Alberta Inquiry into Anti-Energy Campaigns

SUBMITTED BY MAC VAN WIELINGEN 

Public Inquiry

ANTI-ENERGY CAMPAIGNS

www.AlbertaInquiry.ca

March 31, 2021

Dear Sir/Madam:

RE: Public Inquiry into Anti-Alberta Energy Campaigns - Request for Commentary

Thank you for the opportunity to offer my perspectives and comments to the Commission of Inquiry into Anti- Alberta Energy Campaigns (the “Commission”).

I will firstly note that I have read or at least reviewed the Commission Reports, as well as the additional publications which were forwarded to my attention.

These reports and documents are summarized below:

1.       Cooper Report

2.       Nemeth Report

3.       Nemeth Report (Supplement)

4.       Energy in Depth Report

5.       Alberta Environmental Monitoring Panel Report

6.       Mines, Minerals, and Green Energy

In the letter of November 9, 2020, I was invited to address eight questions. I will speak to each briefly within this submission.

In a subsequent letter dated November 18, 2020, additional materials were provided, notably a November 11, 2020 New York Times article entitled “How one firm drove influence campaigns,” and responses published by Energy In Depth and FTI Communications. You asked certain questions relating to these materials which I will reference in my responses to the eight questions.

I wish to emphasize that most of my value add in this submission is probably in the realm of my experience in governance research and practice. As I explain below, I believe the issue of concern is policy-focused activism funded through private foundations (often foreign-controlled) subject to often limited public accountability.

Private funding of public activism is a governance issue

The essence of the issue is the potential misalignment of interests between the insiders of the activist agencies, large donors, and those with executive control, and the interests of those in the impacted communities. This problem is particularly serious if the donors and those with executive control are foreign, and thus may not be sensitive to the local, regional, and national interests within the countries where they are directing their actions. The worst circumstance is the foreign funding of activist agencies where there is limited or incomplete transparency and disclosure, and a lack of independent oversight to take into account the interests of stakeholders in the impacted communities. In my mind, this is the critical issue on the table for the Commission, for Albertans, and for all Canadians.

I want to be clear in saying that in my opinion, the problem is not activism. I see activism as an essential part of the functioning of an engaged citizenry. The problem is the possible misalignment of interests between the insiders of the activist agencies, large donors, and those with executive control, and impacted stakeholders. It is this possible misalignment of interests which turns the private funding of public activism into a governance issue. It is important to recognize that the governance issue can become particularly magnified and challenging if activism turns into extremism.

Activism that becomes extremism is a separate dynamic with unique characteristics that has the potential to seriously undermine good governance. Extremism represents a shutdown of open-mindedness and can limit and even prevent open inquiry into the conditions and impacts of desired change. Extremism thrives on narrow mindedness, divisiveness, the fracturing of interests, and often involves tactics to amplify polarization which can easily turn into aggressiveness, hostility, and dehumanizing behaviours of others who may have different views. This is a huge risk for governance integrity within a civil society, and it appears to me that Canada is increasingly moving in this direction.

A related perspective relevant to Alberta and Canada is the potential loss of full constructive partnering and collaboration. This is a perspective that is certainly relevant to me in offering this submission. I know from extensive experience in organizational leadership, both in practice and research, that the fundamentals of a strong culture – trust, accountability, commitment, and ethics – have a significant impact on the quality of decision making and the levels of collaboration essential for the success of any group of people seeking desired outcomes. Simply put, through working together versus tearing each other down, we can accomplish much more. This certainly includes the complex national and global initiative to decarbonize and reduce climate risk.

I am convinced that we need leaders within business, the not-for-profit sector, government and non-government agencies, and elected officials at all levels, who can hold the tensions of polarized positions and bring forth visions and strategies that are wholistic and unifying in ways that are ethical and respectful. This means resisting the temptations of political advantage seeking within polarization; resisting the pressures of aligning or opposing with “we/they” group identifications; and resisting the pressure to fall into attempts to diminish or delegitimize others who may have different views. We all have the opportunity to play a role in creating and maintaining a safe space for others to engage in civil discourse, including with those who have different or opposing views.

Question #1 - The Nemeth Report may be read as suggesting that environmental non-governmental organizations and activists are key players in a movement funded by well-endowed foundations and interested governments, which movement operates as a decentralized network that is aligned and ideologically motivated to act in concert to end the use of fossil fuels.

Do you agree or disagree with Dr. Nemeth’s conclusion? Why? From a policy perspective, what are your views on the role of foreign foundations and governments funding efforts in Alberta to reduce or end the use of fossil fuels?

I generally agree with Dr. Nemeth’s conclusion. Environmental NGOs and activists are definitely key players who have serious influence on public opinion and policy development, as well as regulatory and political decision making in Canada. I think it is reasonable to describe the aggregation of these players as a movement and it certainly appears well-funded, with substantial funding coming from US foundations. Further, in my opinion, it is accurate to say that it operates as a decentralized network. It is not centralized in the sense of a government or a corporation where authority rests with an ultimate body such as a cabinet or board of directors. Although the players involved do not act in unity as one entity, there is a considerable amount of influence, direction, and coordination that occurs within that network. This arises primarily through the grant giving or donation process; in other words, it is the power of the money being directed to these different activist groups that heavily influences the direction and activities of these groups.

Here is an example of this from my own experience: When the anti-oil sands movement was gaining profile, I had numerous discussions in my boardroom with environmental groups about the initiative.

I often asked, “Why are you so focused on Alberta’s oil sands? What about coal? We all know coal is a much more serious problem in terms of environmental impact.” (Alberta’s power sector at that time was heavily reliant on the use of coal).

Eventually the response came back to me as, “Attacking Alberta’s coal companies and coal industry is not what our donors want. Our donors want us to go after the oil sands.” It was also confirmed to me that the donors they referenced were largely US-based.

With respect to acting in concert to “end the use of fossil fuels,” this is a logical deduction, and I am quite sure it is true at least within the extreme elements of the movement.

Another general theme in this movement that needs to be noted is the left/right political oppositional dynamic. By extension, anti-oil and gas is anti-development as almost all modern development can ultimately be linked, in one way or another to the use of hydrocarbons. Further, anti-development is, by extension, anti- business, as almost all development involves private sector business interests. More broadly, this anti-oil and gas, anti-development, anti-business mindset, has morphed into anti-capitalism, which is logically biased against, if not outright opposed to, any political party that has a constructive and supportive view of the private “free-market” sector (i.e. the republican or conservative side of the spectrum). Thus, the anti- hydrocarbons/anti-oil and gas movement has taken on the appearance of being a highly politicized, left-wing movement.

The movement can easily appear as the product of an organized conspiracy, and it arguably has elements of that, but there is a linking of logic that explains how all these different perspectives fit together and present as an integrated political movement. This is highly unfortunate, as in a certain way, it reduces the legitimacy of the climate movement and leads to policy making that may be more political than fundamental, and which may be misaligned with societal interests, and, in Canada’s case, misaligned with national interests.

Question #2 - The Nemeth Report suggests that the North American Tar Sands Coalition Strategy of 2008 was an early campaign of a movement to create a new energy paradigm for the world, and such campaign was not concerned with making Alberta or Canada suffer in particular, but rather was concerned about transforming western industrial economies and societies to shift off fossil fuels. The Nemeth Report may further be read as suggesting that in this context Alberta’s oilsands reserves were an easy target that gained prominence when they were acknowledged as a proven reserve, increasing Canada’s reserves to among the largest in the world.

Do you agree or disagree with Dr. Nemeth’s conclusion? Why?

There is no question in my mind that Alberta’s oil sands became a target because Canada is an open country and the oil sands are landlocked, which makes infrastructure decisions particularly vulnerable to regulatory and political process. Further, images of the oil sands offer the opportunity to create emotional impact and support often inflated, one-sided narratives. Also, the oil resource involved is one of the largest in the world. Attacking Canada’s oil sands could align with the self-interests of other oil suppliers who compete with Canada, notably those with a vested interest in the US oil sector.

I have had discussions with one of the original signatories to the Tar Sands Coalition strategy paper who confirmed much of this rationale.

There is another very important question about the motives and aspirations of the environmental groups involved. The idea of moving away from oil and gas to “save the planet” from emissions and climate change is a relatively new emphasis for the environmental movement. Although climate change was referenced a decade ago by some scientists and environmentalists, the main concern then was that oil and gas reserves were finite and depleting, and society would be left stranded (and would collapse) without a sustainable resource. This – not global warming – was the main argument for the push to renewables. As reality unfolded, the idea of consumers, households, and the industry being stranded because of a limited resource has been flipped, and now it is the resource which may be stranded because of reduced demand and substitutes.

An important question in the background is, what is it that really motivates and drives these environmental agencies? Is it purely to do good in the world? Is it ideology and value-based as some people argue? Or is it purely logic and functionality at a point in time, i.e., that oil and gas resources are finite and therefore we need to move off of them towards a renewable source of energy? That was certainly compelling logic at one point in time. Positive, if not admirable, intentions and compelling logic to solve societal problems are surely a large part of the reality, but there is another dynamic that is rarely addressed.

There is a strong argument that what motivates the individuals within these agencies is their jobs, income, and the survival of their entities in the turbulence of massive societal change. The risk and the limitation of these organizations is that they are generally single-purpose entities, for example environmental activism focused on blocking pipelines and opposing oil and gas. They are like small armies continually looking to mobilize themselves against a cause and they are prepared to adapt. These groups and organizations ideally need large, high-profile causes where they have a chance of proving that they can have impact and which provide a “use of funds” and justification for donor support, and indeed which justifies the existence of the agency. This is not a specific criticism of these entities; it is, in my opinion, a generalized truth that most of these organizations most of the time are striving to sustain themselves. As these environmental agencies adapt to the reality of external global circumstances, they are very willing to contort their stories to serve their own survival-based interests. As one environmental leader said to me, “We were being entrepreneurial; we went to foreign donors because they were prepared to fund us.”

This is not to say that ideology and values are not critical; but it is to say that organizational and professional self-interest is logically, and understandably, always present and colours the positions and actions of these agencies. Thus, the self-interest bias versus the interests of others is always present, within businesses, government, and non-government agencies pursuing a cause. This is one broad reason why good governance is so important to ensure the healthy and effective functioning of society.

Question #3 - The Nemeth Report may be read as suggesting that some advocacy programs are directed at children. Do you agree or disagree with Dr. Nemeth’s conclusion? Why? Do you believe that there are any compelling policy considerations that arise in regards to interactions between advocacy organizations and youth? If so, to what extent are these policy considerations different if foreign funding plays a role in such advocacy programs?

Advocacy programs directed at children are a problem particularly if they are narrowly focused and do not confer generalized benefit to all children and all people. If you look broadly at societal aspirations and values, we should also be educating children and all people about the importance of economics, the efficient allocation of resources in society, and the importance of savings and capital accumulation for our future. Young people coming out of school often do not understand this. There should also be a focus on social considerations relating to health, education, community well-being, and the link with economics to fund what can be thought of as “social prosperity.” Further, in my opinion, education must also include ethical concepts and principles that underlie societal governance relevant to all decision-making entities in society. This would include the importance of openness, transparency, honesty, and accountability. Education directed towards preserving the quality of our environment is clearly of vital importance, but it should be placed in the broader context of all essential societal needs and aspirations.

Specifically, there should be no role for foreign (or domestic) funding of narrowly prescribed advocacy programs directed at children. To me, it seems there is a horrible possibility that this is actually happening.

Question #4 - The Cooper Report refers to a “Design to Win” project advanced by certain foundations (see page 14), in which Dr. Cooper asserts that replacing existing electricity generation capacity with nuclear energy, and substituting natural gas for coal, appears to have been ignored. Instead, Dr. Cooper refers to a strategic objective of the project to mobilize public demand for legislative action, through what Dr. Cooper describes as alarmist rhetoric.

