On 8th August, the American oil producer ConocoPhillips issued three bonds worth $2.7 billon in total. The bond’s aim is to fund a full acquisition of the Surmont oil facility, a Canadian oil sands field, currently owned 50:50 between ConocoPhillips and TotalEnergies. Oil sands, also known as tar sands, are a mixture of sand, clay, water, and a thick molasses-like substance called bitumen, which is used to make synthetic petroleum products. Its extraction and conversion is very energy and water-intensive, using strip mining methods that are destructive to the local forest environment, and creates toxic waste and pollution.
Responsible investment policies are focused on excluding ‘unconventional’ oil & gas production, due to its higher environmental impact, with many large asset managers including threshold exclusions for oil sands production. ConocoPhillip’s acquisition of the Surmont oil field, due to complete in late 2023, will likely increase its oil sands production over the 5% oil sands revenue threshold exclusion. Thus:
- Several large investors, including Aegon NV and KLP, that financed ConocoPhillips’ oil sands expansion will need to now add the company to their oil sands-based exclusion list, and then subsequently seek to divest their bond- and shareholdings.
- This highlights the need for investors to deny debt to fossil fuel expansion rather than the illogical and climate harming practice of funding the expansion and subsequently divesting.
- Passive investments are particularly at risk of financing controversial behaviour, manifested here by passive ESG trackers having bought the new ConocoPhillips bonds. Index construction rules appear to guarantee their future sale.
“The completion of this acquisition will likely take ConocoPhillips in-scope of exclusion, but the fallacy of passive index construction means that ESG ETFs are compelled to buy the bond in the interim. It’s a paradox of investors funding deals which produce companies which are uninvestible.”
– Josephine Richardson, AFII’s Head of Portfolio Strategy.