A windfall tax, also known as an excess profits tax, is applied when a certain industry gains higher-than-average profits from a crisis, to such an extent that those extra earnings appear “unreasonable or unfair or immoral,” says Hadrian Mertins-Kirkwood, senior researcher at the Canadian Centre for Policy Alternatives.

Prior to the outbreak of the war, Canada’s oil and gas industry was expected to make $30 billion this year in profit, according to Mertins-Kirkwood. Now profits are expected to go as high as $100 billion, resulting in about $70 billion in excess earnings. “Their profits tripled basically overnight through no act of their own,” he says.

As Canada grapples with an ongoing affordability crisis, as many struggle to afford housing, groceries and now gas, Mertins-Kirkwood and left-leaning organizations and politicians like the Alberta Federation of Labour and NDP Leader Avi Lewis argue that excess profits in the oil and gas sector could benefit more Canadians if redirected toward public priorities.

Who gains?

“These companies are making money off of an illegal war against Ukraine and now the Iran war,” Catherine McKenna, former Canadian minister of environment and climate change, told Corporate Knights at the Montreal Climate Summit on April 16. “I feel if you’re going to make those profits, they can be reinvested in a way that supports Canadians, not given back to your largely U.S.-based shareholders.”

Mertins-Kirkwood projects that Canadians as a whole are spending an additional billion dollars each month because of higher oil prices. However, Canadians themselves aren’t padding the oil industry’s pockets on a one-to-one basis, he says. Most of the oil that the Canadian oil industry produces is sold to international markets, such as refineries in the United States.

Canada wouldn’t be the first to establish a windfall tax. The United Kingdom currently has one in place, and ministers in Germany, Italy and Spain have recently called on the European Commission to implement one because of rising gas prices. That approach is not widespread, however, Mertins-Kirkwood says, because in many countries the oil industry is state-owned, so a large share of the windfall would already go to the government.

Not likely

While the Alberta Federation of Labour has urged the Alberta government to implement a windfall tax, most arguments push for the tax to be imposed at the federal level.

However, natural resources fall primarily under provincial jurisdiction, which complicates any federal attempt to impose a windfall tax, says Kent Fellows, a professor in the School of Public Policy at the University of Calgary. Further, Alberta, the largest oil-producing province in Canada, already takes royalties from the oil and gas sector, he says. “When prices increase and these firms are more profitable, the public purse gets a larger chunk of their revenues.”

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According to the Business Council of Alberta, resource royalties in recent years have generated an estimated $20 billion annually, or approximately one-quarter of total provincial government revenues in a roughly $75-billion budget. “The idea of a windfall profit tax doesn’t really make a lot of sense here because really they’d just be stealing from themselves,” Fellows says.

Mertins-Kirkwood, however, argues that a windfall tax would be applied after royalties have already been taken, so it would have no bearing on how much provinces already collect.

Another major pushback against the initiative is the idea that a windfall tax could stifle investment in the oil and gas sector. Investors take on the risk that in a low-price environment they might lose money, Fellows says. But if prices go up, they also expect to benefit. “They’re making calculated bets on that capital investment, and right now those bets are paying out.”

Leah Golob is a freelance business journalist based in Toronto.

The post As war sends oil profits surging, calls grow louder for a windfall tax appeared first on Corporate Knights.

The four Canadian ETFs that focus exclusively on gender all launched within the span of a year, with Evolve Fund’s Evolve North American Gender Diversity Index ETF kicking things off in mid-2017. And soon after, Mackenzie Investments, RBC, and BMO Global Asset Management all launched gender-focused ETFs of their own, giving everyday investors access to stocks with more women in the leadership than most. RBC’s was the only fund to exclusively track Canadian companies.

As it stands, just 17.9% of women occupy board seats around the globe, as of late 2018. MSCI Inc., the global provider of equity, fixed income and hedge fund stock market indexes, predicts that it will take until 2029 to reach a worldwide average of 30% women on boards among MSCI All Country World Index (ACWI) companies. In Canada, the global non-profit Catalyst is striving for a much earlier date, asking all corporations to reach that goal by 2022.

Canadian companies are getting close, with a reported 27% of women on boards. But we’re still a long way off from true gender parity. Thanks to growing interest from investors (including gender-focused funds) companies are starting to pick up the pace on this issue, says Tanya van Biesen, executive director of Canadian operations at Catalyst. Diversity policies aren’t mandatory in Canada, but the Ontario Securities Commission’s “comply or explain” rule essentially requires companies listed on the TSX to disclose the number of women on their boards as well as their policy on diversity, or else explain why they don’t have one.

Catalyst is urging companies to see diversity and inclusion as a talent issue and essential to creating a productive, innovative and profitable workforce.

Top 25% of organizations that have gender diversity in their executive leadership teams beat out the industry average on profitability and value creation.

“If [companies] are looking for motivated, educated, and talented people, [women are] an obvious place to look,” van Biesen says.  “There have been many studies done to indicate that a gender diverse team generates better outcomes that relate to reputation, financial performance, productivity, innovation and risk management.”

Investors should take note: investing in companies with gender imbalances can cost you – the top 25% of organizations that have gender diversity in their executive leadership teams beat out the industry average on profitability and value creation, according to an oft-cited January 2018 report by management consulting firm McKinsey & Company, an organization dedicated to improving the performance of corporations.

For investors who want to make a difference with their money, several firms have launched Canadian ETF products dedicated to this cause. How do they stack up when it comes to women in leadership?

Mackenzie Global Leadership Impact ETF establishes itself as the clear winner when measuring board diversity — its holdings have an average of 34.7% of women sitting on its companies’ boards.

Other gender diversity metrics reveal that the fund’s holdings have 30% of women in senior management and 34% have a woman CEO or CFO, according to statistics based on holdings as of August 31, 2018.

Evolve North American Gender Diversity Index ETF fares the worst in this lineup when it comes to women on boards (26.8%). To be fair, the ETF is optimized for a range of gender equity criteria that goes beyond the number of female directors. It follows the Solactive Equileap North American Gender Equality Index, which scores companies on 19 different criteria, such as the gender balance of senior management, recruitment strategy, supplier diversity, and freedom from violence, abuse and sexual harassment.

Michael Simonetta, chairman of Toronto-based Evolve Funds Group Inc., says gender diversity should be measured across company culture, so it’s “not really a concern” if Evolve North American Gender Diversity Index ETF has a lower number in the women on boards category than competitive funds.

“You can have a board with 40% women, but if your policies are negative toward women in the workplace, how good is that from a gender balance perspective?” he asks . “It’s not.”

Fund Face-off

So, how well does the leading fund, Mackenzie Global Leadership Impact ETF (MWMN), hold up against one of the standard ETFs not pre-occupied with gender diversity?

The Mackenzie ETF trumps its benchmark (iShares MSCI World ETF) when it comes to promoting environmental, social and governance issues, with superior scores on average CEO-to-worker pay, gender diversity on boards, and its carbon footprint. Interestingly, the positive gender screen also results in more exposure to companies with products or services that benefit the environment, and less exposure to companies whose products or services have negative impacts like weapons and gambling stocks.

With regard to returns, the Mackenzie ETF is ahead of its iShares benchmark (XWD) on a year-to-date and one-year total return basis, but since its inception on December 3, 2017, it is behind with a 10.8% total return versus 12.5% for the benchmark.

Bottom line: the Mackenzie ETF offers investors significantly more gender diversity, a slightly better sustainability profile and comparable returns, beating its benchmark in two of the three time periods evaluated.

The post Fund face-off: How do gender-focused ETFs fare? appeared first on Corporate Knights.