Investors have been accused of “illogical” and “paradoxical” behaviour over the purchase of bonds by ConocoPhillips (COP) that may drive the firm onto exclusion lists by next year.
Earlier this month, the oil giant raised $2.7bn to finance the acquisition of the remaining half of Canada’s Surmont oil sands field from TotalEnergies. The deal is due to complete later this year.
According to calculations by Swedish climate think tank the Anthropocene Fixed-Income Institute, owning Surmont outright will push COP’s oil sands revenues and production beyond the 5% threshold adopted by many European investors as part of their climate commitments.
Investors such as KLP, Danske Bank Asset Management, Sarasin and Partners, Aegon and Allianz exclude companies generating more than 5% of their revenues for oil sands, because of the high emissions, water usage and deforestation associated with the technology.
KLP’s senior responsible investment advisor, Arild Skedsmo, told IPE that the fund had not purchased the COP bonds sold earlier this month.
When asked whether KLP would divest the firm in light of its plans to expand oil sands activities, Skedsmo said “KLP has a clear position against investments in oil sands […]. If COP crosses the threshold they will be excluded from our portfolio,” adding that the fund voted against COP’s board at its most recent annual general meeting, “due to lack of credible climate or energy transition plan”.
Erik Eliasson, head of responsible investments at Danske Bank AM, told IPE that COP was excluded from its entire investment universe already because of its tar sands activities.
But, according to Bloomberg data, numerous BlackRock funds bought COP’s recent bonds, including two ESG-labelled strategies: the iShares ESG Aware USD Corporate Bond ETF and the iShares ESG Aware US Aggregate Bond ETF.
“Our understanding is that those funds track an MSCI index with a 5% threshold for oil sands,” noted Ulf Erlandsson, founder of the Anthropocene Fixed-Income Institute.
“The COP bonds will have made it through because currently the company’s exposure to oil sands falls beneath that threshold, but now they’ve raised the money to buy the rest of the Surmont field, we expect revenues to rise to closer to 7%.
“That means that, as a result of buying these bonds, they may have to sell them within a few months, as well as any others they own from ConocoPhillips. It’s a completely illogical way of making investment decisions.”
MSCI would not comment on whether it expected COP to breach its 5% oil sands threshold. BlackRock did not provided any comment on the research.
Erlandsson said that if funds were forced to sell securities as a result of the acquisition, it would incur costs for clients.
“If you’re an asset manager running a mandate for an asset owner that includes a 5% oil sands limit, as many of them do, and you buy bonds from an oil company so they can expand their oil sands products and surpass that threshold, then I think there are questions around whether you’ve breached your fiduciary duty,” he argued.
Other funds that claim to incorporate green metrics while still investing in ConocoPhillips – although not necessarily the bonds issued to finance the Surmont acquisition – are reported to come from managers including DWS, BNP Paribas Asset Management, JP Morgan Asset Management and UBS Asset Management.
Norges Bank Investment Management, which has holdings in COP bonds, has long argued that retaining stakes in large oil companies is a crucial part of ensuring an economy-wide climate transition.
Asked how it reconciled that position with COP’s decision to become more polluting by buying the Surmont oil field, a spokesperson told IPE it had “clear expectations to the companies in our portfolio when it comes to how they should address climate change” and that it engaged with companies on the topic, excluding those that do “severe environmental damage”.
He declined to comment on COP specifically.
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