Do you believe that, as a general matter, issues related to the energy industry seem to be increasingly polarized and as a result, partisan debate is intensified? If so, do you consider this to be part of a deliberate strategy by any party or parties; and if so, on what basis do you draw this conclusion?

I have seen the same phenomenon that Dr. Cooper speaks to where substituting coal for natural gas, and using non-emission generating nuclear energy for base-load electricity is ignored or opposed. Similarly, technologies that remove carbon emissions from the atmosphere are often opposed by environmental activist groups. I have often wondered how those who embrace a short-term apocalyptic view of climate change reconcile their opposition to fast, relatively easy decarbonization by switching coal to natural gas, and the dramatic long-term emission-free solution of nuclear. If we are in a climate crisis and the “end is near” because of CO2 emissions in the atmosphere, why don’t we do everything possible as soon as we can?

On the same theme, environmental activist groups appear generally uninterested in the reality that Canada’s oil and gas sector has among the highest, if not the highest, Environmental, Social, and Governance (ESG) standards and performance among all significant energy suppliers in the world. Emissions from the oil sands have been high but are now clearly trending towards the average of all barrels refined in the US, and new oil developed in Canada is in fact now well-below the average. Further, our natural gas sector is arguably the greenest in the world. Broadly, we all know that the global transition to decarbonization will take multiple decades. Is it not in Canada’s national interest, and the interests of all our global customers, for Canada to stay in the energy market, albeit a market in transition and long-term decline, to provide the world with reliable, low carbon, high ESG energy products?

I will say directly that it appears to me that there is a narrowness of perspective in the views of most participants within the environmental community that do not align with sound strategy and policy that serves the long-term national interests of Canadians.

The concerns around polarization and political advantage-seeking within polarization are incredibly serious issues in Canada. Over my years of work in energy policy in Canada, it has become very clear to me that polarization persists because there are people and subgroups who perceive they benefit from polarization. In this connection, it is the national political parties that concern me the most who unquestionably design their electoral strategies around polarized elements within the electorate and are very prepared to amplify that polarization in order to serve their own electoral interests. The result may well be to weaken the integrity of democratic decision making in Canada. The second negative consequence is to undermine our national culture and the fabric of unity that is so critical to the healthy functioning of our country.

In my opinion, specific partisan interests are potentially being prioritized ahead of the integrity of our institutions and our national interests. Unique to Canada, this polarization and the reality of political expediency is intensely regionalized, certainly as it relates to energy policy, as our energy resource is based largely in Western Canada and national government control is based largely in Central Canada.

The temptation of the self-interest bias and advantage-seeking based on political regionalized polarization is a huge threat to the functioning of Canada. I believe the environmental anti-oil and gas movement is amplifying the divisions within Canada, profoundly influencing political activities and commitments, and making a difficult situation worse for all Canadians. The extent to which this influence is funded from foreign sources creates a highly sensitive and serious issue for all Canadians.

Question #5 - The Alberta Environmental Monitoring Panel Report proposes the need for a new approach to environmental monitoring, evaluation and reporting in Alberta and recommends the institution of a province wide system to achieve this (Recommendation 5).

Are you aware of whether any improvements to environmental monitoring, evaluation and reporting in Alberta have been instituted subsequent to the Report? Do you believe that Albertans have sufficient access to reliable information regarding environmental monitoring, evaluation and reporting in the province? If not, what can be done to improve Albertans’ access to such information?

I do not have the knowledge or the awareness to offer opinions of substance relating to the Alberta environmental monitoring panel report. I have certain impressions that we are doing an appropriate, if not exemplary job, in most monitoring respects, but I do not profess detailed knowledge on this matter.

Question #6 - The Cooper Report suggests that certain organizations are involved in strategically funding activist organizations in Canada or organizations that are in the US but are opposed to Canadian interests. The Cooper Report may be read as suggesting that funds flow from these organizations to smaller organizations that are ideologically aligned, thus giving the appearance of a grass roots movement.

Do you agree or disagree with Dr. Cooper’s conclusion? Why? From a policy perspective, if the Cooper Report is correct on the flow of funds from foreign entities, what are your views on this claimed means of funding advocacy? Does this create any concerns regarding transparency of funding? If so, should measures be taken to enhance transparency? Are there negative consequences that would arise from enhanced transparency?

I agree with Dr. Cooper’s conclusion that funding organizations in the US are strategically supporting activists in Canada and in the US who are opposed to Canadian interests. In my opinion, the related funding decisions, however noble they may be in a global context or in the minds of the donors, lack a concern for the national interests of Canadians. The lack of transparency in the flow of these funds is extremely concerning, and the distribution of funds to smaller organizations to create the appearance of a grassroots movement is similarly concerning. It takes on a look of pure political mobilization and creates a distorted understanding of reality in the minds of the public.

The above comment must be put into context. It is not just a “left wing” phenomenon, but if it is, it shouldn’t matter. I am sure that there are equivalent strategies within the “right wing” side of the spectrum. The problem is that public opinion and policy is being influenced and manipulated without full disclosure of often interconnected sources of funding.

Question #7 - The Energy In Depth Report (page 25) refers to the role of a law firm with registered charitable status in a letter writing campaign encouraging BC municipalities to sue a proponent of Canadian energy projects, including projects relating to the transportation of oil and gas, for climate-related damages.

What, in your view, are the advantages and disadvantages, or broader policy issues, with permitting law firms with focused objectives to have charitable status, such that their funding qualifies as charitable donations for the donors? To what extent are these advantages/disadvantages, or policy considerations, different where the funding comes from foreign sources?

Activism through law firms who might have charitable status is, in my opinion, incredibly manipulative of public opinion. It sends a message that those who oppose the views of the law firm may be legally offside or that the views of the law firm in its charitable activities are representative of what is in fact legal and real. The occurrence of this reinforces the perception that private funding of public environmental advocacy in Canada seems out of control.

Question #8 The Reports generally may be read as advancing the proposition that a small number of extremely well-endowed foundations advance the philosophy of their funders, management or boards of directors to influence public policy, and that they are less publicly accountable than politicians or industry.

Do you agree or disagree with this proposition? Why? If you agree with the proposition, do you consider it to be problematic from a policy perspective? Why? What, if any, solutions might offer a fair and proportionate mechanism to address the policy concerns you consider to exist?

There is no doubt in my mind that a small number of extremely well-endowed foundations exercise enormous influence on public policy in Canada, and that they are less publicly accountable than politicians or the corporate sector. I view this as an overarching governance problem that is so large, we almost can’t see it. The fact that this funding is foreign-based heightens the concern.

Governance-related processes can be understood as an effort to reduce or manage the misalignment of interests of insiders or powerful stakeholders with the interests of the public and other stakeholders. The expansion of activism within the philanthropic sector poses a serious governance challenge. The major donors of these entities may have interests that are totally misaligned with the public interest where they

operate. This is a particularly sensitive issue if the major donors are in fact foreign, but yet operating within Canada and exercising their influence.

This issue is occurring globally in different ways and to an extent, within numerous countries. At the highest level, this is akin to the extreme concern that exists within the US and Western Europe relating to foreign interference in shaping public opinion and intervening in electoral processes. It’s hard to imagine that the interests of Europeans and Americans are somehow aligned with the interests of these foreign perpetrators of change.

Canada is experiencing this conflict of foreign agency interests and the risk of misalignment with Canadian domestic interests. Even if there is no misalignment of interests, the lack of “good governance” relating to this influence in our domestic affairs is in itself a problem.

An example of foreign-funded activism is the Great Bear conservation initiative in British Columbia which had the look and feel of a pure conservation project. However, it became clear that it was the product of a significant, well-organized initiative where a high priority was to block oil resource development in Canada. It is hard for me to believe that the lost jobs and income for Canadians, including Indigenous groups who supported the Northern Gateway pipeline, were given serious consideration by the funders behind the scenes.

It is complicated because the Great Bear project has considerable merit. What is not complicated though is the disturbing lack of transparency and disclosure, and the difficulty of tracing the flow of money from foreign funders to domestic Canadian actors, including those who intervened in Canadian regulatory and political process absent, in my opinion, full, true, and plain disclosure.

I am personally an example of a Canadian who was, in a sense, taken advantage of in this process. I was asked, along with certain other Canadians, to make a donation to this project, which I did. Canadian donors were needed to create some legitimacy for the overall project which was predominantly funded by foreign foundations. If I had more knowledge of the Tar Sands Coalition and of the larger plans of a group of foreign foundations to block oil development in Canada, and that the Great Bear project was part of this grand strategy, I never would have made this donation.

In conclusion, the key issue that I wish to emphasize is the need for accurate and reliable disclosure of material and influential content from the philanthropic sector. The corporate sector has a form of independent governance oversight for the accuracy and reliability of disclosure materials upon which stakeholders may make decisions. As relating to corporate entities funding what can be seen as political activities, major investment firms are pushing for more transparency and disclosure. Here is a relevant quote from the Top 100 Funds organization: “For asset owners, keeping a wary eye on the money trail is not only the right thing to do but also the sensible thing to do. Asset managers should require the companies and asset managers they work with to disclose corporate political spending … and hold them accountable for donations to groups and individuals that undermine democratic institutions.”

This concept applied to the corporate sector should apply to all who have stewardship responsibility for society’s accumulated savings, the management and disbursement (or investment) of all of society’s capital, whether within corporations or foundations and the not-for-profit sector. I see no such oversight process within most philanthropic organizations, including those involved in public policy advocacy.

I believe that serious consideration must be given to requiring all foundations and not-for-profits active in influencing public opinion, public policy, and regulatory decisions to have both a code of ethics, a disclosure policy, and internal independent oversight of all reporting, policies, and disclosure materials in a manner similar to a public corporation.

At the very least, there is a profound need for more transparency, disclosure, and accountability of foreign- funded philanthropic activity directed towards public opinion and policy in Canada. I specifically believe that foreign-funded philanthropic activities engaged in public policy activities must conform with the highest possible standards of transparency and disclosure.

Thankyoufortheopportunitytooffermycommentsandreflectionsonthisimportantmatter. Sincerely,

Mac Van Wielingen

Founder and Partner, ARC Financial Corp.

Chair, Viewpoint Investment Partners

Mac Van Wielingen's Comments on Proposed Canadian Sustainability Disclosure Standards

Mac Van Wielingen submitted his viewpoints to the Canadian Sustainability Standards Board (CSSB) consultation on the two proposed Canadian Sustainability Disclosure Standards. General Requirements for Disclosure of Sustainability-related Financial Information and, Climate-related Disclosures.

I certainly appreciate the value of more consistency in sustainability standards. I’m also well aware that there is a lot of water under the bridge with respect to this process. Nevertheless, I will say openly and bluntly, Canada should not simply follow Europe’s lead in governance. More specifically, Canada should not follow Europe and the ISSB in E.S.G. and climate disclosure. Canada can show leadership in this process through more original thinking that would benefit the Canadian public, and also, quite frankly, all people impacted in all jurisdictions. My points below are in the direction of attempting to show how Canada can better serve its own interests and create more value for others in this process.

In my experience, there is an understandable tendency to lose sight of the big picture of our economic and societal system, and the functioning of pieces within our total societal system. Specifically, most of us, including most business leaders, tend to lose sight of the fundamental role of business in society. This is to manage the allocation of a significant portion of society’s accumulated savings, revenues less costs of workers and businesses, that are intermediated within the financial services sector, and invested under the authority and responsibility of corporate boards (including asset managers). The business sector is responsible for managing society’s accumulated savings and redirecting these savings towards societal needs. The corporate board of directors are the standard bearers of preserving and responsibly growing society’s accumulated savings.

