As objects in calendar prove closer than they seemed, including those relating to once-trendy but far-away climate targets, it seems that companies if not governments are getting a bit more focused in their thinking. The whole craze for DEI and ESG seemed a cheap way to gain credibility with politicians and young people as long as you didn’t have to do anything except talk like a politician or a young person. But once it turned out to be a way for people who neither understood nor cared about your firm to run it into the ground with an air of superiority, things changed a little.
Back in December, in Real Clear Energy, Rupert Darwall called 2022 “The Year ESG fell to Earth” as Blackrock’s ESG Screened S&P 500 ETF fell by more than a fifth in value while the S&P 500 Energy Sector Index rose by more than half. And the problem, he underlined, was that “Net zero—the holy grail of ESG—has turned out to be Russia’s most potent ally.” It became clear that “Environmental, Social and Governance”, which is what ESG stands for and cries out for the question “environmental, social and governance what?” as the first two are adjectives in forlorn quest of a noun and the third is a noun in forlorn quest of specificity, meant that decisions were made not by or in the interest of shareholders but to conform to some nebulous left-wing vision of how the world should be but was not.
Putin’s invasion of Ukraine was certainly part of this return of Kipling’s Gods of the Copybook Headings. Not least because the Western world came part-way to its senses and lunged for reliable energy and oil companies noticed that pumping and refining a lot of the stuff at high prices really seemed in some strange way to contribute to prosperity, social well-being and national security as opposed to not doing so.
Canada’s heavily subsidized left-wing state broadcaster, in between delivering tongue-lashings to those who think it is a mouthpiece for Canada’s big-spending left-wing state, whined that “Big Oil walks back climate pledges as earnings show 2022 was their most profitable year ever”. How dare they, one might ask. And CBC does, lamenting that:
“Financial results from the biggest energy companies in the world this week show that last year was their most profitable year ever, prompting many of them to scale back previous commitments to pivot more toward renewable energy.”
How dare you! they probably wanted to add. Showing the independence of mind typical of progressives, Britain’s heavily subsidized left-wing state broadcaster whined that “BP scales back climate targets as profits hit record” and interviewed, of all outfits, Greenpeace, “whose voice the BBC has included because of the impact of oil and gas production on the environment”, which lamented that:
“BP’s new strategy ‘seems to have been strongly undermined by pressure from investors and governments to make even more dirty money out of oil and gas’.”
How can it be, when surely we could all make even more selling money-losing renewables?
Well, another part of 2022’s reality bites back was the persistent failure of governments to meet their emissions reduction targets, to the point that delegates at COP27 decided to reorient the program toward the handing out of vast sums of money from rich Western governments to other kinds. Which would have to come from, well, companies and customers.
The sheer nebulosity of the ESG concept made it harder to defend, or grasp, when the cold winds blew. As Matthew Lau put it in the Financial Post in January:
“The analytical looseness characterizing discussions of corporate social responsibility, which Milton Friedman wrote about over 50 years ago, is ever more apparent. Last month, Bloomberg reported about ‘ESG fund chaos’ over greenwashing concerns and widespread frustration among asset managers, as more than $125 billion in assets previously labelled environmentally responsible are now rated not to be, after all. It has been clear for some time that the ‘E’ in ESG is hard to judge. Now a new paper jointly published by the University of Chicago’s Booth School of Business and Stanford University’s Rock Center for Corporate Governance suggests the ‘S’ (standing for ‘social’) is on similarly shaky ground.”
There seems to be a certain amount of what he calls “diversity-washing” as it turns out that not all corporate marketing is totally straightforward and above-board. Who knew?
Companies may be happy to say what politicians who are leaning on them want to hear. Such as:
“Imperial supports Canada’s vision for a lower-emission future and we are making strategic investments to reduce greenhouse gas emissions from our own operations and to help customers in vital sectors of the economy reduce their emissions”.
But they also need to turn a profit.
The Financial Post reported Shell’s CEO Wael Sawan grudgingly conceding that his firm would continue to produce the product crucial to our way of life and make money while doing so. Of course he phrased it as ceasing to produce it, saying:
“Our natural gas business continues to grow in a world that is desperately in need of natural gas at the moment, and I think for a long time to come. Gas has a critical role to play in the transition to lower-carbon energy…. For a long time to come, a key focus area for us will be to continue to make sure that we lower the emissions from gas across the value chain.”
