A Tutorial On ESG Investing In The Oil And Gas Industry For Mr. Pence And His Friends

Former Vice President Mike Pence is not a professional investor. In fairness, neither am I. Good investing is a difficult and complex thing to do. So let me say, without any intended irony or sarcasm, that I’d like to provide some insights into investing in the oil and gas industry. My focus is on how to integrate risks associated with environmental, social, and governance (ESG) factors into the investment process.

I know that Mr. Pence and many in his circles are vehemently opposed to ESG. It could be that they simply see this term as meaning something different than I and many others do. In an investment context, ESG factors are just one element in the investment process which starts with how capital is allocated across asset classes (e.g., public equity, public debt, and private markets) and across countries (e.g., developed vs. emerging markets). For public equities decisions must be made on the weighting of value vs. growth stocks, sector weightings, within each sector which companies to include, and whether to overweight or underweight them.

Traditional oil and gas companies are value stocks. These companies are headquartered and operate in a wide range of countries, some quite problematic in a variety of ways. Given the nature of the industry and where it operates, how well a company is managing ESG risk factors is very important in making investment decision.