A Voice from the Eastern Door

SEC urged to measure Indigenous risks

A development project could lose money if investors don’t have information about Indigenous concerns. The Dakota Access Pipeline as a case in point.

By Mark Trahant.

A group of investors asked the U.S. Securities and Exchange Commission to consider Indigenous people when it begins enforcing rules on climate change. A letter to the SEC said the rights of Indigenous people must be considered because there are too many “material risks” to investors that could result in significant losses.

“Indigenous Peoples are not included or referenced in the proposed rule,” wrote a coalition, the Investors and Indigenous Peoples Working Group. “Indigenous Peoples reside around the globe, including the areas that are the central operational environment of many corporations, specifically in the extractive, energy production and transmission, and agricultural sectors. Each of these sectors face climate-related risks related to strategy, governance, risk management, metrics, and targets. The relationship with Indigenous Peoples in these areas is relevant to each registrant’s climate strategy and ability to realize its climate-related objectives.”

The problem is that if investors don’t know about concerns raised by Indigenous people, the project could lose money. The coalition cites the Dakota Access Pipeline as a case in point.

The letter said the Dakota Access Project costs tripled to more than $12 billion, and Energy Transfer turned in disappointing financial results and continues to experience a long-term decline in value. Indeed, a case study by First Peoples Worldwide found that Energy Transfer Partners’ stock declined in value by 20 percent at the same time that broader indexes, such as the S&P 500, grew in value by nearly 35 percent.

“Extractive industries have historically been known for practices that have permanently degraded Indigenous Peoples’ territories and ways of life,” the letter said. It cited last year’s rupture of three groundwater aquifers while building the Line 3 pipeline across Northern Minnesota.

“The largest of the three ruptures occurred at the reservation of the Fond du Lac Band of Lake Superior Chippewa where over 200 million gallons of groundwater was released. On March 21, 2022, the Fond du Lac announced that the rupture released amounts of groundwater which threatened to violate the Fond du Lac’s stringent water quality standards as well as wild rice waters – a crucially important cultural natural resource. These impacts are irreversible and are most acute for those living where the impacts take place.”

A review by First Peoples Worldwide in 2016 of 52 U.S.-based oil, gas and mining companies found that about 39 percent of current production and 46 percent of reserves are on or near Indigenous land, thus making Indigenous communities most affected by the impacts of greenhouse gas emissions.

The SEC’s comment period for climate-related disclosures ended Friday. Final rules are expected in 2023.

The investor coalition recommends that the SEC require the United Nations standard of Free, Prior and Informed Consent as a minimum standard for development in Indigenous communities.

“Potential risk for investors arises from the failure to identify, assess, and manage Indigenous rights risks,” notes the letter. To best identify these risks, due diligence must be operationalized in alignment with the United Nations Declaration on the Rights of Indigenous Peoples and its articulation of Indigenous Peoples’ right to free, prior, and informed consent to help safeguard the right of Indigenous Peoples to self-determine their economic, environmental and social priorities.”

The importance of the federal ESG regulations is that it gives opponents of fossil fuel development projects another tool to either stop the project or to make sure that it meets minimum global standards, such as Free, Prior, Informed Consent.

The current draft of the SEC regulations includes three main areas of focus: Scope 1 is the direct greenhouse gas emissions from a company. Scope 2 is the indirect emissions from purchases made by a company, including energy and transportation costs. Scope 3 is the most controversial. This focus area includes a calculation for a client’s total greenhouse gas emissions, including such things the companies funded from a bank’s loan portfolio.

The investors’ letter says Scope 1, 2 and 3 also ought to include Indigenous peoples’ consultation as part of that framework.

“Scope 1, 2, and 3 are typically quantitative measurements expressed in numbers and based on an increasingly standardized methodology without significant qualitative analysis of emission impact,” the letter said. “An approach to climate change focused exclusively on quantitative air emissions may not fully reflect the impacts to water, soil, biodiversity, and ecology. Without requiring GHG impact assessments to include Indigenous Peoples, investors lack crucial context for understanding a registrant’s emissions disclosures and climate impact.”

