Over the past decade, green and socially responsible investments, aka ESG (Environmental, Social, and Governance) investing, have emerged as one of the biggest investment megatrends in modern times. For years, trillions of dollars in new global funds flowed into the market each year, with UBS predicting that carbon-reducing tech would hit $60 trillion of investment by 2040. Back in 2019, BlackRock Inc. (NYSE:BLK) declared its intention to increase its ESG (Environmental, Social and Governance) investments more than tenfold from $90 billion to a trillion dollars in the space of a decade. Blackrock is the world’s largest asset manager with $9.4 trillion in assets under management (AUM).
The past couple of years have also witnessed a large divestment drive from fossil fuels. Three years ago, former New York City’s Mayor Bill de Blasio and Comptroller Scott M. Stringer sent shockwaves through the oil and gas sector after they announced that the city’s $226B pension fund plans to divest the majority of its fossil fuel investments over the next five years and also cut ties with other companies that have been contributing to global warming. Shortly thereafter, Rockefeller Brothers Fund, a family foundation built on one of the world’s biggest oil fortunes, followed suit by announcing that it would ditch its oil and gas investments and cease making any new investments going forward. The $5-billion foundation was initially carved from oil money in the 19th century by John D. Rockefeller’s son, of the Standard Oil fame.
The ESG craze has lately lost some steam amid multi-year highs in oil and gas prices as investors focus more on getting a larger piece of the record profits being enjoyed by fossil fuel companies. However, that does not mean that ESG is dead.
The Rockefeller Foundation has doubled down after launching a high-profile campaign last month to support climate solutions including a $1 billion-plus pledge. The fund has acknowledged the absurdity and irony of applying oil wealth to climate solutions, but has justified the action by saying oil and gas companies should play a part in solving a crisis they have played a big part in creating.
“I feel that we’ve an extra responsibility almost to address the climate change challenge on that basis,” the Rockefeller Foundation’s Joseph Curtin has told Newsweek.
The foundation has launched programs aimed at lowering the use of coal-fired power in Asia and speed up deployment of battery storage for renewable energy. The foundation will also develop climate-smart infrastructure, build renewable energy mini-grids in developing countries and also pursue nature-based solutions for carbon removal and climate resilience.
“I see the Foundation’s $1 billion climate solutions commitment as entirely consistent with John D. Rockefeller, Sr.’s philanthropic ideals. Rather than being somehow wrong for money earned from oil to be used to fund a world beyond oil, it’s what we should hope to see more of in society: That successive generations use their resources to correct harms only recently brought to awareness, and we evolve our goals in step with our consciousness,” Rockefeller family member Daniel Growald told Newsweek.
ESG Investing Slows Down
ESG enthusiasm is certainly dwindling. After peaking at $17.1 trillion in 2020, ESG assets in the United States dropped sharply to just $8.4 trillion in 2022, and the bleeding continues. In the current year, no less than four ESG funds have been liquidated: SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND), SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG), SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF (RDMX) and the Invesco US Large Cap Core ESG ETF (IVLC).
Talking points around ESG have also dwindled markedly: According to FactSet, just 74 companies in the S&P 500 cited the term “ESG” during their latest earnings conference call transcripts, less than half the 156 times the term was cited in 2021 Q4 earnings conference calls.
A similar trend has also been observed across the rest of the world, including in Europe where ESG standards are much stricter.
The year 2021 proved to be a watershed moment for oil and gas companies in the global transition to clean energy, with Big Oil losing a series of boardroom and courtroom battles in the hands of hardline climate activists.
Luckily for these oil and gas supermajors, last year, investor sentiment shifted in their favor.
In May 2022, Exxon Mobil (NYSE:XOM) recorded a major victory after its shareholders supported the company’s energy transition strategy at the annual general meeting. Only 28% of the participants backed a resolution filed by the Follow This activist group urging faster action to battle climate change; a proposal calling for a report on low-carbon business planning received just 10.5% support while a report on plastic production garnered a 37% favorable vote.
Following in the footsteps of its larger peer, in June, Chevron shareholders voted against a resolution asking the company to adopt greenhouse gas emissions reductions targets, indicating support for the steps the company already has taken to address climate change. Just 33% of shareholders voted in favor of the proposal, according to preliminary figures disclosed by the company, a sharp turnaround from last year when 61% of shareholders voted to support a similar proposal.
Back in June, Exxon CEO Darren Woods urged regulators to stop focusing on certain energy sources, such as renewable energy, to save the climate, warning that it would be a “huge mistake to be picking winners and losers and focusing on specific technologies”. Instead, “we need to look more broadly and let the markets figure out which solutions deliver the most emissions reductions at the lowest cost,” Woods told Nicolai Tangen, the CEO of Norway’s Wealth Fund,one of the largest mutual funds in the world, on his podcast. An attempt to move away from oil and gas immediately, with unchanged global demand, could be disastrous for clean energy, Woods suggested, adding that if we produce less LNG, for example, something else–like coal–would have to step in to fill the demand gap. According to Woods, Europe should follow the U.S. approach to climate policy, arguing that the continent risks driving companies away by regulating too hard. Woods told Bloomberg that one of the most important things the Americans (and ExxonMobil) are doing is developing technologies to capture and store carbon
Overall, overcoming carbon-lock is proving to be a much more formidable task than earlier thought.
Source : Oilprice