Within this responsibility, the board of directors must also ensure that the company is satisfying all laws and regulations appropriately. Specifically, for example the board of directors must approve all public disclosure materials. Generally, this falls within what most observers would call compliance based governance. It is an essential function, but totally incomplete with respect to the broader role of the board of directors and the corporation in society. There is a tendency, that seems to ebb and flow, to view the Board of Directors as an extension of the regulatory system. Even corporate directors seem to succumb to this mentality and think if they can satisfy these requirements, they have fulfilled their role and responsibilities.

These broad points enable me to say specifically that there is serious risk that the proposed sustainability standards are regressive to what could be considered good governance. The proposed standards are pushing corporate directors back into more of a regulatory and compliance based role, and away from “value beyond compliance”.

Governance is about “authorities, structures, and processes that direct and control the material fundamentals of a business, all within the context of uncertainty”. Directing and controlling material fundamentals requires foresight and holistic thinking. This is arguably the opposite, or at least a counterbalance, to compliance based process, which by definition is historical, focused on what has already happened. I see these new standards representing simply more compliance and more hindsight based reporting. Worse, they will serve to distract from what is most material to a business enterprise. Lastly, the information generated at best is “nice to have” but not material to the decisions made by boards of directors and most investors.

Risk associated with climate change needs to be considered as part of enterprise wide risk management. Most successful businesses are already immersed in this risk mindset. Climate is one risk. Covid and pandemics is another. Global financial market meltdowns are another risk ie the 2008-09 global financial crisis. Depending on your jurisdiction, war is another risk. Political volatility is another major risk. As the world attempts the journey to net zero 2050 it will have to go through 6 new presidential elections in the US which will create a great deal of uncertainty for the policy driven energy transition for Canada and all countries of the world. Policy risk has to be a concern for boards of directors. This list goes on and on, but my point is each risk needs to be considered in the context of enterprise wide risk. Climate risk, in the sense of adverse climate impacting a business, is very real and has to be considered. Disclosure and discussion on the management of this risk is appropriate.

Specific to the question of disclosure of emissions, it must be appreciated that requirements for emissions disclosure for most businesses, including scope 3, will not directly impact the level of climate risk a business may face. This should not be construed as an argument against decarbonization. It is an argument against excessive regulatory burden where there is no or very little materiality. The risk of climate can impact businesses locally, and this needs to be assessed as a risk, but individual businesses themselves do not create global climatic conditions. Maybe the proposed new standards need to have a materiality test on emissions that calculates a specific business’s share of total global emissions for which it was responsible. It could in a sense be set very low to be accommodating towards the broad concern of emissions, but if we went through the calculations, you would see there’s that there’s probably no single business in Canada that has a material impact on global climate, and in turn Canada’s climate.

In fact, the entirety of Canada, with about 1.5% of global emissions, is immaterial in the context of total global emissions. China, United States and India together represent over 50% of global emissions. Canada’s direct impact on the problem is one of “form or image, versus substance”. If climate leadership is defined on the basis of emissions alone, our contribution, arguably, is a moral responsibility as a cooperative partner, versus a climate leader.

This understanding of materiality is starting to work through the awareness and politics of climate policy globally. The idea of being a global climate leader, ie Germany or the United Kingdom, and Canada, as it often references itself, is going through a rethink. Without getting into this in depth, I will just say that the fundamental importance of policy proportionality is resurfacing. What are the gains and losses for any group of people in any jurisdiction relative to the problem of trying to reduce global emissions? This is not somehow an argument to go for a free ride. It is an argument for clarity as to how we can all contribute appropriately to reduce climate risk. It is also an argument to be very careful about what we might sacrifice to achieve something that may not be material to the problem we’re trying to solve.

The best example of this conundrum is Germany itself, which is arguably the worlds foremost, historic climate leader, although this is now changing as they backslide and regress in their commitments. Germany is now realizing that they have truly hurt themselves in pursuing their climate and green aspirations. I reference the recent comments in a speech by Theodore Weimer, CEO of the German Stock exchange where he refers to the German economic model as “sheer catastrophe”. “Our reputation in the world has never been as bad as it is now”. He speaks at length about how “institutional investors are asking where Germany’s economic sense has gone”. He reported that investors are now demanding a risk premium when they invest in Germany. This is a far cry from the view that climate leaders will be able to attract capital more easily.

The view that the proposed Canadian sustainability standards will help us attract more capital needs to be thought through very carefully. As an investor I can tell you that what does attract capital is first and foremost, a business and investment friendly environment. The new sustainability standards may actually discourage new investment or at least discourage new public company listings in Canada. Other fundamentals for attracting capital are low cost reliable and, yes, ideally clean energy (ie hydro in BC and Quebec), responsible development where social and governance factors are part of strategy, the availability of skilled labour, market access, relative ease in permitting, reasonable tax levels etc. Consistency in sustainability standards could be a positive but not if they are excessively burdensome or if based off a model drawn from other jurisdictions that are underperforming, if not actually failing.

My main point is that Canada must be very careful in following the German or the European model of governance. I’m emphasizing this because my fear is that Canada may get stuck with guidelines and compliance based process that have serious adverse impacts on our competitiveness, with minimal real world benefits. The issue of materiality and policy proportionality must be front and centre. My last point is that if Canada is going to follow or harmonize with any other international jurisdiction, it should be the United States. They are our major trading partner and our greatest competitor in many ways. Whatever we may do, we should not get ahead of the US in these standards and process.

Business Council of Alberta - Advocacy is Not a Job, it is a Responsibility

    “Advocacy is Not a Job, it is a Responsibility”

Mac Van Wielingen, Comments and Background Notes for Business   Council of Alberta Member’s Meeting June 20, 2024

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This is my last meeting as the chair of the Business Council of Alberta.

I depart this role with a very high level of confidence in our new chair, Scott Bolton, who will be more fully introduced to you later this meeting.

I am also very confident in our future given the leadership experience of our board of directors and our now proven, well established executive team.

In the simplest terms, the purpose of the Business Council of Alberta is to advocate for prosperity and to make life better for all Albertans.

The keyword here which underscores what we do is “advocate.”

The importance of advocacy has been one of my most powerful learnings. 

One line, a quote from Mahatma Gandhi, speaks to this understanding:

“Advocacy is not a job, it is a responsibility.”

Advocacy is a responsibility, in some way or form, and to some degree, for each of us, for all citizens, in order to be healthy as individuals and to create strong communities.

The resources and platforms we have as leaders in business offer the opportunity to amplify the influence of our advocacy and have greater impact.

This is highly relevant for all of us as leaders in Alberta and similarly for leaders in our neighboring provinces.

Given the structure of electoral politics in Canada, we in the west are under-represented in national policy decision-making. At every stage and level from the elected, to the bureaucracy, we are severely under-represented.

We are not at the table when national policy decisions are being made. These decisions often have a profound impact on our interests, our families, our communities, and all our stakeholders.

The problem of under-representation is not just regional or provincial, it is intra-provincial. We have communities within Alberta and the west that may be neglected, or worse, may be “grist for the political mill.”

I’m thinking specifically about our rural communities, and our agricultural and food sector, whose interests may simply be an afterthought or expendable in national policy decision-making.

The Business Council of Alberta was created in response to the profound need for an additional credible voice to represent Alberta’s interests, across all sectors of our economy.

We are not the be-all-and-end-all solution to the problem of inadequate representation, but we can have influence as a credible and important voice.

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To describe advocacy as a responsibility is not to imply a burden. It is an opportunity to build deeper meaningful relationships with others within our community and to gain the positive satisfaction that comes from contribution.

Personally, I feel a great deal of satisfaction, and even gratitude, for having the privilege of advocating for Albertans, and to have been so involved in the development of the Business Council of Alberta.

It has been one of the most enriching and fulfilling experiences of my career.

We have created something that is very important for Alberta and quite frankly for Canada.

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Why do I say, “for Canada?”

One line from the Alberta Court of Appeal opinion on the Impact Assessment Act, formerly Bill C-69, explains this:

“Federalism is … the defining characteristic of Canada as a nation.”

To quote from the highest court of Alberta:

“Since neither level of government, (the provinces nor the federal government) has unlimited power, each serves as a check on the other.”

We do not have an elected Senate in Canada that might offer more fulsome representation and protection of the interests of the regions of Canada.

In Canada, it is the delineation of specific legal based authorities for our provinces and the national government that creates a counter balance or check on power.

All provinces (except Nova Scotia and PEI) were lined up with Alberta against the federal government in the Supreme Court challenge on the Impact Assessment Act. 

Alberta’s strong advocacy for its interests was advocacy for the interests of all provinces. In fact, it is advocacy for a stronger Canada based on nothing less than the “founding constitutional principle that defines us as a nation.”

The Supreme Court agreed with Alberta’s position that the Impact Assessment Act was unconstitutional. 

Unrestrained or unchecked centralized power is not good governance. In fact, as we have seen, it may well represent an affront to the established historic legal authorities that define Canada.

This affront was also evident in Ottawa’s listing of plastic as toxic and also the invoking of the Emergencies Act in response to the Freedom Convoy. Both were ruled “unreasonable and unconstitutional” by the Supreme Court.

These recent examples evidence a willingness in Ottawa to overreach and compromise the very authorities that define us as a nation. The Supreme Court decisions demonstrate though that the highest court in Canada will stand firm to protect these authorities.

When I advocate for a stronger Alberta, or for restraint on centralized power, I always believe I am advocating for a stronger Canada.

This has been a powerful motivator for me.

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My parents lost everything in the second world war, all their material possessions, the cohesion of their families, indeed many of their family members lost their lives.

They survived but lost their freedoms and dreams. 

They came to Alberta with a new dream. This was the opportunity to work hard and better their lives, and to live in fairness, free from persecution. 

When I entered Rideau Hall in Ottawa, and the room where I received the Order of Canada from the Governor General, all I could think about was my parents. 

This honour symbolically completed something that felt deeply personal.

My parents, if nothing else, were incredible survivors. They overcame some of the most extraordinary hardships imaginable.

The recognition I received left me feeling that their suffering and their commitment to Canada was not in vain.

There’s no question that the experience of my parents created in me a passion to do what I believe is right for all Albertans and, yes, for all Canadians.

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I reference constitutional authorities as I know how important governance structures are for containing and managing conflicts.

In this connection, the way we look at any particular conflict is often heavily influenced by our own biases, and where we stand politically with respect to those who are being advantaged or disadvantaged.

A quote from John Kenneth Galbraith, former advisor to President John F. Kennedy and former chair of Americans for Democratic Action, speaks to this point:

“In capitalism man exploits man, and in socialism it is just the opposite.”

Good governance always involves structures that encourage transparency, accountability, and the balancing of otherwise unrestrained power, whatever the political slant or worldview might be of those exercising power.

This is the deeper reason why corporations have boards of directors. This is to create accountability and to counterbalance the ever-present human tendency to push for more control and more power, which is invariably towards that which is self-serving.

This is the reason why I emphasize the importance of constitutionally established distinct authorities for our provinces versus the federal government. 

This is an example of a governance structure that creates a check on the risk of self-serving control and power. Without it I believe Canada would fail.

It is heartening that the Supreme Court of Canada has reinforced the importance of our governance authorities, and in turn the enduring strength of Canada as a federation.

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In my work in public policy over roughly the last 10 years, I confess I have had moments of real darkness and disillusionment.

We are in such a moment right now.

Over and over I have asked why does polarization persist and why does it seem to be getting worse? 

It eventually became painfully obvious.

Polarization persists because there are those who perceive they benefit from polarization. 

Worse, there are those who are motivated to amplify polarization to create opportunity for political advantage. 

We’ve all heard the perspective of Abraham Lincoln:

“A house divided against itself cannot stand."

But let me be clear, the house of Canada will not fall because of polarization. 

In fact, the open expression of different and opposing views should increase the probability of optimal solutions and strengthen us as a nation.

