Several major pension funds in Europe are closely monitoring ConocoPhillips after the company used proceeds from a recent debt financing to expand its business in oil sands. The acquisition of the Surmont field in Alberta, Canada, using funds from three US dollar bond sales worth $2.7 billion, has raised concerns among investors about potential breaches of their tar sands policies. Aegon NV of the Netherlands and KLP, Norway's largest pension fund, are among those considering adding ConocoPhillips to their exclusion lists.
The expansion into oil sands is a source of worry for investors due to the high greenhouse gas emissions associated with this type of crude oil. The Anthropocene Fixed Income Institute's analysis suggests that ConocoPhillips' revenue from oil sands could reach 6.9% of its total revenue in the next year, up from 3.6% in 2021. This exceeds the 5% limit commonly set by ESG funds for oil sands revenue.
KLP, which holds approximately $35 million worth of ConocoPhillips shares, has a strong position against investments in oil sands. They enforce their exclusion policy when revenue exceeds the 5% threshold, and they have voted against ConocoPhillips' board at the annual general meeting. Aegon NV also expressed concerns about potentially adding ConocoPhillips to its exclusion list.
Notably, many of the ESG investors who are now concerned about ConocoPhillips' expansion in oil sands were also involved in financing the Surmont acquisition. This includes BlackRock, which provides ESG-labeled exchange-traded funds that adhere to the 5% oil-sands exclusion threshold.
The expansion into oil sands threatens ConocoPhillips' ESG scores and its standing among ESG investors. While the company currently has a high rating from MSCI ESG Research, it remains to be seen how the increased oil-sands business will impact these scores.
The situation also presents an opportunity for active sustainable investors to differentiate themselves from rigid passive strategies. Unlike passive investment strategies governed by exclusion criteria, active managers can proactively incorporate ESG factors into their investment process.
Overall, the increasing scrutiny from pension funds and ESG investors is likely to lead to divestment pressure on ConocoPhillips. It highlights the paradox of investors funding deals that lead to companies considered uninvestible by ESG standards.