Environmental, social, and corporate governance—better known as ESG—is the order of the day in big business.
According to its advocates, ESG rating provides investors with useful information on risks arising from climate change, pollution, and other environmental issues. Yet much of that information isn’t financially material.
BlackRock, the world’s largest asset manager, notes on its webpage on “ESG Integration” that ESG information typically falls under “non-accounting” data: “It captures components important for valuations that are not traditionally reported.”
The oil industry, long the bane of environmentalists, is no exception to this trend. At the recent Argus Americas Crude Summit in Houston, industry insiders gave the impression that ESG is a fait accompli.
George Millas, CCO of EPIC Midstream, told the crowd of industry professionals that ESG is “like a license to operate.”
“It’s like safety. We can’t ignore it,” he said.
Ryan Lance, CEO of ConocoPhillips, told Argus Media’s Matthew Oatway, “You better have a Paris-aligned 2050 net-zero plan to take care of your own emissions that you create as a company—and that goes to the ESG.”
Asked by Argus’s Stephen Jones whether ESG scores are valued properly, ConocoPhillips Chief Economist Helen Currie was direct: “I think they’re quite real and quite serious.
“The evidence is showing that more and more operators are taking those requirements and those metrics quite seriously, and looking to better understand, ‘How do I understand how to integrate this into my business?’” she said.
ESG and related environmental goals are already shaping major deals in the industry.
In September 2021, ConocoPhillips purchased all of Shell’s Permian Basin interests for approximately $9.5 billion.
Shell’s net-zero 2050 emissions target was cited as one key factor in the sale by Morningstar analyst Allen Good, as reported in S&P Global.
Yet some commentators have raised questions about the new primacy of ESG, arguing it can be a tool for exercising political control over the business world.
“Just as non-woke individuals are canceled from civic life, so too will non-woke companies be canceled from the economy,” scholar Michael Rectenwald said in his Jan. 29 remarks to the Common Sense Society.
“The [ESG] Index is a Chinese-style social credit score for rating corporations.
“Woke planners wield the ESG Index to reward the in-group and to squeeze non-woke players out of the market, driving ownership and control of production away from the noncompliant.”
Rectenwald drew attention to BlackRock CEO Larry Fink’s 2021 and 2022 letters. In his 2021 letter, Fink said that greater investment in what he called “sustainability-focused companies” meant that “every management team and board [would] need to consider how this [would] impact their company’s stock.”
Fink’s 2021 letter also asked every company to provide a net-zero plan. BlackRock has had major stakes in fossil fuel companies; in 2021, it was reportedly the largest shareholder in Shell, and it’s also a major shareholder in ConocoPhillips.
The Epoch Times has reached out to BlackRock for comment.
Alex Cranberg, chairman of the oil and gas firm Aspect Holdings, told The Epoch Times in an email that some aspects of ESG are penalizing U.S. companies for political reasons.
“If an American company produces less, it just means that some other country like Qatar or Russia produces the oil or gas, or even that some more highly polluting fuel such as coal or wood is burned,” he said.
“This makes zero sense, but U.S. oil companies are being denied capital by some banks, multilateral lending agencies, public pension funds, and university endowments.
“Of course, these investors are the ones most likely to be motivated by political concerns and incentives.
“ESG, in general, should actually have a positive impact on the U.S. oil and gas industry because U.S. operators are the most efficient and environmentally careful operators in the world.”
Rectenwald compared Fink’s 2021 shareholder letter to a 2020 article from Klaus Schwab, founder and executive chairman of the World Economic Forum, in which Schwab vowed: “Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. In short, we need a ‘Great Reset’ of capitalism.”
The internationalist, or globalist, nature of ESG is nothing new. In fact, the term “ESG” originated through a collaboration between the United Nations, the Swiss government, and a group of major banks that included Morgan Stanley, Deutsche Bank, Credit Suisse Group, and Goldman Sachs.
In 2004, that group produced a report, “Who Cares Wins,” which asked financial institutions, companies, investors, pension funds, regulators, and others to incorporate ESG into their thinking about prospective investments.
Since then, the U.N. has developed a number of other environmental agreements to which large financial institutions have sworn allegiance.
