The ESG perspective
The history of ESG. Bob Dylan’s song, “The Times They Are-A-Changin,’” was released as a single on March 8, 1965. It reflected a cultural change taking place in the 1960s and 1970s. Many believe that the environmental and social movements began in the 1960s and 1970s.
Some of our most comprehensive environmental regulations were established in the 1970s, and then there was the Civil Rights Movement of the 1960s; these actions and movements were part of the genesis of what we call ESG (Environmental, Social and Governance). The Clean Air Act was first introduced in 1963 and later was combined with multiple acts to form the Clean Air Act of 1970, which was signed into law by then-President Richard Nixon.
Then, there was the Clean Water Act of 1972, but this started as the Federal Water Pollution Act of 1948 and was later completely rewritten in 1972. These two pieces of legislation form the basis of most of our environmental laws, emission limits and regulations. The truth is that although the 1960s and 1970s were a time of dramatic change, the environmental movement started much earlier.
Far earlier acts. Britain introduced the Alkali Act in 1863 to regulate air pollution. It was called “Alkali act,” because they began using soda ash for pollution control. Before this, in India, 1842 was the beginning of forest conservation, using scientific principles. This conservation movement gained worldwide attention, resulting in the U.S.’s first conservation program in 1860.
The same is true of Civil Rights, a movement that we may say was born in the 1960s, but there were labor movements and Women’s Rights movements well before the 1960s. John Muir—a famous naturalist—was instrumental in the development of Yosemite National Park in the 1890s, and he later formed the Sierra Club in 1892. Henry David Thoreau’s work and book, Walden, reinforced the connection between nature and man and inspired many towards conservation.
There are also many who will reference the work of Plato and Aristotle on social and environmental issues. These issues have been around forever, and what we have seen is a continued evolution toward today’s ESG programs. Needless to say, the 1970s were still monumental in transitioning toward environmental issues; like I mentioned, you have the CAA, the CWA, the first “Earth Day” and even the formation of Greenpeace—all happening in the 1970s. The 1970s were pivotal in our transition to controlling emissions.
ESG today. So why the history lesson? Former UK Prime Minister Winston Churchill famously said, “Those that fail to learn from history are doomed to repeat it.” Even before that, Spanish philosopher and poet George Santayana is credited with the quote, “Those who cannot remember the past are condemned to repeat it.” History repeats itself, and today’s ESG movement is a repeat of other environmental movements.
The lesson is that they effect change in how we do things and in the regulatory environment. I say this, because there has been significant pushback from the oil and gas industry against ESG principles, and there has been wide approval, as well. These push-and-pull actions are a normal reaction to change, and through this controversial period and once the smoke clears, we will see the adoption of change, new regulations and a path forward. It is very possible that the Inflation Reduction Act (IRA) will be remembered for its impact on the ESG movement, much the way the CAA and CWA impacted the environmental movement.
It was just a few months ago that Blackrock was attacked for a perceived anti-oil stance, leading Florida and Texas to reconsider investments in Blackrock investment funds. And now, just a few days ago, Occidental announced Blackrock’s investment of $550 million in a direct capture facility in Ector County, Texas. As the ESG movement evolves, we will see more cooperation and an aligning of resources toward the same goal.
The need for transparency. I understand the pushback. There are many, who believe ESG is inherently anti-oil. Historically, the environmental movement has been anti-oil. Many will tell you Greenpeace was born as the result of a large oil spill off the California coast in the Santa Barbara Channel, in 1969. So, yes, there is an anti-oil sentiment within the environmental movement, which has evolved into today’s ESG movement.
Many children of the 1970s are now working in the banking and finance industries and within corporate America as a whole, so this anti-oil sentiment has become engrained in the ESG movement. France recently banned fossil fuel companies from receiving investments from responsible investment funds. In the UK, greenwashing court cases have been filed against Shell for its advertising of its ESG initiatives. Their fear is that decarbonizing oil and gas will legitimize the industry—an industry they want to abolish.
On the other side, you have people who don’t believe in decarbonization and believe ESG is a dangerous movement that only increases cost. Ultimately, the answer will lie somewhere in-between. The quicker we become transparent about our concerns and motives, the quicker we can resolve these differences.
ESG needs oil and gas. Carbon Zero and decarbonization are major initiatives within the ESG movement. Carbon Zero needs decarbonization, and decarbonization needs oil and gas. Again, let’s talk history. Decarbonization requires carbon capture, followed by gas compression and pipelines to Class VI sequestration wells, which need to be drilled and operated. Who has more drilling experience or well operation and management experience than oil and gas?
Then, there is the understanding of geology required to select an area for carbon sequestration; again, the oil and gas industry has the geological expertise. Permitting, construction and operation of pipelines? You guessed it: oil and gas. Gas processing, used to clean up field gas for distribution and sale, is essentially a carbon capture system.
And again, historically, one of the largest sources of decarbonization is the use of carbon dioxide (CO2) in enhanced oil recovery (EOR). And oil majors understand this, as ExxonMobil, Occidental and Chevron have invested billions into decarbonization efforts, including strategic acquisitions like ExxonMobil acquiring Denbury and Occidental acquiring Carbon Engineering. Maybe Blackrock’s investment in Oxy and 1Point5’s DAC facility is the beginning of a move to more rational development of the ESG movement.
In closing. I’ve talked about why the ESG movement needs to be embraced, with decarbonization being a new and growing industry and not just an increase in cost, but rather, a new revenue stream from tax credits and offset credits. Oxy’s Vicky Hollub predicted their low-carbon revenues would exceed those of Oxy Chemicals.
Decarbonization is not a cost but an opportunity. Then there is the EU, developing standards that will require U.S. companies doing business in the EU to adopt ESG principles. Additionally, there are “Responsibly Sourced Gas” standards that will require methane reduction. Embracing ESG standards can lead to the opening of new opportunities and revenue enhancement.
So yes, I’m a convert. I realize the importance of ESG and, more importantly, decarbonization, to the oil and gas industry, but more importantly, the U.S. will not achieve its Carbon Zero or decarbonization goals without oil and gas. So, it’s time that the ESG movement realizes this and embraces oil and gas as a partner and not an opponent.
- The last barrel (February 2024)
- Oil and gas in the Capitals (February 2024)
- What's new in production (February 2024)
- First oil (February 2024)
- E&P outside the U.S. maintains a disciplined pace (February 2024)
- Prices and governmental policies combine to stymie Canadian upstream growth (February 2024)