The problem is in the intentional amplification of polarization to create more opportunity for political advantage. But even this is manageable within a flexible and dynamic political system.  

Where it becomes toxic and seriously damaging is when advantage seeking becomes blind to the best interests of those being represented.

This is a classic governance problem where the interests of insiders are in direct conflict with those whom they represent or serve.

The result is to divide and create dysfunction within the house of Canada. 

I am convinced that much of what we see as hostile policy initiatives directed towards the energy region in the west is mainstream political strategy in Canada. It reflects a large degree of advantage seeking within polarization that tilts towards a blindness to the interests of western Canadians and all Canadians.

Our leading national governing parties are motivated to galvanize the hard-core part of their base; notably, interest groups focused on climate and environmental activism who are generally anti-business, anti-development, and anti-investment.

The environmental issues are incredibly important, but to the extent they are narrowly focused and rigid, they will lead to the subordination, neglect or mismanagement of other priorities that are also incredibly important. This is a notable part of the story of Canada over approximately the last 10 years.

The neglect of other essential priorities is part of the costs or damages of toxic polarization.

We have seen this in Canada with the neglect of economic fundamentals, notably those factors that drove inflation and created a cost-of-living nightmare for many families.  

Another area of cumulative damage has been the failure to create the confidence to encourage much needed investment. The result has been an erosion in the standard of living for Canadians.  The Bank of Canada is now referring to our “productivity” problem as a crisis.

Children and young people today are on track to be worse off overall than their parents, a situation we have never seen before in Canadian history.

Another disturbing high-level cost of politicized advantage seeking has been to breed distrust and discontent, particularly within western Canada. The result is nothing less than a loss in the functionality of our nation.

More specific to Alberta, there are many examples of hostile policy that have been directed towards the energy sector.

One is the freeze out or at least the chill on Liquified Natural Gas (LNG) development, while the United States leapt ahead and became the worlds largest exporter of LNG. Hundreds of billions in economic benefit has been lost or foregone.

There has been a further cost for our allies, and all energy consumers, as our natural gas is probably the greenest and most reliable in the world.

Another example is the emissions cap. The responsible Minister seems proud to point out that Canada would be the only country in the world doing this.

I would say we are the only country in the world doing this because of the great divide in electoral voting sentiments between the energy producing region in the west versus central Canada. If the emissions cap proceeds, we will likely see a loss of production, which would be the most expensive form of carbon reduction imaginable for Canada.

As our Council has said, this is not an “emissions cap,” as other less responsible global suppliers will fill the void and overall emissions will be unchanged or even higher. The “emissions cap” is better described as a “prosperity cap.”

I often ask what would energy policy in Canada look like if our energy resource, instead of being centred in the west, straddled Ontario and Quebec? Would energy policy in Canada be the same?

Most people, elected officials, senior bureaucrats, investors, and business leaders, just laugh when I ask this question and exclaim some version of “get serious, no way it would be the same.”

The fact is that energy policy in Canada is deeply politicized.

Now, as we head toward a federal election, the newest hostile policy initiative is a section in Bill C-59.

Under the banner of truth in advertising, the new law, introduced with virtually no consultation, creates so much uncertainty and potential liability that it will prevent business leaders from discussing environmental progress.

Critics are calling it a gag order which I have to agree with.

I believe it is another example of opportunistic positioning before the federal election. 

It is amplifying polarization, and creating confusion within the business sector, ironically including renewables and clean technology. It will work against the interests of Canadians; creating less disclosure on environmental performance at exactly the time when we need more.

So why do this on a rushed basis, with parts of the new legislation being half-baked, creating huge uncertainty in corporate and investor decision making?

Do political realities have anything to do with this?

Unfortunately, there are additional divisive and hostile policy initiatives underway.

One is Bill S-243, the Climate Aligned Finance Act, now before the Senate Banking Committee. This legislation applies to federally registered and federally reporting corporations, imposing costs, and restrictions that has the look of a forced prohibition against financial support for fossil fuel exploration, infrastructure, and potentially the agricultural sector.

Further, it is designed to prevent individuals from serving on federally registered boards if they have engaged in activities seen as “non-aligned” with defined climate commitments. These commitments include, of course, the Canadian Net-zero Emissions Accountability Act.

It can be deduced from this proposed legislation that a Canadian oil and gas company would not be climate aligned unless it is in wind-down mode. Therefore, any individual involved with a going concern exploration and development company would be restricted from serving on the board of federally registered corporations. It will create a sub-class of black-listed directors particularly in western Canada.

All of the Canadian banks are federally registered corporations. So is Suncor, Enbridge, TC Energy, TransAlta, and ATCO among many others. All these companies will have to assess the composition of their boards if this legislation gets passed, and basically push out those black-listed directors.

Bill C-59 has the effect of muzzling corporations who wish to disclose and discuss environmental progress and Bill S-243, if approved, represents a massive intrusion into the financial sector and corporate governance in Canada.

What is the logic for doing this?

Canada is among the most reliable, responsible, and innovative suppliers of hydrocarbons in the world.

The energy transition is going to be multi-decadal and probably multi-generational.

Our energy and resource sectors offer the highest value add opportunity for enhanced productivity across the economy.

We already have a massive complex array of taxes and regulations in place in the name of climate and environmental protection.

It is not beneficial for Canada to withdraw from hydrocarbon markets or to throttle back our resource sectors; it does not serve our interests, nor the interests of our global allies at a time of great geopolitical strife, nor the interests of global consumers especially those in developing countries.

The answer to the question “where is the logic” lies in a comment I’ve heard many times from trusted contacts in Ottawa.

“We understand your realities, they are based on fundamentals.”

“You don’t understand our realities, they are based on politics.”

“… and we have no electoral support in the west.”

The logic that explains Canada’s self sabotaging national policy initiatives is political logic.

The problem I’m pointing to is insider politicized advantage seeking that is in conflict with the best interests of those who are being represented.

The mindset behind these and similar initiatives is hostile to capital formation, reinforcing the impression that Canada is not business and investment friendly, and it is hostile to the fabric of national unity.

The cumulative damage is a continuing decline in the standard of living for Canadians, certainly compared to our largest trading partner, the United States.

The sacrifice these and similar policies impose on Canadians are grossly disproportional to the problem we are all trying to solve, to reduce global emissions. Canada is not a climate leader if we define leadership simply in terms of emissions.  

We are a climate leader only in form or image. We represent only 1.5% of global emissions. The climate leaders of substance are the largest emitters, China, the United States, and India which cumulatively represent about 50%.

There’s a lot we can do as responsible climate partners to reduce climate risk, but the direction is very different than what these policies imply.

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For Alberta, Saskatchewan, and all provinces of Canada, our constitutional powers are the best defence against self-serving narrow politicized ideals and the centralized push for electoral support and control.

At a deeper level, though, the foundational defence must be an alert and active citizenry committed to represent the interests of our families, communities, and the interests of all Canadians.

Advocacy is not a job. It is an essential aspect of civic engagement and responsible citizenship.

The Social Cost of Alberta’s Economic Downturn

The COVID-19 pandemic has significantly impacted Alberta’s previously weakened economy. The closure of non-essential businesses, travel restrictions, physical distancing measures, and the latest crash in oil prices has negatively impacted businesses and contributed to a surge in unemployment. In May 2020, Alberta's unemployment rate rose to 15.5 percent, up from 6.7 percent in May 2019. At the same time, Canada's unemployment rate was 13.7 percent, up from 5.4 percent in May 2019. According to ATB Economics, almost no sector of Alberta’s economy was left unscathed. Such a rapid increase in unemployment adds to the economic insecurity many households in Alberta are already facing. Further, the unemployment rate in the province is expected to be one of the highest in the country next year.

“According to ATB Economics, almost no sector of Alberta’s economy was left unscathed. Such a rapid increase in unemployment adds to the economic insecurity many households in Alberta are already facing.”

Though the pandemic has exacerbated social distress in Alberta, the fall of oil prices in 2014 and the ensuing recession kickstarted the deterioration of Albertans' social well-being over the last six years. Since 2014, the economic trajectory of Alberta has been stark, and the correlating distress, as captured by data from social conditions for the 2014 to 2019 period, exemplify why significant jobs lost, bears more weight than we may realize:

• The number of unemployed individuals not covered by employment insurance has risen 53 percent;

• Unemployment among young men is up 156 percent;

• Food bank usage is up 80 percent;

• Suicide hotline calls have increased by 85 percent;

• The number of individuals seeking counselling support in Calgary has increased 46 percent;

• The percentage of Alberta households relying on social assistance has nearly doubled;

• Incidents of domestic violence in Calgary have increased by 150 percent;

• Non-violent crime is up 34 percent;

• Business insolvencies have increased by 58 percent; and,

• Consumer bankruptcies are up 101 percent.[1]

It's common to conceptualize a business' contribution to society through economic factors such as the unemployment rate or GDP growth rate, however, it’s evident that the impact extends far beyond such quantitative factors. As exemplified by the data, the worsening of Alberta's economy and the loss of approximately 100,000 jobs in the energy sector, has had effects on the social well-being, and ultimately, the quality of life for Albertans. The rise in suicide hotline calls, incidents of domestic violence, and the number of individuals seeking counselling, exemplifies the dire and long-term consequences that accompany economic hardship. In turn, the healthcare system, the non-profit sector, and government agencies are strained by such increased social distress.

“Though less visible than empty corporate offices, these longer-term, and often less cited aspects of economic hardship on individuals and their families, compound over time.”

Though less visible than empty corporate offices, these longer-term, and often less cited aspects of economic hardship on individuals and their families, compound over time. Such consequences are not always resolved when the economy recovers, and “jobs come back.” As a result, it's imperative that we acknowledge the deeper and more meaningful cost of the approximately 100,000 lost jobs in Alberta, as it's not only about income loss for corporations and individuals. The reality is that the hardship – which permeates the lives and homes of Albertans following the sudden loss of employment – may be everlasting. 

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About the Author

Flutra Kacuri is an incoming second-year law student at the University of Calgary, Faculty of Law and a summer research associate at Viewpoint Research. Her research focuses on ESG, energy governance, and policy.

Economic Underperformance, Excessive Indebtedness, and Our Constrained Future

With last week’s federal deficit announcement, it is now more important than ever that we acknowledge our current realities with detail and clarity. We otherwise will be unable to develop a believable and effective path forward in the post-COVID world. The problem is that our current realities are uncomfortably negative. Many of us just don’t want to see this or believe it. We were in a slow-moving crisis of competitiveness, investment, and productivity prior to the COVID lockdown. Now, we have both stagnant productivity and excessive levels of debt. This feels negative as most of us understandably want to feel positive and optimistic about our future.  However, for optimism to be real it must be grounded in reality. It is only then we can develop a believable and inspiring vision, and the appropriate strategies to recover and rebuild our economy.

Prior to the COVID lockdown, the economic fundamentals in Canada were already grim:

• Growth in GDP per capita since 2013 was less than one-half that of the United States (US), and Canada had the worst performance of all G7 countries.

• Business investment was about 20% below peak levels of 2014. Even outside the resource extraction sector business investment was below 2014 levels.

• According to the World Investment Report, the stock of foreign direct investment in Canada had grown at half the global rate since 2015.

• The World Bank ranks Canada 23rd in its quality of trade and transportation infrastructure – ports, rail, and highways – with Germany ranking first and the US seventh.

• 2019 per worker investment placed Canada 15th among the 17 OECD countries. In Switzerland, businesses invest twice as much per worker as Canadian businesses.

• Canada’s labour productivity has significantly lagged that of the US, our main customer and competitor. In 2019, Canada generated US$55.00 per hour of labour compared to US$76.50 in the United States.