One is the U.N. Environment Programme’s (UNEP’s) Principles for Responsible Banking, which the program describes as “a unique framework for ensuring that signatory banks’ strategy and practice align with the vision society has set out for its future in the Sustainable Development Goals and the Paris Climate Agreement.”
Roughly 45 percent of world banking assets are beholden to the principles, which were first introduced in 2019.
Thirty-six banks that committed to that agreement are also signatories to the U.N.’s 2019 Collective Commitment to Climate Action (CCCA).
With $16 trillion in worldwide assets, the banks have committed to setting a sector-level target for oil and gas, as well as other “carbon-intensive sectors,” to comply with the Paris Agreement and aim for net-zero by 2050.
The Epoch Times has reached out to the UNEP for comment on whether CCCA signatories are effectively required to divest some assets from oil and gas companies.
In 2021, the CCCA was supplanted when the U.N. launched a new program in anticipation of the Glasgow climate conference: the Net-Zero Banking Alliance.
The alliance includes 102 banks with $67 trillion in global assets—equivalent to 44 percent of worldwide banking assets.
Signatories such as Citi, the Goldman Sachs Group, Wells Fargo, Bank of America, and JPMorgan Chase have declared their intention to transition their portfolios in line with a goal of net-zero emissions by 2050.
One bullet point in the alliance’s commitment statement notes that signatories should focus on sectors emitting the most greenhouse gases, while a subsequent bullet point directs signatories to follow the same sector-level target guidance as the CCCA.
The commitment statement even tells signatories to “[facilitate] the necessary transition in the real economy through prioritising client
Mark Campanale, founder and executive chairman of the Carbon Tracker Initiative, believes such coordinated global efforts are steering capital in the right direction.
“Initiatives such as GFANZ, the Glasgow Finance Alliance for Net Zero, have $130 trillion committed to net-zero pathways. These institutions can’t get to those goals by funding more fossil fuels. And with the clean energy revolution well underway,” he told The Epoch Times via email.
While the specific term “ESG” originated with the U.N. and high finance, it has a number of progenitors. One is the so-called triple bottom line, a concept brought fully to life by British environmentalist and entrepreneur John Elkington.
In his 1997 book “Cannibals With Forks: The Triple Bottom Line of 21st Century Business,” Elkington argued that three “bottom lines”—environmental quality, social justice, and, most conventionally, profit—were starting to guide large businesses at that point in time.
In 2018, however, Elkington issued a “product recall” of the concept through an article in Harvard Business Review. He argued that triple bottom line adopters weren’t doing enough to question the economic system as a whole.
“The TBL wasn’t designed to be just an accounting tool. It was supposed to provoke deeper thinking about capitalism and its future, but many early adopters understood the concept as a balancing act, adopting a trade-off mentality,” Elkington wrote at the time.
“My view on ESG is that we are seeing a feeding frenzy at the moment with the financial markets seeing this as a get-out-of-jail card,” Elkington told The Epoch Times in an email.
Elkington believes that coal, oil, and gas are on the verge of being displaced: “The combination of solar, wind, and battery innovations looks set to undermine the economics of fossil fuels.
“I also think that the evidence of climate chaos is going to press on much more ferociously than most analysts predict. A perfect storm, you might conclude, for the likes of ExxonMobil. They can promise to go net-zero by 2959, but the tide of history is turning—and they are on the wrong side of it. They will bleed capital, insurance cover, talent, and political influence.”
The Epoch Times has reached out to ExxonMobil for comment.
Cranberg, of the oil and gas company Aspect Holdings, told The Epoch Times he would make a million-dollar wager with Elkington: “The value of the world’s oil, gas, and petrochemical production will be higher in 10 years [even adjusted for inflation] than it was in 2021.”
Elkington’s perspective on oil and gas, though stark, may still place him in the moderate wing of environmentalism.
In November 2021, Canadian environmental activist David Suzuki told protestors that “pipelines will be blown up” if Canada’s government doesn’t take steps in connection with climate change.
Harder to Drill
Argus’s Oatway asked ConocoPhillips CEO Lance about the impact of ESG on financing for new drilling.
Lance said that not enough capital is currently reaching upstream projects—in other words, the actual extraction and production of oil in the United States and the wider world.
