Enbridge Shareholders Revolt Resonates a Year Later

With Enbridge's Northern Gateway pipeline dominating the final week of the provincial election battle, some investment analysts suggest that the company could be in more long-term trouble than simply a change of government.

Oil spill risks, job creation, provincial revenues, and Aboriginal opposition have dominated the pipeline debate. But despite posting first-quarter earnings on Tuesday of 48 per cent ($21.2 million, up from $14.3 million last year, for Enbridge Income Fund Holdings), some financial analysts say the firm's reputation has made investing too risky.

"We don't own Enbridge because we think they have absolutely no chance of getting approved," Gordon Gibbons, senior vice president of Leith Wheeler Investment Counsel, told The Tyee. "It could still happen, but our best guess is that it's not."

Gibbons, who oversees the firm's more than $8 billion pension portfolio, said that negative publicity -- such as the firm's handling of its 2010 Kalamazoo pipeline disaster, and its failure to gain the backing of First Nations -- have seriously diminished the appeal of Enbridge as a place to park clients' money. Leith Wheeler is no small player, either; aside from pensions, it also manages more than $10 billion in other investments.

"The problems they had in past -- the legacy they've built -- have really damaged their business," he added. "That behaviour didn't go away; people remember that.

"It's certainly going to impact their bottom line. They've just created a bit of an image dilemma for themselves. I don't think, 10 years ago, those issues were really in the press. But Enbridge's opponents have certainly made sure they got coverage."

Dissent at 2012 shareholders meeting

One year ago today, May 9, nearly a third of Enbridge's shareholders voted to have the Northern Gateway pipeline proponent report to them about First Nations' opposition to the project within a year. Like most such resolutions opposed by corporate management, the non-binding bid was rejected, but not without unusually high dissent -- a possible sign of internal revolt among shareholders that has raised the heat within company ranks.

Thanks to the proxy-monitoring organization Shareholder Association for Research & Education (SHARE), members of the public and major investment firms alike can see how dozens of major stock market players voted on behalf of their clients. Every year, the association releases a tally of how institutional investors voted on issues of corporate governance, environmental and social responsibility, and similar issues.

According to Peter Chapman, the association's executive director, a growing number of institutional investors are paying close attention to how they vote their proxies -- in other words, how they leverage the votes they are allotted based on how many company stocks they hold.

The Enbridge resolution is a clear example of proxy voting, but it received almost no media coverage.

"Enbridge is spending a great deal of effort to build the Northern Gateway pipeline," Chapman told The Tyee. "It's investing a great deal of shareholders' money in the project, and a great deal of the company's reputation in the project.

"It's put the company very much in the public spotlight; that's a hot button issue here in the province... Social, environmental and governance factors have a big impact on the value of a portfolio."

Last year's Enbridge resolution, which came to light in SHARE's newest report, was put forward by the $4.7 billion NEI Investments -- a partnership of credit union investors -- who pushed for the company to report on its relationship with First Nations.

"Gateway faces vocal opposition from several Aboriginal communities who state the project will be detrimental to [their] rights," the May 9, 2012 resolution read. "Be it resolved that the Board of Directors provide a report to shareholders by May 2013 that details how the board has assessed the risks associated with First Nations' opposition to the Northern Gateway Pipeline.

"The report should discuss how First Nations' opposition will factor into the final decision to pursue Gateway. If the project will be pursued regardless of opposition, the report should detail how the company will mitigate the operational, reputational, and legal risks of such opposition."

'Operational, reputational, and legal risks'

Unlike Leith Wheeler, many of Canada's other major investment managers continue to hold Enbridge stocks. But a considerable number -- 28.6 per cent of shareholders -- chose to go against the firm's management at the last annual meeting, voting in favour of the resolution which warned of "operational, reputational, and legal risks" if the pipeline is pushed through without Aboriginal consent.

Backers of the non-binding NEI motion included massive investment firms such as Addenda Capital (over $280 billion in total assets), Marco Consulting Group ($129 billion), and RBC Global Asset Management (nearly $120 billion).

Of course, the flip-side is that more than 70 per cent of Enbridge investors rejected the request for more information about First Nations opposition -- some of them big-name market players like BlackRock, a firm that manages more than $2.5 trillion in total assets, Fidelity ($66 billion), or TD Asset Management (TDAM, which manages $78 billion).

Although TD declined to comment on why they voted against the Enbridge shareholder resolution, a spokesperson told The Tyee that the company pays close attention to how it votes its proxies -- and last year supported 53 shareholder resolutions on environmental and social issues.

"TDAM integrates environmental, social and corporate governance consideration into investment decision-making in order to maximize the value of its clients' investments without undue risk of loss," the company's 2012 Corporate Responsibility Report states -- including environmental issues such as reducing ecological risk, greenhouse gas emissions and climate change impacts, sustainability reporting and more.

Minority shareholders wield clout: Chapman

While NEI's push for more transparency on the controversial Northern Gateway project may have failed, Chapman argued that even proposals receiving support from a minority of shareholders often lead to change in corporate policy.

"Many companies will respond to shareholder proposals that receive votes, even 15 or 20 per cent," he explained, "because they recognize that a vote of that size indicates significant shareholder interest.

"It doesn't take receiving a majority vote to drive change. In fact, if you look at our database, in many cases proposals are withdrawn -- they never go to a vote -- because the company realizes that it's much better to go through a process of examining the issues with the shareholders, than to go to a vote."

While some large firms might suggest that smaller institutional investors might not represent the overall trend, Gibbons insisted his investment firm is not alone in weighing social, environmental and governance factors into their financial decisions. The issues, he argues, are closely linked to firms' bottom lines.

"Health, safety and governance types of issues are actually issues about the value of the company," he said. "Our concern is over time -- over 10 years, that would actually hurt us because our performance would deteriorate... Enbridge is such a good example of that; it seems to be they've been judged in court of public opinion before their whole (National Energy Board) review process even started."

Enbridge did not respond to The Tyee's interview requests in time for publication.