Honest we will. Unless we don’t. And while it may not be newsworthy that the Secretary-General of OPEC told climate negotiators to “pause for a moment; look at the big picture” and realize they still need lots of oil (or that he wrapped it in the usual rhetoric, saying they need to “work towards an energy transition that is orderly, inclusive and helps ensure energy security for all”) surely it’s remarkable, that, the Straits Times adds, “United States President Joe Biden went off-script during his State of the Union speech last week and said: ‘We are going to need oil for at least another decade.’” Yeah. At least.
Not everyone gets it. Instead Reuters “Sustainable Switch” applauded that:
“‘Your core product is our core problem,’ U.N. Secretary-General Antonio Guterres said in a speech to the 193-member U.N. General Assembly outlining his 2023 priorities. 📢 ‘We need a renewables revolution, not a self-destructive fossil fuel resurgence.’”
We’ll get right on it chief. Meanwhile that BBC story noted:
“BP boss Bernard Looney said the British company was ‘helping provide the energy the world needs’ while investing the transition to green energy. But it came as the firm scaled back plans to cut carbon emissions by reducing its oil and gas output.”
And Bloomberg chipped in that:
“After a year of record profits, Europe’s supermajors are shifting their focus back to fossil fuel production despite the implications for their pledges to reduce CO2 emissions. It’s an approach already familiar to American giants Exxon Mobil Corp. and Chevron Corp., whose vision of the future has always stayed close to their oily core.”
Speaking of Exxon, Euronews.green declared in horror that “Exxon reports record profits while suing EU for 2.3% windfall tax”. But what did anyone think would happen, as the firm struggles to keep producing valuable products and paying people to do so?
More broadly, there is nothing wrong with making a profit. On the contrary, as Adam Smith observed in his famous passage about addressing ourselves not to the humanity of the butcher, brewer or baker but to their advantages, the desire to prosper in one’s trade motivates firms to treat customers and staff as valued human beings in ways that transcend checking activist boxes and that rather evidently has no equivalent in government.
Thus Lau also observes that “The racial diversity of the wait staff in Chinese restaurants in the Toronto metropolitan area is approximately zero” not because the owners are bigots but because “Chinese workers on average have better knowledge of the language, cuisine and culture, and are likelier to want to supply their labour to Chinese restaurants.” It could also be argued that too much diversity in the menu of a Chinese restaurant would be a disservice to customers who presumably select such an establishment because they are in the mood for a particular style of cuisine. And companies that cater to this wish are, of course, contributing to social well-being not draining it away like so much used cooking oil.
The usual suspects are still going on in the usual way; Euronews.green declared that:
“Each year, Canadian research firm Corporate Knights creates the Global 100, an index of what it deems to be the world’s 100 greenest firms…. In the latest rankings, published this week, wind turbine maker Vestas Wind has been knocked off the top spot. Schnitzer Steel Industries, a US scrap steel recycler, now bears the crown. ‘If one of the world’s dirtiest sectors can produce the most sustainable company in the world, then there is no excuse for any company in any sector not to step up,’ says Corporate Knights CEO Toby Heaps.”
Oh but there is. They need to make money not win awards.
Even the Davos People acknowledged [h/t Ray Pennings in Cardus’s “Insights”] that there were concerns over ESG, only to brush them aside with their aristocratic brush:
“ESG has been under increasing pressure lately. The Financial Times sees the future of ESG as ‘at a crossroads’. The Economist sees ‘a broken system (that) needs urgent repairs’. Some greenwashing and woke-washing scandals have done the rest. Critics might argue that the world has more pressing matters right now, with the war in Ukraine causing energy, food and potentially refugee crises for many countries. The question is: can ESG be saved? And if so, how? ESG doesn’t need saving. It remains a clear ambition but it needs transparency. In an increasingly fragmented and volatile world, it is more important than ever for companies to have a clear compass. Having a ‘true north’ is a prerequisite for sustainable management and for creating value for all stakeholders – and thus, for inclusive capitalism. Clearly defined and clearly communicated ESG goals can be this north star.”
Nothing like a jumble of metaphors and vacuities to clear things up. The difficulty, of course, is answering the question “What have stakeholders done for us lately?” Shareholders invest, workers work, managers manage and customers purchase. But stakeholders? Aren’t they just busybodies happy to spend your money on their concerns and give nothing back? Yup.
There’s an apocryphal line from Lenin about capitalists selling communists the rope with which the latter would then hang the former. But ESG is about them giving it to the activists busy erecting a gibbet. And for some reason they seem to be getting cold feet.