In response to our Scope 3 shareholder proposal, Enbridge replied in its proxy circular (pp. 125-126). This is I4PC’s rebuttal of its reply.
The vast majority of Enbridge’s revenue is derived from the transportation of fossil fuels, most of which are burned, producing downstream scope 3 emissions. Climate action will curtail fossil fuel burning, putting Enbridge’s current main revenue streams at risk over time. These facts are not in dispute.
But by failing to account for and disclose these downstream scope 3 emissions, the company fails to identify and disclose this risk, thereby also putting its investors at risk. This is doubly true considering the company is currently expanding its delivery of fossil fuels, creating even greater transition risk.
Enbridge tries to explain away this disclosure failure by appealing to alleged uncertainty in scope 3 accounting methodology, but this is not supported. There is enough accepted guidance for Enbridge to proceed, and indeed the GHG Protocol (the international GHG accounting standard) encourages companies to do so based on the relative size of the scope 3 emissions and the company’s business goals, two criteria that apply well in this situation given the large scale of emissions in question and Enbridge’s expansion goals.
In contrast, Enbridge’s current approach to scope 3 disclosure gives investors a false sense of security because it characterizes the company’s scope 3 emissions as vastly smaller and being reduced. This is like piloting a rocket ship with faulty readouts.
We find evidence of bad faith in the response. The shareholder proposal was altered by Enbridge in its management circular to remove spacing and put into smaller italicised font, making it hard for voting investors to read, unlike the company’s response.
Enbridge claim: “In 2021, we added a new Scope 3 metric regarding the emissions intensity of the energy we deliver.”
Response: This metric only includes a portion of its scope 3 emissions, namely the upstream emissions associated with the energy. But it shows that Enbridge already has the information it needs for full disclosure because calculating an intensity metric requires that information. It should apply readily-available emissions factors to add the downstream emissions of that energy, and report that in absolute terms so that investors are aware of the overall scale. Doing so annually would then inform investors about the trend.
Enbridge claim: “We also added a metric regarding Enbridge’s contribution to the avoidance of third-party emissions, through our investment in renewables, lower-carbon fuels and conservation programs.”
Response: Enbridge’s investments in these activities is laudable. But, by refusing to account for the increases in scope 3 emissions resulting from Enbridge’s fossil fuel expansion projects, this metric amounts to talking about only one side of the ledger, while ignoring the other. This is misleading.
Enbridge claim: “There currently are no standard definitions for all 15 categories of Scope 3 emissions in the GHG Protocol Scope 3 Standard….The tracking, recording and measuring of Scope 3 emissions continues to be highly uncertain for midstream energy companies like Enbridge. In particular, category 3 (fuel-and energy-related activities not included in Scope 1 or Scope 3) and category 11 (use of sold products) remain challenging, as they require the tracking of products that move on and off our system.”
Response: The GHG Protocol enables companies to move forwards with scope 3 reporting; it does not disable them, as Enbridge here implies. In each category – including categories 3 and 11 – the Protocol provides potential calculation methodologies, including the use of industry averages and proxy data if necessary. Enbridge also already collects data about the products moving on and off its system because it charges customers for these services.
The GHG Protocol (Appendix B) lays out provisions for sensitivity analyses so that companies like Enbridge can account for different estimates for emissions from the use of products, rather than to use this uncertainty as a reason to not report on these emissions. The GHG Protocol also anticipates companies potentially recalculating base year emissions when making data quality improvements over time.
Enbridge claim: “There is currently no established legal framework for Scope 3 emissions reporting applicable to Enbridge under Canadian or U.S. regulatory regimes.”
Response: While these regimes are in development, it has not stopped many companies reporting their scope 3 emissions, including Suncor, Cenovus, and Occidental. Arguably, scope 3 financed emissions reporting is even more complex in the case of financial companies, yet has been done by TD, BMO, and many others. This is prudent preparation for regulation, but also necessary once a company makes a net zero commitment – as Enbridge has done – to inform accurate decision making.
Enbridge claim: “Publishing data that lacks definition, uniformity and certainty is, at its best, of limited utility to the reader due to lack of comparability and is, at its worst, highly misleading.”
Response: As the discussion of the GHG Protocol above demonstrates, companies routinely use estimates for their scope 3 emissions, incorporating industry averages and proxy data where necessary. The Protocol also anticipates improving data quality over time and recalculating base year emissions where needed. There will never be perfect data, and this should not be used as an excuse to refuse to disclose.
Enbridge claim: “Unlike the Board, the shareholder proponent does not owe any duty to Enbridge’s shareholders and stakeholders and it is clear, from the language of its proposal and supporting statement, that it has not assessed the risks and consequences of its request in the way that we, the Board of Directors, prudently and dutifully have.”
Response: Prudence and duty would recommend that the Board provide investors with accurate emissions disclosure so that transition risk can be properly evaluated. The Board also has a fiduciary duty to meet Enbridge’s own net zero commitment, and a forthright assessment of emissions and their trends is critical to upholding that duty.
1 We would like to apologize to investors for the presentation of the shareholder proposals in the proxy circular. Enbridge removed paragraph spacing and changed to a smaller, italicized font, making it hard to read, unlike the company’s response.