“It’s probably 50 percent of what it needs to be globally long term,” he said, adding that the lack of capital from investors could make for a “messy transition” to an energy balance with fewer fossil fuels.
Lance told Oatway that the cumulative impact of various regulations and proposed measures is significantly impeding his industry in the United States. “They’re basically energy illiterate on the Hill,” he said.
Cranberg, of Aspect Holdings, disagreed. “I don’t think this is actual economic illiteracy except in a few cases; it’s politics,” he told The Epoch Times.
The Biden administration paused new oil and gas leasing on federal lands and waters in 2021. The administration went on to hold its first offshore leasing sale in November 2021.
On Jan. 27, however, U.S. District Court Judge Rudolph Contreras, an Obama appointee, ruled in favor of the Sierra Club and various other environmental groups; he threw out the leases, stating that the Department of the Interior didn’t properly calculate new greenhouse gas production as a result of the sale.
With the rise of the Net Zero Alliance and similar consortia, which now control significant chunks of the world’s banking assets, another new hazard has emerged for oil and gas: namely, the possibility of debanking.
That financial pressure is particularly acute in Europe.
Bloomberg reported that European banks have curtailed their services to fossil fuel companies, citing comments from Jacob Gyntelberg of the European Banking Authority.
Other legal risks have emerged as well.
In June 2021, a Dutch court ordered Shell to reduce its carbon dioxide emissions a net 45 percent by 2030, as compared to its 2019 emissions, in a ruling that environmentalist Bill McKibben wrote “could be game-changing” on Twitter.
Shell decided to appeal the ruling.
Even with the rise of ESG, fossil fuel prices have risen—and so have the profits for many oil companies. Chevron, for example, enjoyed its most profitable year since 2014.
Higher energy costs have started to provoke widespread anger. At the Argus summit, Currie of ConocoPhillips alluded to the yellow vest protests in France, sparked by rising energy costs.
“It’s not imaginary, what you’re seeing,” she said.
Some have blamed fossil fuel companies for the recent energy price hikes.
“The cause of rapidly rising energy prices for consumers and manufacturers is clear: some of the nation’s largest and most profitable oil and gas companies are putting their massive profits, share prices, and dividends for investors, and millions of dollars in CEO pay and bonuses, ahead of the needs of American consumers and the nation’s recovery from the pandemic,” Sen. Elizabeth Warren (D-Mass.) wrote in a November 2021 letter denouncing the sector.
Campanale, of the Carbon Tracker Initiative, told The Epoch Times that divestment from fossil fuel companies was reasonable despite those firms’ profitable recent quarters.
“Investors are pulling away from funding fossil fuel expansion where projects or company plans are not consistent with investors own net-zero commitment,” he said.
“Whilst energy demand continues its long-term growth, investors are looking to make sure this demand is met from renewables, not fossil fuels.
“In addition, particularly during periods of low prices such as we’ve seen in the last few years, the fossil fuel producers have not been making money. If these companies can’t make money, they shouldn’t be surprised if the investors aren’t there.”
By contrast, Mark Thornton, a senior fellow at the Mises Institute, sees the industry’s financial situation as indicative of hostility from the state.
“Any industry that is experiencing a surge in profits but having trouble accessing capital is usually in the situation where future profits are being threatened by the government with either higher taxes or more onerous regulations of some sort. That is the situation with oil,” Thornton wrote in an email to The Epoch Times.
“If there were no such threats, then there would be plenty of investment, normal profits, and low prices. Oil and energy are vital to economic output and progress, and they are already huge taxpayers! And yet we teach our children that they are bad.
“What the world needs to focus on is lower food and energy prices via increased production.”
Rectenwald thinks the one-two combination of ESG scoring and increasing energy costs is no coincidence.
“The ESG Index is contributing to the rise in gas and oil prices, which is an intended consequence,” he said. “BlackRock Inc’s Larry Fink and the Biden administration want to drive up the costs of carbon-based commodities so that they are finally driven out of the market. The object is elimination.”
The Epoch Times has reached out to BlackRock and the Biden administration for comment.
Lance told Oatway he thinks the Biden administration wants to create uncertainty about the oil industry for prospective investors, thereby discouraging them from allocating capital to it.