• Returns on equities in Canada (including dividends) have been horribly inferior to global and US returns. Over the past ten years, cumulative returns on global equities have been over 3x that of Canada’s, and returns on US equities have been almost 6x greater than in Canada.

As a Canadian, if you were fortunate enough to accumulate savings, the last thing you should have done is to invest in Canadian companies on Canadian stock exchanges.

We were in a state of investment, competitive, and economic underperformance before the pandemic-related collapse. “Going back to normal” or “the way things were” is going back to a set of conditions that were compromising the future for all Canadians.

And now, we have the added reality of excessive debt. The inevitable consequence is a loss of financial flexibility, less capacity to spend, and more financial risk in the event of an extended recession, additional intermittent lockdowns, or some other new, unforeseen crisis.

Although the financial position of our federal government was reasonable going into the COVID lockdown (debt to GDP ratio was 35%), this has all changed seemingly overnight.

With a $350 billion deficit, we are now adding about 15% to the debt to GDP ratio. Maybe this still doesn’t look too alarming, however, we are missing a large part of the picture if we ignore the provinces.

We have learned in crisis that the national government will be called upon to backstop the credit demands of all provinces, and to a certain extent, even corporate and household debt.

Ontario’s debt is now about $400 billion, Quebec $200 billion, and then there are the other provinces. The Western provinces, including Manitoba, are now close to approximately $150 billion. The Atlantic provinces represent another $50 billion in debt. If you’re keeping track, that’s $800 billion of provincial debt combined with now over $1 trillion of federal debt. Total “all in” government debt is now at least $1.8 trillion and heading towards $2.0 trillion which would be 100% of GDP – that represents over $50,000 for every man woman and child in Canada, or $200,000 for a household of four.

Analysts and economists tend to look at debt solely on the basis of decision-making authority and responsibility at the entity level, as this is where insolvency would occur. This is why most don’t aggregate debt. But aside from insolvency risk, the key problem with debt that’s often overlooked is how it constrains choice and optionality. The aggregation of choice and commitment drives our overall economy. Understanding our economic outlook requires accounting for the burden of debt across all decision-making entities.

The government debt described above is layered on top of consumer and corporate debt. Total consumer debt in Canada is at a record $2.3 trillion which includes $1.6 trillion of mortgages. Household debt to disposable income is now at a record high of 181%.

Corporate debt in Canada is also at record levels of about $2.4 trillion and based on the Bank of International Settlements, our corporate debt service ratio is among the highest in the world.

Total household, corporate, and government debt is about $7.0 trillion. This is 350% on a $2 trillion economy.

The one thing we know about debt is that if you can survive through a downturn, it will constrain choice; it will constrain the scope and flexibility of decision-making commitments. This will be the new reality for many decision makers across the entire economy.

You can reasonably expect that consumers and corporations will be spending less and repairing balance sheets, and governments at all levels will be forced to be more accountable and discerning in spending and borrowing. All of this will likely be a net drag on the economy for years.

Unfortunately, this is all happening at the same time that Canada’s GDP per capita and labour productivity have been lagging.

The issue of productivity must be emphasized. To quote Nobel Laureate economist, Paul Krugman:

“Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise output per worker.”

Canada is now in an era of both stagnating productivity, low competitiveness, and excessive levels of indebtedness. In the corporate investment world, we often describe this as a “strategic straightjacket” – with less choice and less freedom to move. All of this should encourage a reset in priorities towards fiscal constraint, incentivizing investment, and pursuing more business-friendly policies and strategies that will tilt towards increasing innovation, productivity, and prosperity.

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Author

Mac Van Wielingen

What Drives Organizations? Applying Maslow’s Hierarchy of Needs to Corporations

In 1943, Abraham Maslow published his theory on the hierarchy of needs. You have probably come across it at some point in your life. Maslow used the terms "physiological," "safety," "belonging and love," "social needs," and "self-actualization" to describe the linear ascension of human motivation. According to Maslow, human beings are motivated to satisfy basic physiological needs such as food and water before they can progress to the next level of needs for safety, belonging, social acceptance, and self actualization. The further removed the individual is from simply obtaining the necessities of life, the less anxiety and tension is present as they seek to fulfill higher functions of personal growth. The pursuit of these functions is critical to the advancement of innovation as the individual is liberated to focus on the needs of others once their own necessities have been fulfilled.

The arc of Maslow’s theory closely aligns with the needs of corporations.  From a legal perspective, American corporations have been granted many of the same rights as individuals under the 14th amendment of the Constitution (See 1886 Santa Clara County v. Southern Pacific Rail Road). Over the past 130 years, corporations have evolved into legally distinct beings that enjoy many rights normally reserved for individuals such as the right to own property, enter into contracts, or pursue legal action. If corporations possess many of the same legal rights that individuals do, it stands to reason that corporations also share a hierarchy of motivations that begin with their basic need of survival.      

The International Monetary Fund is forecasting that the U.S. and Canadian economies will shrink by 8.0% and 8.4% this year because of COVID-19 related shutdown. As these effects hit corporate balance sheets, many executives have been forced to take extraordinary measures to keep their businesses solvent. corporate leaders are shifting their focus to satisfy the company’s basic ‘physiological’ needs for cash flow, liquidity, and debt coverage at the expense of higher corporate aspirations. The abrupt departure of these aspirations is particularly problematic when viewed in the context of environmental stewardship. As Maslow’s work highlights, the greatest advancements in corporate innovation are likely to occur beyond the base levels of sustenance. As corporations mortgage future development to sustain existing operations, critical ESG commitments, research, and technologies are less likely to come to fruition.

According to Bloomberg, climate change-related talk on S&P500 earnings calls fell from 33% in Q1 to just 17% in Q2 as Companies re-tooled their corporate strategies to focus on the fiscal necessities of survival. This is strong evidence that higher corporate functions are a luxury of choice – ones that are only possible if the basic corporate needs of survival are met. Therefore, stakeholders should celebrate Companies that remain steadfast in their commitment to environment, social, and governance standards in the face of a global pandemic. This praise is warranted because corporate ESG commitments confirms the importance of these factors to the survival of their business. These corporate leaders do not view ESG as a luxury of choice or a higher corporate function, but rather as a fundamental cornerstone to the success of their business.

As noted by Bloomberg, discussions regarding the acceleration of the climate crisis dropped by 50% on average across every industry in the S&P 500 earnings call transcripts from Q1 to Q2 2020. The largest pull back was seen by Technology Companies (53%), Financial Services (69%), and Energy Companies (58%). Energy Companies touted their energy transition goals earlier this year, but unsurprisingly this rhetoric has dwindled and has been replaced with urgent discussions regarding production cuts, liquidity, and plummeting demand. What may be surprising are the industries that have managed to keep ESG commitments front-of-mind during coronavirus-dominated earnings calls. As noted by Bloomberg, “Sustainability talk in the utility sector did decline in the first quarter, but only by 31%. The drop at industrial companies was just 10%”.

Earnings call transcripts are a way for management to communicate corporate priorities directly to shareholders.  While a pull back of long-term initiatives is inevitable as Companies focus on the short-term realities of survival, the degree of pull back could signal the level of commitment of Companies towards environmental stewardship in the long-term. The next time you are looking through the earnings call transcripts of Companies you have invested in make a point to quickly scan through previous transcripts prior to the pandemic to see which Companies are still including language outlining their ESG ambitious and what resources they will be dedicating to achieve those objectives.

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Author

Michael Hebert, Viewpoint Research Team

Energy Innovation: Oilsands Becoming Leaner and Greener

The author of a recent New York Times article is reveling in his scathing indictment of the Canadian oil sands – describing them as “the world’s […] dirtiest oil reserves,” and it isn’t hard to see why. As one of the largest oil reserves in the world, Canada’s oil sands have an image problem. Open pit mining, tailings ponds, and trucks the size of houses are not very appealing to look at, which makes the oil sands an easy target for the current wave of energy activism. Growing concerns relating to climate change, biodiversity, and marine health have spurred a ferocious appetite for more robust and stringent environment, social, & governance (ESG) standards – and rightly so. Climate change is a paramount concern that needs to be addressed with innovation and collaboration. These evolving standards are providing Canadian producers with the opportunity to adapt to a new world order and be leaders in an industry often criticized for being resistant to change.

Some of Canada’s largest energy producers have responded with extraordinary achievements in greenhouse gas (GHG) reductions. Canadian Natural Resources Limited (CNRL) has invested more than C$3.4 billion since 2009 in research and development to reduce its carbon footprint. Canadian Natural is a leader in carbon capture and sequestration (CCS), removing approximately 2.7 million metric tonnes per year through its Quest, Horizon, and NWR facilities. CNRL is continually making improvements to lower its carbon intensity, and has successfully reduced GHG emissions from its Horizon Oil Sands mine by 27 percent between 2012 – 2018. Furthermore, CNRL has committed to reduce its oil sands GHG emissions intensity by an additional 25 percent through 2025. To achieve these ambitious targets, CNRL is trialing new cutting-edge technologies such as molten carbonate fuel cells (MCFC), solvent enhanced oil recovery, and In-Pit Extraction Processes (IPEP) for tailings ponds.

In response to growing climate change concerns, Canadian producers have stepped up in a big way. The carbon intensity of upstream resource extraction in the oil sands is at an all-time low. GHG emissions for barrels sourced from the Canadian oil sands are increasingly comparable with major energy producers across the globe (See Figure 1.1). The magnitude of this accomplishment is even more impressive when viewed with the lens of a total energy mix. Many of the world’s largest energy companies produce large amounts of natural gas, and light oil which typically have lower emissions than heavy crude. However, despite the recent successes of Canadian producers, challenges remain. As the molecule moves down the supply chain from transportation to refining these processes can contribute significantly to a barrel’s total lifecycle GHG emissions. Unfortunately, this can largely be out of a producer’s control, and for many producers without integrated downstream facilities, the primary focus must be on reducing emissions during extraction.

Figure 1.1 – Source: Peters & Co (2019), Global Integrated E&P Carbon Emissions.

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The industry is rife with innovative collaboration and partnerships. Virtually all oil sands producers (90 percent) are contributing members to the Canadian Oil Sands Innovation Alliance (COSIA). COSIA functions as a research collective that brings companies together to share game changing technologies, intellectual property, and expertise. COSIA was formed to elevate the status quo and challenge its members to pursue operational excellence in the areas of GHG reduction, land reclamation, tailings ponds, and water management. Industry collectives are the new normal in Canadian energy and have extended beyond hydrocarbons to help facilitate the global energy transition. Nearly all of Canada’s top energy producers are among the 456 active members in the Clean Resource Innovation Network (CRIN) – which aims to share resource and expertise to accelerate and commercialize revolutionary energy technologies.

Canadian energy companies are the most active clean tech investors in Canada. According to Natural Resources Canada, the industry accounts for two thirds of the C$2.4 billion spent annually to fund cleantech research and development. New partnerships between energy companies and clean tech investment funds are helping to fuel the growth of energy innovation in Canada. Suncor and Cenovus have partnered with the BC Cleantech CEO Alliance and committed C$100 million to form Evok Innovations – a clean tech fund created to develop technologies aimed at addressing the world’s most pressing environmental and economic challenges. Canadian energy producers have been carefully listening to the concerns of stakeholders calling for greater environmental stewardship. Through innovative partnerships, cutting edge technologies, and capital investment, the industry is setting the template for responsible resource development.    

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Author

Michael Hebert, Viewpoint Research Team

Report: Alberta CEO Survey on Shutdown Impacts and Future Recovery

What does the road to recovery look like for Albertan businesses?

In collaboration with the Business Council of Alberta, we surveyed 61 CEOs to find out the impacts of COVID-19 on business, and what barriers and challenges lie ahead.

HERE'S A FEW HIGHLIGHTS

1 in 4 companies are unsure if they will make it through the pandemic until a vaccine is developed.

