A sustainable investment controversy is brewing in Canada over the recent agreement between Prime Minister Mark Carney and Alberta Premier Danielle Smith to work toward a new pipeline to ship oilsands bitumen to the west coast. Almost immediately after the November announcement, industry experts and critics said the pipeline is not feasible since there is no private sector proponent, required Indigenous approval is unlikely and the British Columbia government is opposed to lifting a west coast tanker ship ban.
What few people have talked about is that it is also unlikely a major bank, consortium or equity investor will also come forward. There is no official cost estimate for the project. However, based on other recent pipelines, it would likely be in the tens of billions of dollars, a cost too high to be recovered through oil transit tolls, according to the International Institute for Sustainable Development. Investment analysts have expressed skepticism the pipeline will receive private sector support.
Even if the economic model for the pipeline worked, any bank or consortium of lenders or equity investors would be hesitant to back the project. One of the last major pipelines constructed in Canada – Coast GasLink – triggered multi-year vocal protests at RBC, one of its lenders. Given the high-profile nature of the west coast oil pipeline, similar protests could be expected at any bank or equity investor supporting the project.
The project is also unlikely to fall within the green or transition “taxonomy” guidelines to be developed starting in 2026 governing which Canadian investment activities will be officially labelled as sustainable. Development of the guidelines will be led by the Canadian Climate Institute think tank, and Business Future Pathways, a coalition headed by a whos-who of sustainable investment champions and representatives of climate action NGOs. Even if oil shipped through the pipeline will be produced with lower per barrel process emissions than present oilsands oil, it will be tough for the new group to give such an investment a transition label given the high level of Scope 3 or end-use emissions it will facilitate. It’s highly unlikely banks or equity investors will be able to proclaim investment in the pipeline as a transition investment.
The takeaway: The lack of a pipeline company or group of companies to champion the project in 2026 will enable banks and equity investors to stay on the sidelines. Given the longstanding glut in oil supplies, there will be little progress on the project in the coming year despite ongoing political support from Ottawa and Alberta.
The big picture
The Trump administration is ramping up its attacks on sustainable finance and ESG and its support for fossil fuels. This has provided hope for oil and LNG proponents that the financial community will get behind an expansion in conventional energy. The economics of alternative energy sources suggest renewables should win out, but this is not a sure thing. What’s known is that inexpensive green energy and climate-friendly manufacturing are moving ahead. The crusade against ESG will continue for a few more years, but it won’t stop the smart money from supporting the industries of the future.
Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).