Name Game: Some Energy Companies Downplay 'ESG' While Continuing Those Initiatives

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--In the not-too-distant past, no energy conference would be complete without at least one keynote address, or panel discussion, highlighting environment, social and governance (ESG) concerns. Sometimes, entire energy conferences were devoted to that topic. But these days, fewer energy companies are broadcasting their ESG credentials. Instead, for many, that term has quietly disappeared, replaced with more palatable terms like "sustainability," "stewardship," or "social license to operate," even as the activities behind the term continue.

Vivek Ramaswamy, an asset manager, provocateur and presidential candidate, has long criticized ESG as "woke capitalism" and "the single greatest threat to American democracy." He may have been exaggerating for effect, but his timing was spot on. For more on his criticisms of ESG, see August 12, 2022, article - Asset Manager Pushes Back on ESG Narrative.

Ramaswamy's summer 2022 denunciation of ESG came shortly after mention of the term "ESG" by corporate leaders peaked in their conference calls with analysts.

A recent article in the Wall Street Journal cited data from FactSet that showed corporate leaders' use of the word "ESG" peaked at 3,041 mentions in the first quarter of 2022 during conference calls with analysts. Since then, mentions of that term have declined steadily, to about 1,248 in the first quarter of 2024.

When asked about ESG at a mid-August energy conference sponsored by EnerCom Incorporated (Denver, Colorado), one attendee said, "it was a fad that faded." Another said, "ESG used to be the third slide of everyone's presentation, right after the title slide and the safe-harbor warnings slide. Everyone wanted to say, 'Look how good we are.' But when ESG funds started to trail energy companies' returns, the term disappeared."

Not exactly. Those conference attendees were interviewed August 19 at the 29th annual "EnerCom Denver: The Energy Investment Conference." Their assertions aligned imperfectly with market performance. Over various periods, including one year, five years and 10 years, the returns of one ESG exchange-traded fund (ETF) from Northern Trust Asset Management (Chicago, Illinois), FlexShares STOXX US ESG Select Index (CBOE:ESG), with about $175 million in assets under management, outperformed integrated Oil & Gas supermajors such as Exxon Mobil Corporation (NYSE:XOM) (Spring, Texas), Chevron Corporation (NYSE:CVX) (San Ramon, California), Shell plc (NYSE:SHEL) (London, England) and BP plc (NYSE:BP) (London, England).

In some of those timeframes, the difference was dramatic. Also, the ETF beat most of the oil company stocks over a two-year timeline. But measured over three years, stock gains of the oil companies sharply outpaced the ESG fund.

It seems unlikely that oil and gas companies are running away from the substance of ESG concerns. Companies know they can lose their social license to operate if decisions are made that anger affected constituencies such as employees, local communities or governments. Instead, judging from presentations at the EnerCom Denver conference, oil and gas companies appear to be keeping the essence of ESG while avoiding political dust-ups by finding more-palatable synonyms, such as "sustainability," "carbon footprint," "corporate social responsibility" and "stewardship." Those terms were sprinkled into presentations delivered at the EnerCom conference with nearly the same frequency as "ESG."

There's no doubt that the term "ESG" carries some sharp edges, at least for come groups. In one example, the potential political perils of the "S" portion of ESG were dramatized in April 2023 when Anheuser Busch products were boycotted by conservatives after the beverage company aired a TV ad featuring a transgender influencer.

But that wasn't the only sign that "ESG" was becoming controversial. The law firm Simpson, Thatcher & Bartlett LLP (New York, New York) earlier this year reported that over 150 "anti-ESG" measures were introduced in 37 U.S. state legislatures in 2023, though most failed to pass. In 2022, nearly two dozen state treasurers vowed to stop doing business with financial firms that waved the ESG flag, including BlackRock Incorporated (NYSE:BLR) (New York, New York), Goldman Sachs Group Incorporated (NYSE:GS) (New York, New York), Morgan Stanley (NYSE:MS) (New York, New York), Wells Fargo & Company (NYSE:WFC) (San Francisco, California) and JP Morgan Chase & Company (NYSE:JPM) (New York, New York).

Even Larry Fink, chairman and chief executive of BlackRock, who many credit (or blame) with igniting the ESG trend in the investment community, said in June 2023, "I don't use the word ESG anymore, because it's been entirely weaponized ... by the far left and by the far right," according to Reuters.

Those in academia who track ESG issues say the term may have fallen into disuse, but the sentiments behind it remain alive and well. Whether it's called "stakeholder capitalism" or "social license to operate" or "ESG," there is no denying that companies across industries are making decisions with the interests of a wider range of groups in mind, not just shareholders but also employees, affected communities, suppliers, consumers, financiers, the broader society and so on.

In 2019, the Business Roundtable, one of the voices of Corporate America, broke with decades of practice when it said business leaders needed to consider all stakeholders in their decision-making, not just shareholders. For five decades before that, most business leaders followed the view of Nobel Prize-winning economist Milton Friedman, who asserted that profit-seeking businesses had only one obligation: to enrich their owners.

In a sign that "sustainable" or "responsible" investing, variously defined, remains alive and well, the United Nations recently published its 2024 report on the Principles for Responsible Investment (PRI). That report said 5,345 institutional investors, pension funds, mutual funds and other financial asset managers had poured a cumulative $128.4 trillion of assets under management into "responsible" investment vehicles since 2006. That's an increase from $121.3 trillion in assets under management as of March 31, 2021.

Click on the image at right to view a graphic on the amount of assets under management that have become signatories to the U.N. Principles for Responsible Investment.

Among electric utilities, NiSource Incorporated (NYSE:NI) (Merrillville, Indiana) is one that still uses the term "ESG" in the title of its annual report on what it is doing on environment, social and governance issues. Other utilities, such as Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina) and Xcel Energy Incorporated (NASDAQ:XEL) (Minneapolis, Minnesota), issue a variety of targeted reports on their commitments to various stakeholder groups. Among oil and gas companies, Occidental Petroleum Corporation (NYSE:OXY) (Houston, Texas) is one of several that downplays "ESG" in their annual reports on the topic, though its reports thoroughly review its activities to further environmental protection, employee growth, community growth and transparent governance. The landing page on Occidental's website says, "Oxy is taking bold steps to innovate for a lower-carbon future."

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