Sustainability
Tenured Harvard Business School professor, now at Oxford University.
In my previous post, I discussed the Republican Steering Committee (RSC) Memorandum “The War on American Energy: Ground Zero.” In the first part I pointed out that I shared their concerns about “ESG investing” and even added a few more points to bolster their argument. In the second part I sought to clarify the meaning of ESG from an investor perspective, pointing out that ESG is about material issues which matter to all stakeholders leading to shareholder value creation. I also clarified a common confusion people, including Mr. Elon Musk, are having when they question why ExxonMobil has a higher ESG rating than Tesla. The issue here is that ESG ratings are about a company’s operations and activities, not the positive and negative externalities—the impact—of their products and services.
The RSC memo claims that “ESG Makes Energy More Expensive.” I’m admittedly no expert on the oil and gas industry but I think it’s a rather bold claim to say that “ESG Makes Energy More Expensive.” Even the casual observer knows that there are a number of reasons why energy is more expensive today, including Russia’s invasion of Ukraine, greater demand following the economic recovery from COVID-19, and lingering effects from a massive snowstorm that hit Texas last year. Opinion obviously varies on whether climate change is at least a partial cause of such an unusual weather event in Texas.
The memo further argues that “ESG decreases investments in oil and gas producers by choking off the flow of capital to creditworthy businesses.” A good place to test this assertion is with ExxonMobil. It has very much been in the spotlight since 2021’s Engine No. 1 campaign which successfully placed three new directors on its board. While Mr. Mike Pence referred to them in a derogatory way as “environmentalists,” they are actually people with deep experience in the energy industry. Experience, remarkably enough, that was lacking in previous boards. Oh, and I should mention that in its 2022 Proxy Statement the company states “The Board unanimously recommends you vote FOR each of the ExxonMobil director candidates.”
Now let’s see what the company has to say about whether climate change is real or not and whether it has the resources it needs to be a successful oil and gas company.
Robert G. Eccles of Saïd Business School, University of Oxford is the author of a number of books on integrated reporting, sustainability and the role of business in society. His focus is on sustainability from both a company and investor perspective. Professor Eccles is also involved in a variety of initiatives to embed environmental, social, and governance (ESG) issues in real world decision making. One of these is the Sustainability Accounting Standards Board (SASB), of which he was the founding chairman. In 2018, Professor Eccles was selected by Barron’s as one of the top 20 influencers on ESG investing.
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