Keith Stewart: Kinder Morgan’s climate denial is bad business

Kinder Morgan’s climate denial is meeting resistance from shareholders concerned about risks taken with their money.

The company behind the Trans Mountain pipeline running from Alberta to Vancouver had misrepresented climate science last November when Kinder Morgan Canada's president Ian Anderson made headlines by saying he didn’t want to “pretend to be smart enough” to know who’s right about human influence on the climate. The company later clarified, quoting him saying that "Climate change is real. Fossil fuels lead to higher CO₂, which in turn contributes to climate change."

Despite that, the depths of climate denial can be seen in Kinder Morgan's most recent annual report filed with the U.S. Securities and Exchange Commission. The section on climate change opens with “Studies have suggested that emissions of certain gases, commonly referred to as greenhouse gases, may be contributing to warming of the Earth’s atmosphere.” (Emphasis added.)

That’s akin to a tobacco company saying some studies suggest that smoking may be related to lung cancer, but let’s keep smoking while we study it further.

The company goes on to argue that while “some climatic models indicate that global warming is likely to result in rising sea levels, increased intensity of hurricanes and tropical storms, and increased frequency of extreme precipitation and flooding”, the timing and location of impacts is so uncertain that “we are not in a position to say whether the physical impacts of climate change pose a material risk to our business, financial position, results of operations or cash flows.”

Rising sea levels aren’t really a hypothetical any more; we’re living them. Kinder Morgan’s shareholders appear to agree, and are even raising questions on the future of pipeline projects now that the world has agreed to take aggressive action on climate change.

Shareholder revolt on climate risk

This month, Kinder Morgan shareholders will vote on a resolution that would require management to prepare “an assessment of the medium and long-term portfolio impacts of technological advances and global climate change policies.”

That might seem innocuous, but it has some not-so-hidden barbs.

The resolution notes that the signing of the Paris climate agreement in 2015 will likely mean increasingly stringent limits on greenhouse gas emissions and asks if – in light of potential new climate policy that reduces demand for fossil fuels – it still makes sense to invest billions to expand Canadian oil sands export capacity to the West Coast and Asia.

CalPERS, the California pension giant that owns almost 5 million shares in Kinder Morgan, is publicly calling on other shareholders to support the resolution. It will likely be joined by Blackrock, the world’s largest asset manager and one of the largest investors in Kinder Morgan, which is calling on all companies to assess climate risk.

The Kinder Morgan board of directors, on the other hand, has responded with a unanimous recommendation for shareholders to vote against the resolution. They argue that preparing an assessment of climate risk “may cause us to overstate the likelihood of certain risks, which could be detrimental to our business.”

They have two reasons to fear the question.

First, ongoing investigations into Exxon’s history of climate denial have made it painfully clear to corporate executives at fossil fuel companies that lying to your shareholders about climate-related risks can result in investigations and potentially liability for fraud. So this assessment can’t be a PR puff-piece.

Second, they know they won’t like the answers they get, based on Suncor’s recent example.

Suncor published climate risk assessment

On April 17, Suncor published an assessment of climate risk (comparable to what is proposed for Kinder Morgan) in response to a resolution passed by their own shareholders last year.

The oil giant explored “three long-term energy futures scenarios, all of which are equally plausible and will affect our operating environment and business strategy in markedly different ways.” In the scenario where the world is closest to meeting the Paris climate targets:

● The demand for oil drops and oil prices stay low as “renewable power generation fuels a largely electrified system” and “breakthrough battery technology supports growth in electric vehicles.”

● “New oil sands growth projects are challenged and unlikely to proceed.”

● “No new export pipelines are built out of the Athabasca Oil Sands region.”

You don’t have to read too far between the lines to see that the largest Canadian oil company is admitting that new oil sands projects and pipelines make no business sense in a world that is acting on climate change. Not exactly what a company planning to build a major new oil sands pipeline wants to hear.

What’s a pipeline company to do?

Suncor’s assessment leaves Kinder Morgan in a difficult position: try to hide the fact that the financial success of your proposed pipeline depends on a global failure to act on climate change, or accept that you need to become something more than just an oil and gas company.

For the moment, Kinder Morgan is choosing to fight its own shareholders so that it doesn’t have to answer the question. But even if management wins next month’s vote and the shareholders' resolution fails, it’s likely a temporary victory.

Canada’s security regulators, inspired by the work of the global Financial Stability Board led by former Bank of Canada Governor Mark Carney, are looking at making these kinds of climate risk disclosures mandatory.

That kind of scrutiny is likely to uproot even the most deeply-rooted forms of climate denial.