What Price 'ESG'?

In March 2019, Norway’s Government Pension Fund Global (GPFG) announced that it would sell off around $7.4 billion ( £5.7 billion) worth of stocks held in oil and gas exploration and production companies that according to the government had thus far failed to invest in renewable energy. In the days following, the combined market capitalization of Tullow Oil, Premier Oil, Soco International, Ophir Energy and Nostrum Oil & Gas fell 3 percent, or about $168.8 million (£130 million).

Then this past February, as supply was overtaking demand in the global oil markets, Goldman Sachs and JP Morgan both announced green investment strategies. That’s right, the fast-living, meat-eating, boat-owning, McMansion-dwelling investment bankers found God, or least least Gaia.

Goldman will place restrictions on coal mining and coal fired power plant investments while JP Morgan would stop funding E&P exploration in the Arctic and would target $200 billion in green financing in 2020. It was a curious business decision since a slew of their private banking clients attained their wealth through O&G royalties and since both banks were underwriters in the Aramco IPO that yielded investment bank fees totaling around $90 million.

While the specifics of any one of these examples are not significant by themselves, they are illustrative of a trend within certain quarters of investment banking and on executive boards to pander to a set of criteria that at best are squishy and at worst represent Wall Street wokeness.

‘ESG’ is an acronym for 'environmental, social and governance'. It describes a set of often broadly- interpreted, rather fluid investment criteria (data and factors) applied by reflexive investment bank boards and activist investors to companies’ operations.

• Environmental criteria refers to how a company performs as a steward
  of nature.
• Social criteria examine how a company manages relationships with
  employees, suppliers, customers, and the communities in which it
  operates.
• Governance refers to a company’s leadership, executive pay, audits,
  internal controls, and shareholder rights.

Choose one or the other.

While almost all are in agreement of the importance of good governance, the other elements of this criteria are frankly little more than ‘feel-good’ foolishness, open to any and all interpretation and activist pressure. Think symbolism over substance. Consider the following:

In May 2020 a Google spokesperson confirmed that the company will stop building custom AI/ML algorithms to facilitate upstream extraction in the oil and gas industry. After all, goes the narrative, working with O&G companies impedes stated climate goals and accelerates the climate crisis. There was no mention by the Google representative about whether they would also be removing the light fixtures, carpet, paint, tile, toilets, chairs and desks from their offices since petroleum products are part of the manufacturing process for those products.

The Google representative further clarified that Google Cloud only generated approximately $65 million in revenue from oil and gas company contracts in 2019, accounting for less than 1% of total Google Cloud revenue… as if the small percentage diminished the grievous nature of their environmental breach by working with the O&G industry.

Using AI in O&G after all would create business efficiencies that would make fossil fuel extraction faster, more safe, more accurate and less expensive. Imagine the societal damage brought by such a reality. Job stability, and increased tax revenue for the communities in which oil and gas plays are located would underpin this dystopic future that would emerge were Google to continue to develop AI technology with the O&G industry. What courage it must have taken for Google to reach such an important decision.

Greenpeace, an evangelizer from the religious-right of the church of EGS was there to celebrate Google’s decision. After all they had helped apply the thumb screws to Google. The narrative was predictable -- the EGS crowd won a moral victory against an immoral industry.

However, the same EGS advocates, the ones with more holy insight into what ‘E’ and ‘S’ should represent in the EGS pact had no comment or moral opinion about Google’s collaboration with the Communist Chinese regime only months earlier. They had nothing to say about Google’s efforts to develop a Chinese version of Google’s already creepy search engine. Known as “Project Dragonfly”, Google worked quietly developing the search engine that would censor searches by Chinese citizens of terms that the dictatorial Chinese Communist regime determined were acceptable. It wasn’t until The Intercept broke the story in July, 2019 that Google reluctantly abandoned the effort.

Don’t fret though, Google still has offices in China. They are now focused on developing AI technology and manufacturing for Chinese government-controlled companies. That’s right, the thing they abandoned with U.S. oil and gas because of its immorality they are now doing on behalf of the tyrannical Communist Chinese government. What letter should be used to describe that kind of moral and intellectual flexibility?

And no backing up!

The regime, known to forcibly sterilize and imprison its minority Muslim population known as Uighurs began disappearing and re-educating these innocents. It is now believed there are around 380 detention facilities to which anyone who pushes back on the tyrannical regime is sent. Instead of supporting the job-creating, liberty-centric O&G industry, these gentle-hearted EGS-minded investors and investment banks are content with this genocide of the Uighurs. What’s the letter for that?

Then just yesterday a former Facebook employee revealed that the censorship giant employs an Orwellian team in Seattle known as ‘Hate Speech Engineers.” Imagine the pride of ESG-minded investors when they found out that six members of this elite team of censors are Chinese expats in the U.S. on H-1B visas. Who better to be censoring all sorts of legitimate news stories than those who are expert at exploiting false narratives back in their motherland and on behalf of their motherland?

To the executives in the O&G industry, standing silent in the face of what is clearly politically correct wokeness, your silence will lend to the destruction of the one industry in North America that has single-handedly changed the geo-political landscape of the world and delivered the U.S. energy independence. To those in the investment banking world who favor the ESG standards and their random application to good versus bad industries, perhaps a new letter should be added to the criteria. How about “F” for fraud?