ESG (Environmental, Social, and Corporate Governance) investing might be dead in the water and reincarnated into a new cuddly ideology of inclusive capitalism, which is about letting CEOs and stakeholders run the company for the benefit of all.
Inclusive capitalism encompasses ESG principles by default, the key being Laissez-faire economics, which opposes government intervention in business affairs and advocates minimal government.
In other words, let markets be markets.
Proponents of Laissez-faire economics believe the invisible hands of the free market ensure that companies uphold ESG principles, so they don’t require regulation.
“ESG (Environmental, Social, and Corporate Governance) investing might be dead in the water”
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They argue that companies operating in a meritocracy, where the best candidates are employed and promoted irrespective of discriminatory factors, will outperform those who discriminate based on gender, race, or religion.
Discriminatory companies will be bankrupted by those with a meritocratic employment policy.
In a free market, the consumer is sovereign. So if the media is also uncensored news about a company poisoning rivers, cruelty to animals or child labour surfaces, and consumers are disgusted by it, they could refuse to buy the company’s products or services.
Laissez-faire economics argues that ESG principles don’t need to be regulated because the free market will drive out companies that don’t adhere to the principles.
“I believe that ESG, as a term, should be put in the dustbin,” said Lynn Forester de Rothschild.
Criticising ESG, she said, “There is too much greenwashing around it.
Too much virtue signalling.
People think they are a virtuous company if they hang up an ESG sign.
I would go back to a narrative of what great companies in history did to be great,” she added.
So perhaps it is back to orthodox thinking or just plain common sense where ESG will no longer cut it.
If ESG philosophy makes businesses go bankrupt, mass unemployment ensues, which triggers multiple problems, from collapsing bond values in financial markets to social unrest on the streets.
“In a free market, the consumer is sovereign. So if the media is also uncensored news about a company poisoning rivers, cruelty to animals or child labour surfaces, and consumers are disgusted by it, they could refuse to buy the company’s products or services”
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BP, the last energy giant to finally scale back ESG investing
In 1997, former BP boss John Browne spearheaded the idea of beyond petroleum.
We need to reinvent the energy business, said Browne in a speech at Stanford University in March 2002, claiming that the company needs to go beyond petroleum.
The oil giant BP infamously rebranded itself from British Petroleum to Beyond Petroleum, pledging to hold emissions constant and being a steward to the planet.
But is it the role of corporations to promote an ideology or make profits by employing capital to provide competitively priced products or services that the market needs and wants?
So, almost three decades on BP could be a case study of what happens when corporations make ESG principles override profits.
“BP is the least profitable company amongst its oil giants”
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BP is the least profitable company amongst its oil giants.
BP returns are about 37%, Shell is 77%, and Exxon is 147%, so it is not as profitable as its peers, according to Energy Analyst Cornelia Meyer.
Making energy plentiful and affordable would have been a more profitable motto for BP.
Collapsing living standards in the UK are forcing growing numbers of low-income people to choose whether to heat or skip a meal.
If BP channelled capex away from renewables into low-cost carbon energy production, it would better provide what its domestic market needs and improve return on capital.
Moreover, investors are unhappy with BP, which trades with Exxon at a 100% discount and Shell at a 15% discount.
BP has not been doing relatively well.
BP’s profit after tax tumbled to 381 million dollars last year, significantly down from 15.2 billion dollars in 2023.
BP blamed lower profits on higher production costs and weaker oil and gas prices.
BP’s latest results finally pushed the company from ESG investing
The oil giant has already scaled back its carbon plans with a target of reducing carbon emissions by 203% by 2030 compared to 2019 levels, compared with the previous target of 35 to 40%.
So BP has thrown the towel in on ESG principles by hugely scaling back its carbon emissions.
Beyond petroleum equates to lower profits, underperformance, and return to petroleum.
“Trump’s day one agenda is to drill, baby drill, for oil and gas”
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Net zero carbon fantasy as oil giants abandon ESG investing
Other oil majors have also cut back on their renewable energy plans, including Shell and Exxon, and even the Norwegian State-owned national company Equinor have been going down this route, scaling back their plans to invest in Green energy.
So, the IEA net zero strategy is nothing short of a fantasy.
The Ukraine war, the worst war in Europe since WW2, has split the world into two spheres of influence between the two great powers, the USA and Russia.
The world we once knew, unilateral with the US as a hegemon, no longer exists.
In this new era of wars and geopolitical uncertainties, there is no international rule of law, just two heavyweights exerting their sphere of influence where might is right.
A different dangerous world now exists where energy security and secure supply lines of strategic goods take precedence over ESG investing.
Drill Baby Drill, Trumponomics will bury ESG investing
Trump’s day one agenda is to drill, baby drill, for oil and gas.
A policy fostering a plentiful supply of affordable oil and gas reconciles supporting a productive economy, onshoring manufacturing, and boosting the Rustbelt auto industry.
ESG investing could be the worst place to invest, noted in a
a Trump 2.0 administration, in a piece entitled, Trumponomics, dated July 2024.
Most big oil has opted out of the net zero strategy, particularly with the Trump administration.
Even the most enthusiastic about renewables, BP and Equinor opted out.
Shareholder activism could accelerate the trend back to carbon fuel.
Approximately 40% of BP shares are held in America by US companies and large US investors.
Black Rock owns 10% of BP, and its CEO, Larry Fink, was extremely worried about the ESG agenda five years ago, and he is less worried today about it.
So, ESG investing could be about steering clear or cutting your losses and running.