61% have engaged in layoffs, and 18% do not expect to refill these positions.

34%  anticipate needing continued or additional government support to mitigate downsides like stimulating demand, providing clarity on health and safety regulations, and maintaining liquidity.

To read the full results, download the report below.

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Author

Viewpoint Research Team in collaboration with Business Council of Alberta

What on Earth is Happening? Energy Emissions are Falling in Advanced Economies

In 2019 something incredible happened – the International Energy Administration (IEA) reported that energy related CO2 emissions in advanced economies fell to 11.3 gigatonnes (See Figure 1.1). This is significant for a variety of reasons, but most notably because the countries with the capabilities to act on emissions reductions are doing so, and with encouraging results. Energy related CO2 emissions in advanced economies haven’t been this low since 1990. The gradual decline of CO2 emissions has largely been underpinned by efficiencies and fuel substitutions in the power sector, which contributed to 85% of the reduction in emissions in advanced economies from 2018 to 2019. While renewables continue to play an ever-expanding role in the global power mix, the most significant reductions in carbon emissions were achieved through the substitution of coal-fired power stations for natural gas and nuclear power options.Several countries including the United Kingdom – the birthplace of the industrial revolution – are set to completely phase out coal-fired power stations in favor of more environmentally-friendly options by mid 2020.

Figure 1.1 – Energy Related CO2 Emissions, 1990 – 2019(1)(2)

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Source: IEA Global CO2 Emissions in 2019, IEA CO2 Emissions from Fuel Combustion by Country.

1. Advanced economies: Australia, Chile, European Union, Iceland, Israel, Japan, Korea, Mexico, Norway, New Zealand, Switzerland, Turkey, and United States.

2. Canadian emission data 1990 – 2017

While emissions reductions in advanced economies are encouraging, it is hard to ignore the proverbial elephant in the room – the fact that global emissions have steadily crept up over the same period, largely due to rapid industrialization in developing economies. In 2015, Bill Gates aptly stated that we need an energy miracle in order to see global emissions fall; “[Most problems can be solved locally – but this one is a world problem. … [I]t doesn’t really matter whether it’s a coal plant in China or a coal plant in the U.S. – the heating effect for the entire globe is the same.”

Many advanced economies enjoy the luxury of choice while grappling with the pragmatism of climate change. It is undeniable that cheap and abundant energy played a major part in industrializing economies at the turn of the 19th century, and many developing countries desire the same access to low-cost energy that allowed advanced economies to flourish.

Natural gas can offer a viable bridge between heavy-emitting carbon pollution, and sustainable renewable resources. However, natural gas is often priced out of consideration for many developing countries without the domestic infrastructure necessary for extraction and transportation. Therefore, advanced, energy producing economies like Canada, have an opportunity to continue to provide clean and affordable sources of energy to developing economies so these countries can continue to advance, and we can all benefit from a more sustainable future.

Canada’s Contribution to Global Emissions

While emissions in advanced economies have fallen to a level not seen since the launch of the Hubble Space Telescope (1990), Canada has struggled to reduce emissions at the same pace. Canada agreed to cut its GHG emissions by 30 per cent under the Paris Agreement (from a 2005 baseline) but the Country faces a tough set of obstacles to achieve this end. While many advanced economies are reducing emissions by transitioning away from coal, Canada’s electricity mix was largely already free of heavy GHG emitting sources.  Approximately 82% of Canada’s electricity is supplied by non-GHG emitting sources such as hydroelectric and nuclear power, which leaves little room for reductions compared to the peer group of advanced economies. As Jackie Forrest notes, “If the U.S. could transform their power system to match Canada’s current electricity mix, this alone would achieve most of their Paris target.”  

Figure 1.2 – Change in Emissions from Fuel Combustion, Canada, 1990 – 2017.

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Source: IEA CO2 Emissions from Fuel Combustion by Country.

Despite Canada’s high baseline for non-GHG emitting power generation, the Country has made significant improvements elsewhere to reduce CO2 emissions from fuel combustion since 1990, particularly in the residential housing sector (-7.3%), and in industrial applications (-11.8%) (See Figure 1.2). Canada experienced an immigration boom between 1990 and 2018, which resulted in a net population increase of more than 33%. The increase in Canada’s population coincided with the rapid development of carbon intensive industries, which contributed to large gains in emissions from transportation (37.6%), commercial buildings (21.9%), agriculture (157.1%), and the energy industry (192.7%). Canada is a major exporter of both energy and agricultural products, which disproportionately elevates Canada’s overall carbon footprint. Between 1990 and 2017, Canada’s overall net carbon footprint increased by 31.0% (130 Mt CO2). It is important to recognize that without Canadian supply, countries with less stringent environmental standards would be required to produce these goods, and the impressive reduction in advanced economy emissions (Figure 1.1) would likely be diminished.

To augment the Country’s role as a resource supplier, Canada is implementing trailblazing technologies and processes to reduce its GHG emissions. The C$1.2 billion Alberta Carbon Trunk Line (ACTL) opened on June 3rd, 2020, and is the world’s newest integrated, large-scale carbon capture, utilization, and storage system. The ACTL will transport captured CO2 from the Agrium fertilizer plant and the NWR Sturgeon Refinery to be injected underground as part of an enhanced oil recovery process. The ACTL is capable of sequestering 14.6 Mt CO2 per year at full capacity, which represents a 20% reduction in all oil sands emissions, or the rough equivalent of taking 2.6 million cars off the road.

Canada set the standard for low-carbon electricity generation 20 years ago with a steadfast commitment to non-GHG emitting sources. This model is now being adopted across the globe, and Canada is again at the forefront of new carbon reduction technologies. With the appropriate support, investment climate, and global exposure, Canada’s practical applications of carbon technologies will hopefully again, provide a model for developing economies seeking to navigate towards a low-carbon future.

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Author

Michael Hebert, Viewpoint Research Team

Share Price Performance and Value Destruction in the Canadian Oil & Gas Sector

SUMMARY POINTS

- Of the 128 Canadian independent companies listed in 2014, almost half have gone through an insolvency event, been delisted or sold.

- Of the 66 remaining companies, 49 have lost 90% or more of their total equity value. It is extremely difficult to re-capitalize these businesses.

- Approximately 13% of the original 128 companies are alive, and the other 87% have been essentially wiped out.

Some will struggle through this and survive, and new businesses will ultimately surface, but the existing reality for Canadian independent producers and service companies is unspeakably grim.

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Author

Mac Van Wielingen

Canada Urgently Needs a Reset of National Priorities

Canada was in a slow-moving crisis of underperformance and dysfunction before the pandemic health crisis and consequent economic collapse. It is imperative that Canadians see this clearly. Only then will we have a better chance to reset our priorities and place our country on a different trajectory.

In recent years, we have been particularly focused on environmental priorities, most notably, our commitment to reduce emissions in accordance with the United Nations Paris Accord. It must be emphasized that this is not the problem. The problem has been the rigidity of focus on this priority at the expense of other essential priorities which has impaired the future for all Canadians.

There has been a relative neglect of critical economic, social, and governance priorities in Canada with cumulative negative impacts that are staggering We entered the pandemic and economic collapse in a position of serious vulnerability.

There is ample evidence that portrays a grim picture of Canada’s investment performance, competitiveness, and productivity in recent years.

• Since 2014, growth in GDP per capita was the worst of all G7 countries and less than half that of the US (4% versus 8.7%).  

• Business investment is about 20% below peak levels in 2014.

• 2019 per-worker investment ranks Canada 15th among the 17 OECD countries. In Switzerland, businesses invest twice as much per worker as Canadian businesses. This is critical to competitiveness and higher productivity.

• Canada’s productivity has significantly lagged that of the United States, our main customer and competitor. In 2018, Canada generated US$55.00 GDP per hour of labour compared to US$76.50 in the United States.

• A 2017 survey of 60 of Canada’s largest businesses foreshadowed our declining performance; “a third said the investment climate had deteriorated over the past five years, [and] only 2 per cent said it had improved.”

We were in a slow-moving crisis of investment, competitiveness, and economic underperformance before the pandemic, and now we’ve gone right over the edge. There have been sharp regional disparities in economic conditions but ultimately, over time, there is no person and no sector that is unaffected by a country that underperforms.

Our national priorities also include the quality of life for all people in all regions of our country. The fact that social distress may be concentrated in one region, specifically in Alberta at this time, does not detract from the point that this is a national issue.

The distress in Alberta since 2014 is serious.

• The number of unemployed not covered by employment insurance has risen 53 per cent, from 75,000 to 115,000;

• Unemployment among young men is up 156%;

• Food bank usage is up 80 per cent;

• Suicide hotline calls have increased by 85 per cent;

• The number of individuals seeking counselling support in Calgary has increased 46 per cent;

• Incidents of domestic violence in Calgary have increased by 150 per cent;

• Non-violent crime is up 34 per cent;

• Business insolvencies have increased by 58 per cent; and

• Consumer bankruptcies are up 101 per cent.

This data is before the horrendous impact of the pandemic and oil price collapse. It is frightening to contemplate the hardship that is now occurring.

Underlying our economic underperformance and the social distress in Western Canada is cumulative regulatory and governance dysfunction.

According to the 2020 World Bank Ease of Doing Business Index, Canada ranks 30th out of 34 OECD countries in the time to get a permit for a construction project.

There has been over $200 billion worth of major energy and resource development projects cancelled or withdrawn since 2014. Some because of market conditions, but most because of regulatory delay, changing and inconsistent rules and guidelines, decision making arbitrariness, cumulative undue expense, and intensely politicized in-fighting. The Teck Frontier mine decision and Warren Buffett’s withdrawal from the Quebec-based Saguenay LNG project are the two latest examples of this.

Governance excellence is about effectiveness. During the recent rail blockades led by a small group of eco-activists, a DART & Maru/Blue poll found that two thirds of Canadians agreed with the statement, “Canada is broken.”

Governance integrity is about fairness and creating trust. This points to what is arguably the most serious red flag of governance failure in Canada. This is the emergence of extreme alienation in Western Canada. A large proportion of the 7.5 million people in the energy producing region of the West no longer trust that their interests are fully considered as part of the national interest of Canada.

Our longer-term national priorities need a reset, which arguably in the post-pandemic recovery, will be forced by a set of new realities. The direction is a renewed focus on economic priorities and on the social conditions for all Canadian citizens, and on rebuilding trust in the full functioning of our nation.

The most important renewed priority is governance excellence and integrity and the functioning of our nation. Otherwise the polarization and infighting will continue to message to investors that Canada is a poor destination for new capital, our economic performance will continue to erode, and social distress and alienation will become even more extreme and dysfunctional.

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Author

Mac Van Wielingen

What the Teck? Another Project Withdrawal for Canada’s Beleaguered Energy Industry

On February 24th, Vancouver-based Teck Resources Ltd. (“Teck”) delivered an all too familiar message to Canadians. The Company announced that it had withdrawn its application for the C$20.6 billion, 260,000 barrel-per-day Frontier mine. In a letter to the Minster, Environment and Climate Change, Teck cited a lack of investor confidence and a need for “jurisdictions to have a framework in place that reconciles resource development and climate change…This does not yet exist here (in Canada)…”

The Frontier project first applied for regulatory approval back in 2011, and now joins a long list of casualties in the Canadian energy graveyard that spans from project delays to outright cancellations, including MEG’s Christina Lake Expansion, Imperial’s Aspen Project, Petronas’ Pacific NorthWest LNG facility, TC Energy’s Energy East pipeline, and Enbridge’s Northern Gateway pipeline, among numerous others. It shouldn’t come as a surprise that ESG considerations are paramount in regulatory decisions. However, it is important to note that, while our National unity falls further into disarray over resource development, the ravenous thirst for energy globally will continue to be satisfied - with or without Canadian energy. The pendulum has swung too far in the opposing direction and created an opening where high-emission producers can capture increasing market share, while disregarding the environmental standards that Canadians are so proud of.

