Learn more about Suncor's new sustainability performance goal, aimed at significantly reducing the carbon intensity of its operations

Learn more about Suncor's new sustainability performance goal, aimed at significantly reducing the carbon intensity of its operations

Check out Suncor's new sustainability performance goal, aimed at reducing the carbon intensity of its operations

Suncor recently adopted a new sustainability performance goal aimed at significantly reducing the carbon intensity of its operations. Read about how we plan to achieve this.

Suncor invests in new environmental technologies and pursues renewable energy development to be a leader in sustainable energy development.

Climate change

Suncor’s Fiona Jones discusses Suncor's role to play in sustainable energy discussions, like climate change and GHG emissions.“We need to understand how we can continue to deliver value in a carbon-constrained world.”

A conversation with Fiona Jones, general manager, sustainability

Prior to Suncor’s 2016 Annual General Meeting, NEI Investments filed a shareholder proposal calling on Suncor to provide ongoing reporting on how it is assessing and ensuring long-term corporate resilience in a future low carbon economy. Suncor’s Board of Directors decided to support the resolution, which was subsequently passed by more than 98% of Suncor shares represented at the AGM.

Over the next several months, Suncor drafted a stand-alone report on carbon risk called Suncor’s Climate Report – Resilience Through Strategy (PDF, 18 pp., 1 MB), the first of its kind in the Canadian oil and gas industry. The report, released in April 2017, discloses our best assessment of the business risk associated with climate change and the transition to a lower carbon economy – as well as the strategies we are taking to mitigate that risk. We intend to update our assessment on an annual basis as part of our Report on Sustainability.

Suncor’s Fiona Jones, general manager, sustainability, describes the thinking behind the report, including how the company sees the energy transition unfolding, our strategy through that transition and the options we are building for the future.

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Why did Suncor decide to support the shareholder resolution on carbon risk disclosure and to produce a report?

We believe our investors and other stakeholders benefit from understanding how we are addressing the climate change challenge and how we plan to remain resilient in a world transitioning to a lower carbon energy system.

The fact is climate change mitigation tilts the playing field and will have, over time, a substantial impact on our business. We need to have a clear-eyed view of the path ahead and we want to share that information as transparently as we can.

It makes sense to do this now for several reasons. Regulations and policies being adopted at the local, national and global level to mitigate climate change will have an impact on how we produce and consume energy. As Canada’s leading integrated energy company, we need to understand how we can continue to deliver value to shareholders in the transition to a carbon-constrained world.

Driving a lot of this is what the International Energy Agency (IEA) calls the “450 ppm scenario.” This sets out an energy pathway aimed at limiting the global increase in temperature to 2° C, over pre-industrial levels, by limiting the concentration of greenhouse gases (GHG) in the atmosphere to around 450 parts per million of CO2. This implies reducing the amount of hydrocarbons combusted from today’s levels in the context of a growing global population.

As a result, we are starting to see credible global efforts at “squaring the circle” to achieve the desired outcome. This involves developing the technologies and policy pathways to deliver energy to that growing global population, while at the same time, mitigating climate change. This is very much the lens through which we are viewing our own business strategies.

Our Carbon Risk Report outlines many of those strategies. The report is intended to provide investors with Suncor’s perspective on our energy future.

What are the key concerns Suncor investors have when it comes to carbon risk?

Most of our investors understand that the transition away from hydrocarbon fuels will likely take place over many decades as these fuels will continue to be needed to help meet global energy demand, particularly in developing economies. But they also recognize that, if we are to remain competitive and resilient, we must continue to aggressively lower costs and carbon intensity throughout our business.

In a nutshell, what our investors want to know is:

  • Do you have processes in place to assess the risk in a clear-headed manner while also considering any potential blindspots?
  • What is specific to your assets and business strategy that will ensure long-term resilience?
  • What options are you building for the future to compete in a lower carbon economy?

What processes do you have in place to assess Suncor’s carbon risk and what are they telling you about the level of risk the company faces going forward?

This is described in much greater detail in the report itself, but I’ll try to briefly touch on some of the highlights.

One of the first things to understand is that Suncor routinely identifies, reviews and assesses what we call principal risks, which include commodity prices and economic and geopolitical factors. A principal risk is defined as one that has the potential to materially impact Suncor’s ability to meet or support its strategic objectives. Carbon risk is one of the company’s principal risks.

Our assessment of carbon risk is supported by our annual Carbon Price Outlook, which takes into account existing regulations, where those regulations are likely to head, and the impact that could have on our assets.

Investments and capital decisions – including whether or not to proceed with growth projects – are tested against a range of variables, including our Carbon Price Outlook. The goal is to ensure a competitive rate of return over the life of our assets.

We also use three long-term energy futures scenarios, substantially based on work done with IHS Markit. Each scenario has an implied crude oil price range and incorporates the potential impact of climate change regulations. All three reflect the current global aspiration to reduce carbon emissions; what distinguishes them is the context, pace and scale at which that comes about.

It’s important to note that these scenarios are not forecasts, but an exploration of what could happen. Each scenario is equally plausible (although not inevitable) and each would affect our operating environment and business strategy in very different ways.

