Enbridge alienating socially responsible investors

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This story has been updated to include comment from Enbridge Inc.

The U.S. declaration that Enbridge Inc. ran a river spill cleanup like "Keystone Kops" has cost it a small investor, and a measure of credibility, after Vancity Investment Management said the pipeline company no longer meets its criteria for socially responsible investments.

The firm's decision will pull Enbridge from two IA Clarington Inhance SRI funds it manages, as well as its employee pension plans. Vancity is Canada's largest credit union, and had been under pressure from some British Columbians to back away from Enbridge, whose planned $6-billion Northern Gateway pipeline has generated substantial controversy in the province.

Chief executive Tamara Vrooman said concerns over Gateway were magnified by the U.S. National Transportation Safety Board, which pointed to a series of lapses in Enbridge's pipeline and spill management in a report following a major spill that leaked oil into Michigan's Kalamazoo River.

"It looks like there's even more risk [to Enbridge], which we think further potentially puts the financial performance at risk," Ms. Vrooman said. "We think the balance has tipped such that it's not going to be a higher-performing investment in our criteria."

The Vancity move comes as the broader markets ease out of Enbridge, whose shares are down 6 per cent in the past month, in part amid concerns that its rocket ride of growth is slowing.

"It's a noticeable pullback from this company that's had a straight line up for 10 years," said UBS analyst Chad Friess. "A lot of that outperformance has come from just multiple expansion rather than just earnings growth. But looking forward, there's a chance that that rapid earnings growth may moderate a little bit." Plus, he said, the company had hit record forward-earnings valuations, and investors are pulling out of safe havens like Enbridge and into more depressed areas of the markets, like oil and gas producers, which might have better growth potential.

Vancity's investments were small, amounting to less than $2.5-million. The firm is among a group of socially-conscious investors in Canada that together account for 2- to 3- per cent of mutual funds in the country, said Eugene Ellmen, executive director of the Social Investment Organization. He believes Vancity is the first to drop Enbridge.

It may not be the last. Northwest & Ethical Investments LP (NEI) has spent six years pressuring the company to gain better first nations acceptance before pursuing its $6-billion Northern Gateway pipeline, designed to carry Alberta crude to the West Coast for export to markets in Asia and California. NEI sponsored a resolution at this year's annual general meeting calling for a report to shareholders on how first nations opposition would impact plans for the project. It failed, but gained 29 per cent support.

NEI, which has pushed for executive compensation to be more closely tied to pipeline safety, is now seriously weighing the benefits of sticking with Enbridge, and expects to revisit its position on the company following meetings with management and the board in September and November.

"We are kind of running out of rope here on Enbridge," said Bob Walker, NEI's vice president of sustainability. "Typically we see things moving in a more progressive direction. With Enbridge, things seem to be going from bad to worse."

Dayna Linley, an analyst with Sustainalytics, said a series of spills on Enbridge pipes – in Michigan, in Chicago, in the N.W.T, in Alberta, among others – have eroded its reputation. It now ranks at "below average environmental performance in comparison to its global peers," Ms. Linley said. "The evidence points to what we would call structural issues with the pipeline maintenance program and staff training."

Enbridge, in a statement, pointed to its heavy investments in clean energy and corporate efforts to achieve carbon neutrality as evidence that it is "committed to being a good corporate citizen." It also said it has made changes since the Michigan spill, including pipeline safety, leak detection and training of control centre workers.

"Our objective is to be the industry leader in the protection of our workers, the public and the environment," the company said.

The ethical fund stance is unlikely to cause Enbridge much grief outside of some potential reputational damage. Socially-responsible funds manage such small amounts of money that their capital movements generally don't move markets.

"We're aware that when we do divest it's unlikely to have any impact on the company. We do know we can be far more effective in securing change by staying invested and staying engaged," Mr. Walker said. "We view divestment as a failure. It does mean we've given up and we do not expect to see changes at the company."