The investors said that climate change is already disproportionately impacting Indigenous peoples. “Many Indigenous Peoples live in areas that are in proximity to industrial activity with a large GHG footprint – such as mining and agriculture. They are often also directly impacted by tropical deforestation, which contributes to about 20% of annual GHG emissions.”

The timing for the regulations is particularly critical as more investment focuses on the transition away from fossil fuels. A June 3 report by McKinsey & Company said the United States is only one of many countries coming up with standards for financial disclosure on climate-related investments.

McKinsey’s Laura Corb calls this the largest reallocation of capital in history.

“First, up to $5 trillion annually will be invested in sustainability by 2025,” she said in a recent podcast. “At the same time, approximately $11 trillion worth of assets will have to be retired. Investor scrutiny of climate risk is rising, and consumers and employees are increasingly factoring sustainability into their decisions. This is akin to the early days of digital. Like then, we are seeing massive shifts in value pools that will create new sector winners and losers and the basis of competition will shift in most industries.”

And Indigenous communities are on the front line of those transition investments – and should be seen as essential partners.

“The transition to a low-carbon economy is aimed primarily at stabilizing the effects of climate change caused by carbon-intensive global development,” the investors’ letter said. “Accordingly, the climate-related goals achieved by preserving Indigenous land tenure and resource management practices would complement those achieved by a transition to low-carbon economy if, and only if, sourcing the materials required to facilitate that transition protects the ability of Indigenous Peoples to continue their traditional practices.”

Mark Podlasly, Nlaka’pamux Nation, and director of economic policy and initiatives at the First Nations Major Projects Coalition, makes the case that it’s in corporate interest to include Native people in the development process early.

At a recent investor’s roundtable, Podlasly said many of the coalition members hear stories about major investment decisions made without Indigenous consultation. “So they do not include the environmental concerns of Indigenous people, nor do they include at the beginning, the social impact, leading towards social license for companies for investment.”

So, a company will tell the world it meets sustainability standards but that’s a hollow promise without Indigenous communities.

“What we found is that without Indigenous involvement at the beginning, and if it comes at the end, either in a corporate social responsibility standard, the issues that are important to the people who host that project, be it a clean energy project, a pipeline, a mine, a transportation route are not included up front. So from the environmental side, traditional knowledge of the Indigenous people, which would be vital to ensuring that the project is built in a manner that is compatible with the local community … We found a lot of times that traditional knowledge has been very useful to the companies.”

This allows companies to resolve thorny issues before they become expensive, material risks to investors.

Investors that signed the letter to the SEC include: Natural Investments; Seventh Generation Interfaith Coalition for Responsible Investment; Adasina Social Capital; United Church Funds; Lady Lawyer; Zevin Asset Management; Miller/Howard Investments, Inc.; Change Finance; Transformative Wealth Management, LLC; Don Maslow Coffee; Boston Common Asset Management, LLC; Dominican Sisters Grand Rapids; Empower Venture Partners; Integrated Capital Investing; Mercy Investment Services, Inc.; Commission on Mission Responsibility Through Investment of the Presbyterian Church U.S.A.; Sustainable Advisors Alliance, LLC; Farm Girl Capital, LLC; Unitarian Universalist Association; and Future Super. First Peoples Worldwide, a nonprofit based at the University of Colorado, acts as the secretariat for the investors’ working group.

Kate Finn, Osage, is executive director of First Peoples Worldwide.

“This step by the SEC to standardize ESG disclosures, we see as a very positive step; we’ve seen a lot of progress,” she said in the roundtable. There are even indirect benefits to gauging the risk to Indigenous people, land and territories.

“But we welcome steps for mandatory disclosures and steps to look at a more holistic regime … The SEC’s climate rule does not reference at all Indigenous people’s or local communities. However, we feel that that is a missed opportunity by the SEC to both mandate disclosures, but also to allow investors in the companies to understand where Indigenous peoples fit into risk.”

Reprinted with permission from Indian Country Today.


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