Ambitious goals set for sustainability by Cenovus
Cenovus Energy Inc. is establishing ambitious environmental, social and governance (ESG) targets to guide performance in its four ESG focus areas: climate & greenhouse gas (GHG) emissions, Indigenous engagement, land & wildlife, and water stewardship.
These targets reflect the company's continued integration of sustainability into its strategy and business plan to help foster long-term resilience. Leading safety practices, strong governance and ongoing innovation remain foundational to Cenovus. The ESG targets are part of Cenovus's focus on maintaining a low cost structure, growing free funds flow and shareholder returns, and continuing to strengthen its balance sheet as it implements the five-year business plan that was communicated at Investor Day in October.
"Our environmental practices, low-emissions oil sands operations and the relationships we've built with residents in areas where we operate - including Indigenous communities - demonstrate our commitment to sustainability leadership," said Alex Pourbaix, Cenovus President & Chief Executive Officer. "The meaningful targets we're announcing today build on our achievements to date and position us to thrive in the transition to a lower-carbon future. I'm confident we have the right business model and talent in place to achieve them."
In addition to its 2030 climate & GHG emissions target, Cenovus's long-term ambition is to reach net zero emissions by 2050.
The company's 2030 ESG targets and long-term net zero emissions ambition were established through a rigorous process that involved work with external ESG consultants and included robust scenario analysis. The work examined additional actions that could be integrated into the company's business plan and long-term strategy to further improve ESG performance. The assessment indicated that Cenovus has several options it can pursue to achieve the 2030 targets. The company is now conducting further analysis of the various opportunities available and expects to provide more information later in the year as part of the disclosure for its normal course business planning. These opportunities are anticipated to align with the priorities outlined in its current five-year business plan.
Climate and greenhouse gas emissions
Governments around the world are supporting the transition to a lower-carbon future by introducing increasingly stringent climate-related policies and creating incentives for emissions-reduction solutions. Companies that fail to adapt will face growing carbon-related risks, while those that act now will position themselves for long-term business resilience. That's why Cenovus is focused on demonstrating equally strong financial, operational and ESG performance.
"A global transition to a lower-carbon future is underway and Cenovus intends to be a part of that future," said Pourbaix. "This is a complex challenge and requires exploring multiple options and opportunities. Our culture of innovation and sustainability leadership at Cenovus, alongside our relentless focus on cost management and operational excellence will support us in determining the best actions to pursue."
The company's operations rank amongst the lowest in the context of production emissions intensity compared to its oil sands peers. Cenovus has demonstrated leadership through per-barrel GHG emissions reductions at its oil sands operations of approximately 30% over the past 15 years. Building on this, the new 2030 GHG emissions targets are among the most ambitious in the world for an upstream exploration and production company.
Cenovus is targeting to reduce its per-barrel GHG emissions by 30% by the end of 2030, using a 2019 baseline, and hold its absolute emissions flat by the end of 2030. This target addresses scope 1 and scope 2 emissions from its operations (see Definitions section).
The company is adopting a GHG emissions strategy that includes multiple options to reach its targets. Opportunities that have been identified are at various stages of advancement, and include: additional operational optimization, incorporating cogeneration capacity into future oil sands phases, more extensive deployment of solvent technology, further advancement of the methane emissions reduction initiatives already underway at its Deep Basin operations and additional operational efficiencies, including the use of data analytics. The company is also considering other direct and indirect initiatives that generate credible, additional and permanent carbon offsets.
Cenovus's ambition of reaching net zero emissions by 2050 is currently intended to address scope 1 and 2 emissions and will require ongoing focus on technology solutions beyond those that are commercial and economic today. Cenovus continues to identify opportunities to participate in longer-term solutions to address emissions from its operations and beyond. Examples of collaborative efforts the company is currently participating in include: co-founding Evok Innovations to work with global clean technology companies on environmental solutions; co-funding the NRG COSIA Carbon XPRIZE that is searching for ways to turn captured CO2 emissions into valuable products; and partnering with the Massachusetts Institute of Technology (MIT) Energy Initiative, which is tackling the world's most pressing energy challenges, including climate change.
In addition to robust and meaningful consultation practices, Cenovus is committed to supporting economic reconciliation through business partnerships. Since 2009, Cenovus has spent almost $3 billion with Indigenous owned or operated businesses. The company is now targeting additional cumulative spending with Indigenous businesses of at least $1.5 billion over the next decade as it continues to enable neighbouring communities to share in the benefits that come from responsibly developing oil and natural gas resources. Cenovus's 2030 Indigenous business spend target reflects cost efficiencies achieved by the company over the last few years as well as reduced annual capital spending compared with Cenovus's first few years of operation.
"Indigenous communities are among our closest and most important neighbours," Pourbaix said. "I'm proud of the relationships we have built to date and believe that our commitment over the next 10 years will further improve the fabric of these local communities."