The scenarios are also not cast in stone. We monitor signposts to identify external shifts that could impact our energy future and, therefore, Suncor’s business strategy. These signposts include changes in global energy demand and supply mix, political and economic indicators, climate data, policy trends, technology advances and consumer trends.

A couple of things stand out in terms of Suncor’s assessed carbon risk. One is that all three scenarios point to the fact that long-term resilience depends on lowering both costs and carbon intensity across the entire energy value chain. The second is that, even under the scenario that represents a rapid shift away from liquid fuels, none of Suncor’s existing assets are at risk of being stranded and we are positioned to continue to deliver strong shareholder value.

So oil sands development remains resilient even in a much more carbon-constrained world? Really?

I recognize that, in some quarters, that conclusion seems very counterintuitive. Conventional wisdom suggests that, when faced with an uncertain energy future, long-life assets like the oil sands should be at greater risk of being stranded. But, in fact, the unique characteristics of this resource base suggest the opposite: we are well positioned to continue to generate value for investors across a variety of possible energy futures.

We test our oil sands business and growth strategy against our three long-term energy scenarios. Under each of these scenarios – including the one that envisions the most aggressive decline in oil demand – we believe a substantial amount of oil will be required for decades. Meeting that demand, whether at low or highly volatile oil prices, will be a challenge for operators with shorter life reserves. They will find it increasingly difficult to finance the exploration and development required to replace oil declines, let alone grow production.

So while often characterized as the oil basin most vulnerable to a low oil demand scenario, the very long operating life and low decline rate of our assets are, paradoxically, a competitive advantage – both under a scenario of declining demand for crude oil and a correspondingly low oil price, or over an extended period of uncertainty and price volatility.

The key reason is that, once operating, oil sands projects are more like manufacturing facilities. Production does not rapidly peak and decline and we don’t have to keep going to the market to raise exploration and development capital as a significant amount of the resource has already been discovered and is located near current surface facilities. Instead, we can essentially harvest the upfront capital investment made many years earlier to produce oil over the coming decades.

None of this gives us a pass when it comes to environmental performance. To remain competitive going forward, our goal is to continue to reduce the costs and carbon intensity of our business so that we are a global crude oil supplier of choice.

What are some of the options Suncor is building to ensure its place in a low carbon economy?

This isn’t an exhaustive list, but here are five major options that stand out for me.

The first is to show leadership in terms of our public goals and aspirations. In 2016, Suncor adopted an ambitious new performance goal – to reduce the overall GHG emissions intensity of our products by 30% by 2030. We know we won’t be able to achieve this goal without integrating carbon risk considerations into all aspects our business.

A second key option is our commitment to technology and innovation. While many energy companies have cut their investment in technology in the recent low-price environment, Suncor has not. We are strategically investing in new technologies – including next-generation in situ extraction processes – that hold the potential to transform bitumen production. Over the next 10 years, we believe technology will deliver the advances to make oil sands crudes both a low cost and low carbon source of crude.

A third option is Suncor’s role in low carbon and renewable power generation. Since 2002, Suncor has invested in several wind energy projects. We are also a relatively large producer of cogeneration power. The requirement for steam at our facilities creates the opportunity for high-efficiency cogeneration that provides steam and power for our operations while also delivering surplus lower carbon power to the electrical grid.

We are evaluating further investments in this area. The value of cogeneration for an energy system in transition is considerable. In addition to providing an effective base load to manage the intermittency of wind and solar power, cogeneration can replace coal generation with a much lower carbon intensity power.

A fourth option we are pursuing is to invest in outside companies whose technology ideas align with the strategic needs of our business. A good example is our investment in potential advances in biodiesel technology, which fits with our view that diesel demand will remain strong.

The fifth option is one that I think often gets overlooked when it comes to carbon risk – the importance of maintaining a strong balance sheet. Instead of chasing an array of unproven low carbon alternatives today, we believe it makes sense to preserve the financial flexibility to be able to invest in solutions as clear “winners” emerge. This manages your carbon risk, while also being a more effective way to advance environmental performance.

There remains a lot of uncertainty about the path forward in meeting global climate change goals and targets. Does Suncor still believe that setting a price on carbon is a critical first step forward?

The short answer is yes. We continue to believe that a broad-based carbon levy, equitably applied to both energy producers and consumers, is the most effective tool for advancing low-carbon technologies and encouraging smart energy choices. That’s why, in 2016, Suncor became a signatory to the Carbon Pricing Leadership Coalition, a volunteer initiative aimed at promoting the successful implementation of global carbon pricing. It’s also why we continue to work closely with Canada’s Ecofiscal Commission, which brings together diverse interest groups to look at the best and most practical carbon pricing solutions.

That said, we also have to be clear-headed about certain current realities. As the Ecofiscal Commission has noted, the global playing field for carbon pricing is not level. Exposed sectors like oil and gas sell their products into global markets, where they must compete with jurisdictions that don’t apply a carbon penalty. So there’s the risk of investment shifts resulting in what’s sometimes called “carbon leakage,” where energy demand gets met by other jurisdictions, while producing the same or higher carbon emissions. In this way, Canada could suffer economic losses with no positive change in global emissions.

Going forward, what we need are carbon policies that strike a balance between emission performance and competitiveness. We believe such policies could prevent carbon leakage, while also allowing Canada to sustainably develop its natural resources and help fund the transition to a lower carbon economy.