Kenney’s Conspiracy Theories Crashing into Realities of Corporate Climate Risk

Truth seems a receding concept in Alberta these days. The latest example was Premier Jason Kenney’s reaction to Moody’s decision to downgrade the province’s credit rating.

According to the premier, financial institutions are “buying into the political agenda emanating from Europe, which is trying to stigmatize development of hydrocarbon energy... These folks are often making these decisions based on dated, distorted, torqued data provided by green-left pressure groups.”

Credit rating agencies are generally not known for their strident political positions or reliance on the opinions of pressure groups.

For the record, Moody’s based the Alberta downgrade on “a structural weakness in the provincial economy that remains concentrated and dependent on non-renewable resources — primarily oil — which causes volatility in financial performance...”

“Environmental considerations are material to Alberta’s credit profile and Moody’s considers environmental risk to be high,” the credit rating firm said. “Alberta’s oil and gas sector is carbon intensive and Alberta’s greenhouse gas emissions are the highest among provinces.”

Kenney’s response seems typical of the woolly-headed conservative zeitgeist that blames any doubts about the wisdom of massively increasing extraction of economically marginal fossil fuels on some sinister “political agenda.”

Climate change is not political, and caring about it can be based on calculated self-interest — even corporate and investor self-interest. Increasing concentrations of heat-trapping gases in the atmosphere are destabilizing our climate, with catastrophic consequences for everyone, including conservative voters.

Many climate-complacent Albertans seem to be at war with the laws of physics and, lately, with mathematics.

Observers within the financial sector are less hostile to data and have concluded climate change is a risk. For instance, the insurance industry has realized that providing continued coverage to the coal industry is not in the financial interest of its shareholders.

The economics of coal generation are collapsing as renewable energy prices plunge and even the largest coal companies face insolvency.

And as the largest contributor to climate change, the coal industry also inflates disaster-related insurance claims, which increased to a record US$138 billion in 2017. As of last month, 35 insurers with combined assets of $8.9 trillion have begun divesting from the coal sector, which is well on the way to becoming uninsurable.

It’s not just insurers. The Australian Accounting Standards Board recently released new guidance to the nation’s financial professionals calling for greater disclosure of climate risk in financial statements. Last month, the International Accounting Standards Board, which develops reporting protocols used in 140 countries, issued a similar statement on material climate risks. Making it a triple play, 29 investor groups representing $1.2 trillion just put the four largest accounting firms on notice that if auditors failed to implement the latest climate risk reporting standards, they would face shareholder motions for their dismissal.

While local oil ideologues might want to dismiss these shifts in the insurance and accounting industry as a fringe political agenda, empirical evidence says otherwise. For years, Bank of England governor and central banking superstar Mark Carney has used his rarified position in the financial sector to goose companies towards improved climate related financial reporting.

In 2015, he formed the Task Force on Climate-related Financial Disclosures, currently chaired by U.S. presidential candidate Michael Bloomberg. Carney also warned that companies need to quickly agree on credible climate metrics or have them imposed by regulators, and that those firms that ignore the climate crisis will go bankrupt.

Carney’s term at the Bank of England is up in 2020, and he understandably declined to stick around for the post-Brexit train wreck. While he could easily segue into a cushy corporate gig of his choosing, Carney has instead decided his next career will be with the United Nations as Special Envoy for Climate Action and Finance for $1 a year. According to Carney, his primary focus will be on improving financial reporting: “The disclosures of climate risk must become comprehensive, climate risk management must be transformed, and investing for a net-zero world must go mainstream.”

Even under the lax reporting standards enjoyed for decades by oil companies, concealing climate risks can have grave corporate consequences. ExxonMobil is currently being sued by New York state for failing to disclose climate-related liabilities to its investors. While the state scaled back its claim in closing arguments, more than a dozen other lawsuits are moving through the U.S. court system. Each case requires companies to disclose documents about what they knew about the damage done by their products.

Progress has been painfully slow, but the financial world is finally being dragged toward corporate climate transparency. Moody’s isn’t unfairly targeting Alberta. It is belatedly beginning to account for known financial risks that have been in plain view for years.

This is yet another reason to rapidly diversify Alberta’s oil-dependent economy, a reality that seems to be sinking in even among oil companies. Suncor just made a $300-million provincial investment — in a wind farm.

Kenney apparently sees political profit in adding credit rating agencies to his long list of perceived oil enemies. But rather than more opportunistic and empty rhetoric, the province needs credible leadership based on facts. Albertans facing a fundamental and challenging shift away from fossil fuels deserve as much.

And if the premier wants to woo investors to the province, he might want to tone down his conspiratorial aspersions about their motives.