What is ESG and why should I care? ESG is a back door way of choking capital to the energy sector. Its origins are from the United Nations Principles of Responsible Investing initiative and other environmentalists who decided back in the ’70’s that Capitalism should have more political tentacles attached to it. It literally came from a “Who cares more wins” Conference!
In short, it attempts to measure how environmentally friendly, how socially accepting, and how well a company’s board interacts with its employees and shareholders. That’s right, it’s a socialists dream Report Card that Fund managers can use to bludgeon oil and gas companies with and feel good about it at the same time. The cherry on top is they get to fly to Davos in their lear jets instead of paddling a john boat and hammer the oil and gas industry.
Obviously, we all see the world through our own political and worldview lens. The problem with ESG investing and the concept in general, is the subjective nature of it all. The stated goal of many of the ESG funds and their rating agency buddies is to ” have a positive impact on the environment” and promote racial and gender diversity while treating all shareholders, supply chain partners and government agencies with respect and to effect positive change”. This is feel good about yourself investing. No Milton Friedman here…..
The World Economic Forum expands on the ESG framework advocating for ethical use of land and water. They also want to make sure the board and management are diverse and that the tackling of climate change is of great importance. The WEF lists 19 different cornerstones to its framework that companies should have to get a low (desirable) ESG score, allowing them to be at the top of the funding target list for the hedge fund managers looking to place chunks of investment capital. None of those cornerstones listed include ” increasing shareholder value”.
#1 on the most recent Kiplinger ESG list is the FTSE Social Index Fund. According to Kiplinger, the fund won’t knowingly invest in:
Fossil Fuels
Tobacco
Alcohol
Nuclear power
Gambling
Companies with Human Rights and labor law infractions
Environmental Controversies
It’s top holdings as of 9/30/21 are:
Apple
Microsoft
Amazon
Tesla
Its YTD yield is +29% . Nice job , right? Well, let’s dig a little deeper. Remember, ESG means they play nice, pay everyone fairly, get along with their partners, yada, yada, yada….
Apple: According to Green America, not exactly a right wing outlet, Apple was caught paying Chinese laborers $ 1.62 per hour. That’s $300.00 per month to build iPhones.
Microsoft: According to TechCrunch, they were caught working Chinese laborers 15 hours per day.
Facebook: FTC fined FB, at the time a record $ 5 billion for violating its users privacy in 2019.
Tesla: According to the New York Times, they need more lithium to line the bottom of those beauties. Google “Lithium Americas New York times – Nevada“. The local ranchers and tribes are fighting it because apparently the mine plans to use 3,224 gallons of water per minute. The mine is estimated to create 5,800 tons of sulfuric acid per day and may contain radioactive uranium (according to the permit). Green, it is not…..
Yet these companies all have good ESG ratings. The virtue signaling trick is to have a low score. The most recent scores I could find:
Microsoft: 13
Apple: 17
Facebook: 28 (in danger of getting kicked out of the ESG club)
Tesla: 30
Where are the rankings for the folks who produced the fuel for our ESG buddies to head out to Davos?
Devon: 32
Exxonmobil: 36
Cont Resources: 48 (Yahoo actually put “severe” next to CRL)
Why should the oil and gas sector care? Because ESG funds are on track to exceed $ 50 trillion in assets under management by 2025. That’s approximately 1/3 of all assets under management.
On May 22,2020 the US Securities and Exchange Commission decided to create an ESG disclosure framework without the use of third party rating agencies. Nothing like an overreaching group of politicians to place a few more roadblocks in the way…
Oh, by the way, the YTD yield for a couple of oil and gas producers (through 9-30-2021):
Devon: + 155%
XOM: + 52%
CLR: + 202%
Our guest contributor Eric Hawkins Co-Founded MayHawk Energy, LLC in 2007, and is a local to Norman, OK, and a veteran in the oil and gas business.