Cenovus's Indigenous Inclusion Advisory Committee, created in 2017 and comprised of senior leaders from various functions, will guide the plan to achieve the target as well as other considerations such as increasing direct Indigenous employment at the company. To further support the health and well-being of Indigenous communities, Cenovus continues to partner with local non-profit organizations that offer programs to help address needs identified by community leaders. Cenovus has also committed to additional company-wide Indigenous awareness training for its staff, which is aligned with a call to action in Canada's Truth and Reconciliation report.
Land and wildlife
Cenovus is continuing to build on its leading land restoration and wildlife protection activities with the addition of two new commitments. The first is a proactive approach to managing reclamation obligations with a commitment to complete reclamation of 1,500 decommissioned well sites over the next 10 years, representing 75% of the company's existing well sites that are no longer in use and are set for reclamation. The company has also joined the Alberta Energy Regulator's Area-Based Closure program that sets an annual spending target for each company and allows the company to work with industry peers to reduce costs and increase efficiency.
The second component of the land and wildlife commitment is to voluntarily spend $40 million between 2016 and 2030 to restore more land within caribou ranges than is disturbed by Cenovus's activity. This 2030 target is an extension of the 2016 announcement of a $32 million, 10-year caribou habitat restoration program, the largest project of its kind in the world. The program involves restoring up to 4,000 kilometres of linear land disturbances and planting up to five million trees. Protection of caribou, listed as a threatened species by the federal government, is a priority for Cenovus as caribou ranges are spread across the oil sands region of Alberta. As part of Cenovus's ongoing commitment to caribou habitat restoration, the company has cumulatively planted one million trees since 2013.
"Biodiversity is extremely important to our business and to our stakeholders in the areas where we operate," said Pourbaix. "Our activities on the landscape are temporary, and we have always taken a proactive approach to liability management, developing reclamation plans even before we begin work on a project. We will continue to take biodiversity considerations into account as we plan business decisions in the future in an effort to reduce our company's impact on land and wildlife."
Cenovus is already a leader in managing fresh water intensity compared to its oil sands peers and has set a target across its oil sands and Deep Basin operations of a maximum of 0.10 barrel of fresh water use per barrel of oil equivalent by the end of 2030. This exceeds a target set by Canada's Oil Sands Innovation Alliance (COSIA) for in-situ producers of 0.18 barrel by 2022.
"Managing our use of water resources efficiently and responsibly is not only important to the environment, but also helps support our low cost structure," said Pourbaix. "The vast majority of the water we use for our oil sands operations is produced water or saline water that's not fit for consumption or agricultural use. Our non-saline water use is well below the industry average, and we're always looking for ways to further reduce the amount of water we use and be more efficient with how we use it."
Delivering safe and reliable operations is the top priority for Cenovus and the company continues to build on its track record of industry-leading safety performance. It recently contracted a third party to conduct an independent safety culture survey and is using the results to identify specific opportunities to further improve safety performance and strengthen its safety culture. The company's corporate scorecard measures and rewards staff at all levels based on personal and process safety performance.
Integrating ESG into strategy
Since Cenovus launched as a publicly-traded company 10 years ago, it has been a core company belief that operating in a safe, ethical, legal, and environmentally and socially responsible manner is inextricably linked to generating strong business results and creating shareholder value. This commitment is consistent with the ongoing evolution of principles of sustainable resource development.
Cenovus established the four ESG focus areas after a thorough external analysis of which ESG topics are considered most material to the company and are of greatest priority for external stakeholders. This analysis was combined with an internal review, facilitated by third-party consultants, of the ESG factors considered by senior leaders and other staff to have the most meaningful impact on company performance and add the most value for shareholders and other stakeholders.
The four ESG focus areas are integrated into Cenovus's capital allocation framework, and the company has established a Sustainability Advisory Council of leaders from across the company to further embed sustainability into the culture. The Board has designated the Safety, Environment, Reputation and Reserves Committee as having primary responsibility for sustainability, with the Sustainability Advisory Council reporting into it, and other committees and the Board as a whole sharing oversight responsibility and engaging in frequent ESG discussions. The company also plans to transition its annual ESG disclosure report, which receives external verification on key ESG performance metrics, to align with recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) as well as consideration of the UN Sustainable Development Goals. Future ESG reports will also include updates on progress towards the targets, starting with the 2019 ESG report scheduled for release in mid-2020.
ESG link to executive compensation
Compensation for Cenovus's executive team, and especially its President & CEO, is linked to an annual scorecard that includes financial and operating metrics as well as safety and environmental performance, including oil sands emissions intensity and process safety events. The scorecard also impacts compensation for employees at all levels of the corporation. As Cenovus works to further integrate the ESG focus areas and targets into its long-term strategy, consideration will be given to enhanced opportunities to link ESG performance to executive and staff compensation.
Scope 1 emissions are direct emissions from owned or operated facilities. Cenovus accounts for emissions on a gross operatorship basis. This includes fuel combustion, venting, flaring and fugitive emissions. It does not include emissions from the 50% non-operated ownership in the company's refineries or emissions from non-operated Deep Basin assets.
Scope 2 emissions are indirect emissions from the generation of purchased energy for the company's operated facilities. For Cenovus, this is limited to electricity imports.