“I think it’s the atmosphere that this administration wants, but they don’t want the consequences that come from this,” he said, predicting that the costs of gasoline diesel, heating oil, and natural gas will rise over the short run.
The federal Energy Information Administration (EIA) has projected that the price of oil will slowly decline, predicting on Jan. 12 that the price of Brent crude oil, a key global benchmark, will fall from $79 per barrel in the fourth quarter of 2021 to $75 per barrel in 2022 and $68 per barrel in 2023.
If it does fall, that downward path may be volatile.
In late January, the price of Brent crude exceeded $90 per barrel at least once, with some analysts projecting it will reach $100 per barrel by the summer, according to Irina Slav of OilPrice.com.
The Epoch Times has reached out to the EIA for comment.
Where Does ESG End?
Like Rectenwald, Thornton worries about the political uses of ESG.
“ESG gives the appearance of objectivity, but it is really unscientific lipstick for purposes of taxation, control, and ideological (and political) pursuits,” Thornton wrote.
“At best, they discourage certain types of environmental harm and encourage other types of environmental harm. All of these environmental efforts are very high on costs and very low on benefits, and for many reasons are irrational.”
Those other types of environmental harm, he wrote, include the underexamined costs of wind energy.
“Coal and oil energy is better for the economy, i.e., people, and their impacts are known and have been curbed,” he wrote. “Economic costs, benefits, and uncertainties, along with science, seem to be ignored by ESG. ESG seems to follow ideological guidelines.”
Consolidation has emerged as another theme in the oil industry—and, on some accounts, another consequence of ESG scoring and similar pressure from finance.
“I think consolidation needs to occur,” Lance said.
Ozzie Pagan, of Macquarie, predicted that “smashcos”—companies consolidated by private equity firms—will continue to proliferate in the United States, eliciting agreement from other speakers on his panel.
He pointed to “banks pulling back and putting pressure” as one explanation for the trend.
Rectenwald thinks that ESG requirements could be part of a push toward “corporate socialism,” justified by the euphemistic language of “stakeholder capitalism.”
“The ESG Index serves as an admissions ticket for entry into the woke cartels,” he said in his remarks to The Common Sense Society. “The tendency of woke capitalism is toward monopolization—vesting as much control over production and distribution in these favored corporations as possible, while eliminating industries and producers deemed either unnecessary or inimical.
“Woke stakeholder capitalism does not advance socialism as such. Rather, it tends toward corporate socialism.
“In extreme versions, it amounts to capitalism with Chinese characteristics—an authoritarian state directing the for-profit production of state-sanctioned corporate entities.”
Campanale sees it differently.
“Helping investors to protect their capital and make more informed decisions with a greater range of data and analysis is a good thing. Investing blind whilst ignoring the facts of the energy transition is helpful to no one,” he wrote.
“Telling investors in canals when railroads arrived to look the other way; or telling investors in the wireless to ignore television; or more recently, telling shareholders in Blockbuster video to ignore livestreaming and Netflix, would all have been recipes to lose your shirt/your money!”
Some have sounded the alarm about ESG score-like metrics for individuals.
Blaze Media co-founder Glenn Beck cited Bank of America subsidiary Merrill Lynch, which he said has started to issue ESG scores to some customers. Bank of America, a member of the Net Zero Banking Alliance, didn’t immediately respond to requests for comment from The Epoch Times.
In an August 2021 LinkedIn post, David Cox, a digital strategy and sustainability professional at Microsoft, mused on the possibilities of applying ESG to people. (Microsoft often tops lists of companies by ESG rating.)
Cox began by stating that while “scientific consensus says humans contribute to a warmer planet … pressure seems more on businesses to transform.”
“ESG scores are assigned to businesses based on their ESG performance. This can provide easier access to sustainable finance and improve market capitalization. Why not do the same for individuals?” he wrote.
The Epoch Times has reached out to Cox for comment.
Cranberg told The Epoch Times he wouldn’t be shocked at the development of personal ESG ratings.
“Scoring and taxing an individual’s personal carbon footprint would of course be highly invasive, but could generate lots of cash, which is always attractive to politicians,” he wrote.
“The question is whether the politicians would be able to pass legislation that exempted themselves and their own private aviation!”