While Teck acknowledged a deep need to address climate change and, Canada’s role to play in their decision, skeptics of the project suggest that doubts about the Frontier project’s economic viability were the primary catalyst for the decision. In January 2020, the Institute for Energy Economics and Financial Analysis released a report questioning Teck’s financial assumptions for the project which were highly dependent on oil prices in excess of US$95/bbl Brent for prolonged periods of the project (2026-2066). While there are inherent uncertainties in forecasting oil prices, average estimates from the National Energy Board of Canada and the World Bank Commodity Outlook were more bearish on Brent prices through 2030, with an average Brent price of US$72.50/bbl. A more conservative oil price outlook was further compounded by the quality and distance differentials that heavy crude producers in Canada must endure to competitively price their barrels with counter-parties in the United States.

While Canada continues to flounder with project approvals, depressed prices, and fleeting investor confidence, capital is being mobilized. From LNG projects in Mozambique to deep sea pipelines in the North Sea capital is flowing to increase energy security and prosperity in oil producing regions around the globe. Nowhere is this more prevalent than in the prolific Permian basin in west Texas, which has spurred a flurry of new pipelines to bring crude to Houston and multiple locations along the Texas Gulf Coast (See Figure 1.1). According to Bloomberg News, more than ten pipelines are slated to start-up in 2020/21, providing additional takeaway capacity of ~5.6MM boe/d.

Figure 1.1 – Permian Basin Pipeline Projects.

Midstream investment isn’t the only thing booming in the U.S. energy sector. According to the Gulf Coast Energy Outlook, new capital investment in downstream facilities in Louisiana, Texas, Alabama, and Mississippi is anticipated to reach up to US$308 billion by 2030 (See Figure 1.2). The gargantuan capital program dwarfs any such development in Canada, and will be allocated towards new LNG export terminals, petrochemical facilities, and refineries.

Figure 1.2 – Gulf Coast Energy Infrastructure Investment 2011 – 2030.

While resource development is thriving in the U.S. Lower 48, Teck’s decision to withdraw its application for the Frontier mine continues to cast doubt and uncertainty over resource development in Canada. Not only is Teck burdened with a C$1.1 billion write-down on the project, but the opportunity for prosperity for all Canadians has been damaged. The project was expected to create approximately 7,000 construction jobs, 2,500 permanent operating jobs, and generate C$54.0 billion in royalties and taxes, C$11.8 billion in federal corporate taxes, and C$68.0 million in local property taxes over the life of the project. Additionally, the financial ramifications echo throughout the Indigenous communities in northern Alberta. Fourteen Indigenous communities bordering the project site had signed agreements with Teck to participate in the economic benefits of the project. Due to Teck’s decision to withdraw its applications, the Indigenous communities that are in favour of the project are losing out on prosperity that is desired by many, if not all, of the constituents in the community.

Ron Quintal, President of the Fort McKay Métis, accurately summarized the decision as a black eye for Canada, and rightly so, as this is yet another blow to an industry trying to shake off its multi-year hangover.

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Author

Michael Hebert, Viewpoint Research Team

What Does Canada Need to Jump Start Innovation?

Despite having one of the most diverse workforces in the world, Canada was ranked 14th in the 2019 OECD Global Competitiveness Report; dropping two spots from the previous year, and scoring below the United States, Denmark, and Korea. Although we receive strong rankings in macro-economic stability (1st), sound financial system (9th), and labour market (8th), we have lagging performance in innovation (16th) and adoption of technology (35th). What is Canada missing? 

To start, we could look to the country who has lead on innovation and start-up culture, earning themselves the title of “Start-Up Nation” - Israel. Though there are many different factors that may contribute to its success in innovation, one large factor is Israel’s government initiatives focusing on developing knowledge, supporting research and development, and prioritizing the creation and long-term survivability of start-up businesses. In the past, government initiatives were created to subsidize research and development projects, and to bolster venture capital interest through tax incentives and matching investments, hoping to share and mitigate the risk to investors. This fostered collaboration between not only academic institutions and private organizations, but also across local and global organizations. However, it should be noted that these initiatives are not without flaws, as the policies have been geared to high-tech industries, and consequently “other sectors seem to have been left out.” 

These initiatives paved the way for the creation of the Israel Innovation Authority, an independent publicly funded agency, which provides support and incentives to entrepreneurs across different divisions like technological infrastructure, international collaboration, and societal challenges. The reverse innovation model is used, whereby organizations are encouraged to pitch real issues to entrepreneurs, and these entrepreneurs come to solutions by “understanding the challenge first, and then working backwards…[t]his promotes the formation of joint ventures (sometimes between competing firms) to address them.”  

Overall, the takeaway is that government-led initiatives signaled confidence to investors and laid the groundwork for a venture capital friendly environment that both corporations and research institutions were able to participate in. For Canada to break through as a powerhouse in innovation and remain competitive on a global scale, we need thoughtful government-led initiatives that promote innovation across industries.

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Author

Viewpoint Research Team

What Surprising Factor is Behind Canada’s Economic Growth?

Family enterprises play a crucial role in the Canadian economy. A recently published report suggests that family enterprises are the most powerful driver of economic growth in Canada, generating $574.6 billion – which is almost half of Canada’s private sector GDP – and almost seven million jobs in 2017. This “first-of-its-kind” study in Canada was a collaboration between the Conference Board of Canada and Family Enterprise Xchange. This research helps us to better understand “[t]he economic impact of family owned enterprises in Canada.”

Family businesses exist in all sectors and communities, from the local farmer and restaurant owner, to international companies in agriculture, communications, and retail. “Family enterprises produce nearly 7 million jobs in Canada. Empirical research also confirms that these businesses account for approximately 65 per cent of the output and 90 per cent of the jobs generated by small and medium-sized companies, which are frequently described as the backbone of the Canadian economy and are essential to our supply chains.” Additionally, “[n]early 2/3 of all private sector firms in Canada are family owned.” 

Not only do family enterprises create jobs, invest in their communities, and give back to society, but it seems that they may experience more success than other firms. Family enterprises were also found to have longer growth and longevity than other firms, with total revenues growing 14.6 percent on average from 2007 to 2013. In contrast, other firms grew 13.9 percent on average during this same period. Of the firms that were operating in 2007, around 70 percent of the family enterprises were still in operation in 2013, compared to 65 percent of the other firms. Moreover, a  2018 study by the National Bank of Canada suggests that “family-controlled businesses demonstrate an ability to yield long-term returns over the span of generations.” They concluded that their sample of “family-controlled businesses from different industries and regions across the country outperformed the S&P/TSX Composite Index by 120.3% over a 10-year period.” 

Although the reasons why family firms achieve these successes are not well understood, experts believe that enduring family firms share common traits – such as long-term orientation and an ability to adapt – that allow them to stand the test of time better than non-family companies. 

“Over time, greater knowledge of family firm dynamics will help us to understand the unique challenges that these businesses face, and by extension their consequences for the broader economic base. And that in turn will facilitate improved educational support for family enterprises themselves.” Further, perhaps by identifying what enables these family enterprises to experience increased success, other organizations can also benefit from focusing on these same characteristics. 

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Author

Karen Macdonald and Viewpoint Research Team

Is Strategy Only As Good As Its Execution?

“Good idea, bad execution” is a saying all of us have heard on more than one occasion, but recently, we've been curious about understanding and defining what moves great ideas into great companies, or project, or achievements - i.e. what defines successful execution.

Largely attributed to Michael Porter’s work in the 1980s, there is now a clear and widely accepted definition of strategy. It is not surprising that organizations spend a vast amount of capital and time devising strategies to improve performance. However, an often overlooked extension of strategy is execution, of which, far less is known about in a practical sense. There is often some confusion surrounding what strategic execution involves, and how to enhance capabilities. Execution involves assessing firm capabilities, synchronizing people with strategy, and linking rewards to outcomes, making people accountable for the delivery of strategy.

While strategic execution is seemingly linked to “doing” in an organization, our client experiences support the notion that there is a need to go beyond simple understandings or productivity, efficiency, and the emulation of best practices. Evidence reveals that roughly two thirds of organizations struggle to implement strategy. In a study of 275 portfolio managers, the ability to execute strategy was found to be more important than the quality of the strategy itself. The inability to execute strategy has also been named a key reason for executive and company downfalls, with many observers recognizing that strategy gets you to the starting line, but it's execution that gets you to the finish line. It was T.S. Eliot who acknowledged the ‘knowing-doing’ gap in 1925, citing that “between conception and creation falls the shadow.” The best companies don’t necessarily always have the best ideas – they are good at implementation, converting the process of doing into an opportunity for learning. While it is not surprising that organizations spend a vast amount of capital and time devising strategies to improve performance, there is far less known about how to execute successfully.

Execution is best defined as the systematic process of rigorously discussing the ’hows’ and ‘whats,’ and tenaciously following through. In a sense, execution is the carrying out of a strategic plan, going beyond operational effectiveness and improvements, and subsequently linking strategy to all aspects of a firm’s activities. However, every organization can succumb to barriers of execution, particularly:

1. Lack of flexibility: When asked about the greatest challenge companies will face in executing strategy over the next few years, a third of managers cite difficulties adapting to changing market circumstances.

2. Ineffective leadership: A 2013 HBR study of nearly 700 executives found that only 8 percent of leaders are effective at both strategy and execution. This is also supported in our own work, whereby we studied successful characteristics of CEOs at a financial firm. Findings revealed that the top 10 CEOs by company returns across 20 years, were those that excelled in both strategy and execution.

3. Fear of failure and rejection: As “ego and fears of embarrassment prevent an objective and honest appraisal of performance”, execution can be hindered by team members’ insecurities and lack of confidence.

In order to better understand strategic execution, Viewpoint has teamed up with Mount Royal researcher Simon Raby and BIG, to research strategy and execution. If you are an organizational leader, entrepreneur, or somehow involved in strategy in your organization, consider participating in our survey. We'd love to learn more about your strategy and execution experience, and in return, you will have access to our findings and execution understandings.

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Author

Kelsey Hahn, Viewpoint Research Team

What is The Role of Business in Society?

Whenever we think about the concepts of business, finance, markets, competition, and trade, they often seem disconnected from the rest of society. Successful businesses are believed to be purely driven by profit, separating them from societal views and interests. 
 
In reality, however, social institutions can exercise a profound amount of influence on businesses. Different politics and perspectives exist within every industry due to the customers, suppliers, employees, regulators, and financiers that comprise the organization. “Individuals within each stakeholder group have ideas about how they want their lives to matter in the world...[T]hose connections to the world outside of business are often strong motivators for decision-making.” 
 
Understanding the role that businesses play in society is critical. Today, the “decreasing public popularity of business leaders and the now familiar erosion of trust in business and government institutions” has led to the belief that “democratic and civil society institutions and democratic ideals are under attack.”  Societal freedoms and business are not irreconcilable; economic freedom is directly related to economic growth, and “democratic freedom provide[s] the basis for capitalism and sustained economic growth.” Historically, most businesses only engage in politics for their own gain, lobbying the government and cultivating relationships with policy-makers in order to protect their own interests. To the younger generation, “this seems inadequate at best and corrupt at worst,” widening the dissonance between business and society. Businesses should preserve democratic institutions not only when it is convenient, but for their own sake as well, as “democratic institutions ensure the basis for the development of capitalism and a healthy system of business.” By preserving the societal rights inherent to democracy, including the right to privacy, labour force participation, and the pursuit of economic opportunity, communities and businesses are allowed to “freely communicate and collaborate, and thereby flourish together.” 
 
