Vancity vs Enbridge

It was recently reported that Vancity Investment Management is divesting its shares in beleaguered Canadian oil company, Enbridge.

Enbridge has made the news repeatedly over the last few years because of leaks in its pipelines. Not unrelatedly, the company has faced opposition from native and environmental groups with regard to its planned pipeline across northern Alberta and British Columbia. The combination of errors in its past and risks in its future is apparently just too much for Vancity, and perhaps for other socially- and environmentally-conscious investors.

This new announcement is, on the surface at least, a good example of the connection between ethics and business. It is often pointed out that, in order to stay in business, a company needs to maintain its ‘social license to operate.’ But more specifically it needs to retain the goodwill of key stakeholders, and investors are very high on that list.

But of course, investors can turn on a company for all kinds of reasons; the perception that the company isn’t doing well socially or environmentally (or more generally, ethically) is just one. Companies can take a hit to their shares for any number of reasons. Even if we limit ourselves to broadly “social” reasons, there are good and bad reasons, reasons about which there is broad social consensus (e.g., child labour) and ones that are socially divisive (e.g., contributions to pro-choice or anti-abortion groups). And so on.

This points to an interesting question about the obligation that managers and boards have to manage risk. It is increasingly clear that the obligation to manage risk includes not just financial risk, but just about any risk to which the company might be subject. That includes environmental risks and reputational risks. Understandably, the two are intertwined. According to the story cited above, one “ethical investment” company (Northwest & Ethical Investments LP) has expressed concern about Enbridge not (just?) because of the risks its pipeline poses, but because of the risk posed by opposition.

Should Enbridge (and its shareholders) be concerned about the Vancity divestment? That’s unclear. The divestment itself doesn’t sound catastrophic, but things could change if other investors follow suit. How likely that might be is also unclear. The interesting question is which kind of worry is more likely contagious: worries over environmental risks (and financial risks that go with those) or worries over risks of opposition.

In the end, it may not matter much. As I’ve argued before, oil companies need to do a better job of managing environmental risks. If they can succeed at that, they may well see the risks of social opposition melt away at the same time.

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