-operational project at Elk Valley, BC, they were not operating on First Nations land governed by treaty. Furthermore, pursuant to the company’s Aboriginal Guidelines, Encana indicated that the company would not operate on land with respect to which First Nations claimed traditional rights without prior discussions and input from the communities concerned.
The second proposal sought to have Encana benchmark stakeholder engagement procedures against international best practices. NEI withdrew the proposal when Encana agreed not only to do so but also to disclose the results of the benchmarking exercise to NEI. Encana further agreed to provide NEI with a copy of the company’s Stakeholder Engagement Guide, and committed to more complete disclosure of corporate practices in the 2006 CSR report.
Suncor, Petro-Canada, Encana and Penn West requested a private presentation of NEI research findings respecting corporate performance. NEI presented to all four companies an assessment of their strengths and weaknesses regarding their individual responses to the risks and opportunities associated with climate change, and then shared with them the recommendations made by NEI to each.
Accordingly, NEI met with Encana in October to share the findings of the latter’s annual corporate sustainability scorecard assessment. Encana ranked 7th out of 17 in the oil and gas sector. NEI commended the company for involvement in emerging carbon capture and storage technology, and for disclosure of greenhouse gas emissions data. NEI nonetheless urged Encana to establish emission reduction targets to reduce further the company’s overall emissions footprint.
In 2008, NEI filed a resolution with Encana requesting that the company disclose how they accounted for the potential cost of carbon in business planning and strategy. Encana responded by disclosing some information in the proxy circular, which NEI did not consider adequate. At Encana’s annual general meeting, the NEI resolution received just over 8% of votes. Later in the year, the company changed their reporting format to include the carbon costing information requested by NEI.
In 2009, Encana split into two smaller companies, namely Cenovus for oils sands operations and Encana for natural gas operations. NEI met with the latter once in 2009 to discuss the risks inherent in their oil sands operations, including issues such as climate change, atmospheric emissions, impact on waterways, First Nations engagements and land use concerns relating to the company’s in situ oil sands project.
Albeit Encana’s water intensity per barrel of oil produced had decreased at Foster Creek, improvements in terms of disclosure were needed and the company had neither devised a strategy nor set targets relating to water use.
NEI met with the company in June to discuss First Nations consultation practices. To their credit, Encana had both Aboriginal Guidelines and significant staff resources dedicated to Aboriginal engagement.
In 2010, NEI met with Encana to discuss the company’s business strategy respecting unconventional fuels and the impact of the latter on water resources.
NEI filed a shareholder proposal requesting that the company address risks posed by the company’s focus on the development of unconventional resources in Canada and the US, hydraulic fracturing in particular. NEI met with the company to discuss the issue, following which Encana provided additional information regarding hydraulic fracturing in their CSR report and on their website. The company subsequently took steps to address inherent risks by banning the use of certain chemicals and revising water testing practices.
NEI met with Encana in September 2010 to build on dialogue relating to the company’s hydraulic fracturing operations in North America. The company stated a preference for baseline water testing and urged suppliers to disclose fluids used in the extraction process.
At another meeting organized in May 2011, NEI learned of an extensive evaluation process instituted to identify and minimize toxic chemical use. Encana further detailed involvement in a project at Horn River, BC which utilizes non-potable water for fracking operations.
NEI wrote to the company’s board of directors to express their desire to see compensation explicitly linked to ESG performance. A response was received and meeting scheduled in November to discuss the specifics of concerns raised by NEI. Information published in the 2011 proxy circular nonetheless appeared to be much the same as for previous years.
In 2012, NEI provided input on Encana’s sustainability report. The company had improved the handling of concerns relating to hydraulic fracturing operations in North America, and reiterated their preference for baseline water testing, supplier disclosure of fluids used in the extraction process, as well as participation in the water disclosure initiative championed by the Carbon Disclosure Project (CDP). The company had an evaluation process in place to identify and minimize toxic chemical use, and was involved in a leading edge project at Horn River, BC where non-potable water was used for fracking operations. Encana subsequently confirmed that it would be making its chemical management system tool available at no charge for industry peers, the object being to spawn extensive improvements in the handling of chemicals by industry stakeholders.
The company’s linkage of compensation to ESG performance proved better than most despite little improvement in disclosure practices in recent years. In 2012, Encana did, however, respond to one of NEI’s requests by reporting the actual percentage of executive compensation directly linked to environmental and social performance.
NEI voted against the compensation plan at the 2012 annual general meeting and wrote to the board of directors to explain the rationale behind the decision.
NEI met with company officials in October 2012 to discuss concerns relating to linkages between ESG performance and executive compensation. In particular, NEI noted that only 3% of the CEO’s bonus was linked specifically to ESG performance. NEI also invited Encana to enhance disclosure practice relating to the manner in which performance was evaluated and to broaden the linkage between performance and the long term incentive plan.
NEI met with Encana in November 2012 to discuss company plans to enhance disclosure on fracking practices and incorporate best practices to mitigate fracking-related risks. At this meeting, NEI pointed to the need for a regional strategic environmental assessment in northeastern BC. The company expressed interest in pursuing dialogue on the matter.
NEI met with the company’s senior executives in January 2013 to express support for Encana’s efforts to mitigate environmental impact while spurring innovation. The company appeared to have a robust framework for innovation, acknowledged the need to make allowance for failure and confirmed water as a key area of corporate focus.
NEI wrote to Encana’s interim CEO in May 2013, seeking active company support for the institution of a significant price on carbon in Canada.
NEI voted against the executive compensation package once again at the 2013 annual general meeting, in part owing to ongoing concern over inadequate linkage between pay and ESG performance. NEI wrote to the board of directors in July 2013 to explain the rationale behind the decision. The chairperson of the compensation committee responded, indicating that NEI feedback would be taken into account.
n October 2013, NEI met with management to discuss Encana’s response to the issues raised by NEI. The latter urged the company to proactively support a price on carbon and pointed up the risks faced by the industry in the event of continued inaction on climate policy. The company replied, stating that it was in the process of finalizing internal policy on the matter and would be able to respond more fully in the future. Encana acknowledged the success of an internal environmental efficiencies fund but drew attention to the challenges associated with the implementation of new technology. The company indeed cited these challenges as the main reason for not spending more on projects designed to improve energy efficiency. NEI further discussed company progress in enhancing disclosure with respect to each of fracking practices and performance.
NEI met with Encana in November 2013 to discuss the latter’s strategic realignment and how the move would impact headway on ESG issues. Encana stated that the company remained committed to addressing key ESG risks, and believed that the new corporate structure would provide for a focused approach, especially with regard to plans to assess opportunities for demonstrating leadership. NEI agreed to provide detailed feedback on corporate disclosure of fracking practices and performance in 2014.