Businesses must move beyond shareholder profit and focus on the creation of value for all stakeholders. Solely maximizing profits has had a toxic impact on society, leading to “growing inequality, periodic massive financial crashes, declining corporate life expectancy, slowing productivity, declining rates of return on assets and overall, a widening distrust in business.” As we have discussed in a previous issue of Sagacious, the purpose of business should be “not only to provide needed products to a market, but to make a difference in their communities and for their employees, too.” This has already begun as 181 CEOs of different corporations across several industries signed the “Statement on the Purpose of a Corporation” earlier this month in an effort to refocus on inclusive social and economic prosperity. Included in these 181 are names like Amazon, Apple, BlackRock, Chevron, EY, Pepsi, and Xerox.
 
By retiring the old model of shareholder profit and moving forward with shareholder value, businesses can begin to repair their reputation in the eyes of the younger generation. “Business is about how customers, suppliers, employees, financiers, communities, and managers interact to create value,” and is an important part of societal institutions. “No business is perfect, and every business can improve, but it is time to end the myth that Wall Street is disconnected from Main Street.”

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Author

Stephanie Law, Viewpoint Research Team

Is Organizational Purpose Just a Buzzword?

Over the last few years, there has been a growing interest in organizational purpose, which can be partially attributed to the increasing emphasis on sustainable business practices and efforts to curb climate change, declining trust in organizations, as well as younger workers searching for meaningfulness at work. With this increased focus on purpose, some organizations have been quick to incorporate it into their tagline or mission statements. But is purpose just a buzzword? And what is the difference between the seemingly similar terms of purpose, vision, or mission?

We know that purpose is important at both employee and organizational levels. On average, people spend over 90,000 hours at work over the course of their life, so it’s not a surprise that many are searching for meaning in their work. Consequently, purpose has been found to have a tangible impact on key employee outcomes. Research finds that those who perceive their work as higher in significance (job purpose) also tend to demonstrate higher performance. At the organizational level, having a clearly defined purpose can lead to a stronger firm financial performance, specifically in shareholder returns over a 10 year period, or in venture growth.

So, what exactly defines organizational purpose?

Organizational purpose has many definitions, including being “a concrete goal or objective for the firm that reaches beyond profit maximization”, or simply as “a company’s core reason for being.” However, all of the definitions point to an emphasis on the creation of value for all stakeholders, including shareholders, customers, and society in general. While some use the terms mission or vision somewhat interchangeably with organizational purpose, there is a distinct difference. Organizational purpose helps to guide and inform a company’s mission or vision. In other words, while a company’s mission statement or vision might shed light on what the organization is trying to accomplish, its organizational purpose explains the why.

If you are looking for a starting point for fostering organizational purpose, a recent article in Harvard Business Review has a few tips for how you can build in purpose to align your organization. First, consider your employees; with modern workplaces having unique compositions of full-time and part-time employees and contractors, it’s important to think of how each employee experiences their work. Second, consider how your organizational purpose is communicated and embodied in actions throughout the organization. Finally, consider the bigger picture when thinking of a purpose. In the modern workplace, broader societal impacts and sustainability are things that need to be considered.

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Author

Viewpoint Research Team

Why Do Businesses Fail, And How Not To Be a Victim

Around 20 percent of small businesses fail within their first year, with roughly 50 percent failing by the end of their fifth year. What makes these statistics interesting is that despite shifting economic factors, business failure rates remain relatively consistent. After surveying 101 failed startup businesses, a recent analysis revealed that 42 percent reported that the main reason for their failure was a lack of marketability. Businesses fail when they are not solving a marketable problem, or, “not solving a large enough problem that could be universally served with a scalable solution.” But what causes this so called lack of marketability? 
 
A business’s marketability is directly tied to its adaptability - its willingness to alter its models and operations in order to keep up in today’s rapidly changing and unpredictable global environment. Marketability also relates to the way in which a business balances its forces of exploration and exploitation, with exploration referring to the search for knowledge and innovation, and exploitation referring to capitalizing and expanding upon these new ideas found through the exploration process. Too much exploration can lead to a business becoming obsolete, while too much exploitation can result in a business falling behind the technological curve and losing its competitiveness.  
 
A good example of too much exploitation can be seen in the downfall of Sears due to its refusal to innovate and change its business model, ultimately leading to the end of Sears. At its peak in 1965, Sears was worth $92.1 billion in today’s money. That same year, its sales were 1 percent of the entire U.S. economy, with two-thirds of Americans shopping there in any given quarter and half the nation’s households owning a Sears credit card. Now, more than 50 years later, Sears has been fighting a losing battle against insolvency and erasure. Despite having the skills and resources necessary to adapt to the world of e-commerce, Sears lacked the foresight to anticipate and the willingness to adapt. This behaviour is often attributed to the “success trap”, in which companies stop exploring once they have reached a certain level of success, turning to exploitation - “becoming less innovative as they become more competent.” 
 
In contrast, successful businesses are those that strike a balance between exploration and exploitation, adapting to market changes by adjusting their balance accordingly. This balance can be seen in the incredible story of Viciki Hollub, the first female CEO of a major international oil company, and how she managed to turn around a company that had lost $1 billion in 2016 to a profit of $4.1 billion in 2018. Despite intense pressure from shareholders, Hollub’s company, Occidental Petroleum (Oxy), beat out Chevron to acquire Anardarko Petroleum for $38 billion. In addition to the dramatic Anardarko deal, Hollub has also proven herself committed to exploration, pledging to make Oxy carbon neutral through carbon capture technology. While Oxy’s investment in a carbon-neutral future may seem at odds with its recent deal, the balance between exploitation and exploration that Hollub has struck will serve the company’s marketability well in the long-term. By investing in exploration as well as exploitation, under Hollub’s leadership, Oxy is securing a social license and, “regaining society’s trust to operate with the approval of employees, shareholders, and the broader public”. 

Ultimately, the companies that succeed in 2020s will be those that prioritize learning and innovation: “Companies don’t fail because of changes in the environment, they fail because their leaders are either unwilling or incapable of dealing with said change.” 

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Author

Viewpoint Research Team

The Path to Economic And Social Prosperity in Canada

Last week, members of the expert panel on Sustainable Finance released their recommendations on mobilizing Canada’s financial sector, hoping to secure both economic prosperity and better environmental practices. The main takeaway from the panel is that Canada stands poised to become “a decision-maker rather than a decision-taker in a world where sound environmental stewardship is intersecting with market access and becoming critical to competitiveness.” Currently the fourth-largest exporter of oil and the fifth-largest exporter of natural gas, Canada has the potential to become the world’s safest and cleanest producer. Yet for this feat to be accomplished, the energy sector must focus on accelerating innovation, transparency, and market access. 
 
To further innovation, the panel recommends that the federal government “fund an oil and gas clean innovation cluster to pool capital and expertise,” helping to expand the next generation of innovative ventures, and consequently encourage the development and commercialization of cleaner energy-saving solutions.
 
Global perceptions of Canada’s environmental record and the carbon-intensity of oil sands extraction have caused investors in the energy sector to avoid Canada, or demand better data and evidence about the risk to their firms. “If we want to attract global capital back to Canadian resources, it will take an industry-wide commitment to report more comparable and complete data on climate-related financial risks.” Providing this type of transparency is exactly the kind of leadership that investors are seeking from Canada’s industry. 
 
In regards to market access, it is vital that Canada's market more responsibly produce oil and gas. Yet Canadian producers can only invest in cleaner technology if they are able to sell their products. “Though counter-intuitive to some, solving Canada’s market-access stalemate is fundamental to Canada’s ability to contribute to lowering emissions in the world’s global energy supply by displacing higher emissions and less transparent sources.”
 
Our founder, Mac Van Wielingen, strongly argues that this is an opportunity for Canada to be a leader in energy. Having used his decades of experience in the investment management business in capital projects all over the world, Mac’s own recommendations for the future of the energy sector align with those of the expert panel on sustainable finance. In his recent speaking event at the Calgary Petroleum Club, he states: 
 
“The industry must remain passionately committed to innovate and further improve its environmental performance, in the context of a global transition to a low carbon environment...There are two competing visions. One involves a dismantling and diminishment of our leading global industry with enormous financial and social costs. The other is to support the development of a “Clean, Canadian Energy Brand” and strategy to bring more of ourselves into the world, not less. This is Canada’s global leadership opportunity in energy and environmental stewardship.”
 
In addition, Bill Gates, chairman of the board for Breakthrough Energy Ventures (BEV), an investor-led, $1 billion fund committed to funding clean energy innovation, emphasizes the complexity of the issue of climate change. In a recent sit-down with David Rubenstein, president of The Economic Club of Washington, D.C., Gates stated that creative solutions are the key to combating climate changes; projects that utilize “the lens of innovation” are what investors should be focusing on. 

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Author

Viewpoint Research Team

Unethical Decisions: When Ordinary People Cross The Line

With so many ethical scandals breaking out in recent years (e.g., Deutsche Bank and money laundering, Volkswagen and the manipulation of diesel emissions testing, Wells Fargo and unethical sales tactics), it leads one to question: What is running through the minds of the people participating in the unethical acts? At the Canadian Centre for Advanced Leadership in Business’s annual year-end celebration on April 11, the former CFO of Enron, Andrew Fastow, provided a glimpse into what his mindset was leading up to the demise of Enron.

“How is it possible to be the CFO of the year and commit the greatest corporate fraud in American history for doing the same deals? Every single deal I did was approved...If I had to sum it up in one word, the word I use is ‘loopholes’…You’re technically following the rules, but you’re intentionally going around the principle of those rules.” While Fastow followed then-current accounting rules and guidelines, he also intentionally misrepresented Enron’s financials to appear like they were performing better than they were - in other words, he found a loophole. The problem for him wasn’t choosing between right and wrong – it was knowing the difference between legality and ethicality, the difference between what you’re allowed to do and what is the right thing to do.

We’d like to think that unethical decisions are only made by ‘bad’ people or criminals, but that simply isn’t true – it can happen to an average person who is highly motivated to reach a result and perform. In Warren Buffett’s words, “[w]hat starts as an ‘innocent’ fudge in order to not disappoint ‘the street’ – say, trade-loading at quarter-end, turning a blind eye to rising insurance losses, or drawing down a ‘cookie-jar’ reserve – can become the first step toward full-fledged fraud.” We are all subject to the overconfidence bias, in which we are likely to overestimate our ability or think that we are an exception to the odds. However, there is often a disparity between our intentions and our actions. Research supports this, as a study finds that when asked, 96 percent of people said that they would oppose an unethical request. In contrast, in a subsequent study, only 14 percent actually refused, and nine percent ‘blew the whistle’ and reported the misconduct to authorities.

What influences how likely we are to make unethical decisions? While some personality traits may certainly make you more likely to make unethical decisions or try to get around the rules (e.g., ‘dark-side’ personality traits like Honesty-Humility), there are also psychological processes that can tip the scales. For example, moral disengagement describes how people can mentally distance themselves from their moral standards to avoid feeling guilty about unethical conduct by justifying potential harm to others and linking it to worthy purposes or downplaying the extent of harm through comparisons to worse behaviour.

At this point, you might be wondering what kind of control you have over finding yourself in an ethical dilemma?

Although an organization does have a responsibility to ensure they are defining processes and boundaries to reward for ethical behaviour, as Fastow said, "compliance isn’t the guardrail for ethics – culture is." Research by the University of Calgary finds that when there is a culture of ethics and with supervisors role-modeling ethical leadership, employees were less likely to engage in unethical decision making. In his closing comments of the CCAL event, Mac Van Wielingen, stressed the importance of culture. “It’s not just about wrongdoing; great culture will implicitly embrace learning, commitment, transparency, accountability, trust, and reliability. That creates support and collaboration, and you can all move together towards common goals. And, that creates performance.”

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Author

Stephanie Law, Viewpoint Research Team