The Great Texas ESG Showdown

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Oil trading between Russia and America. Prohibition of trading. Oil embargo. By Verrone

In one corner, we have the Whitehouse continuing to vilify oil and gas and praise “green new deal” initiatives. Among these is a push for increased investment in companies and funds which prioritize Environmental, Social, Governance (ESG). In the other corner, we have Texas Governor Abbott’s legislative response to Biden’s war against the oil and gas industry by vowing to divest from stocks and investments which have boycotted energy companies. Trapped in the middle is asset management firm, BlackRock, which has recently issued statements clarifying how they invest in ESG funds, which, among other institutional investors, includes State of Texas pension funds and billions specifically invested in American energy companies. 

We’ll look at both sides of the debate and just how present oil and gas already is in a typical ESG-oriented portfolio.

Setting the Stage: Texas Comes Down Hard on ESG

Texas State Comptroller, Glenn Hegar, is leading a crusade to help protect Texas’ energy industry. With a new “anti-woke” Texas law, any Texas state agencies would have to divest themselves from certain stocks and investment funds that are being accused of “boycotting” energy industry players. With Texas heavily rooted in oil and gas and the huge tax windfalls the state received each year from the oil and gas industry, one could see why they are so keen on insulating the major players in their state. 

According to Reuters, at least one state agency is already fighting back, with the Texas General Land Office saying that certain divisions within its organization should be allowed to keep at least a portion of its investments in BlackRock private equity funds since there are exemptions available under the new law. 

While the new legislation in the “anti-woke” law does provide certain circumstances where a state agency can still hold these investments, Hegar as State Comptroller seems to be warning against trying to find legal loopholes. It’s important to note, each state agency has its own authority and decision-making bodies that can decide for themselves which exemptions in the state law they can make use of, or not. 

Whitehouse Narrative Against Oil and Gas

The new Texas law is but one of several coming from Republican-led states to combat what they perceive to be a threat from the Whitehouse and Wall Street in prioritizing ESG funds. States like Arkansas, West Virginia, and Louisiana have specifically targeted BlackRock, as well, as its CEO, Larry Fink, who has long been an advocate for “green initiatives” like combating climate change. 

Facing a midterm election, Biden’s Whitehouse is desperate for any sort of victory, and seems to be jumping at the opportunity to shift blame elsewhere. With rising prices from shrinking supply most notably related to Saudi Arabia and OPEC+’s decision to curtail production (and thus give Biden the “royal snub”), the Biden Administration truly has few cards left on the table. The Strategic Petroleum Reserve (SPR) is drained to dangerously-low levels not seen since the 80s, so one of the few options left that Biden has floated is to ban exports of oil and gas. Economic experts warn this move may actually destabilize global energy markets even further, making the problem that much worse at home and abroad. 

Even with global energy instability, oil and gas majors continue to post profits, which Biden is quick to pounce on, as if a company making a profit is a bad thing. This boom also comes after years of losses coming out of the pandemic. Punishing profits means less investment in important new initiatives the President says he’s all for, such as net-zero and decarbonization, which, consequently, oil and gas majors fund to the tune of billions of dollars each year. 

In response to the continued heat from the Whitehouse damning oil companies’ profits, ExxonMobil wrote a letter asking the Administration to ease up. A blistering reply was sent by Energy Secretary Jennifer Granholm, as quoted in a Washington Post article, “These companies need to focus less on taking every last dollar off the table, and more on passing through savings to their customers.” Other Democratic leaders have been quick to jump on the bandwagon with California Governor Gavin Newsom recently being quoted by the Washington Post as saying “Oil companies are ripping you off. Their record profits are coming at your expense at the pump.” 

Both the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers issued their own responses which centered around propping up the transportation of energy products across the U.S. rather than threatening an export ban. The Whitehouse attacks on energy have been fairly relentless since Biden took office. In the aftermath of Hurricane Ian, Biden was quick to reiterate a theme he’s already been widely mocked for – “Bring down the prices you’re charging at the pump to reflect the cost you pay for the product,” he said. Just a few days before this statement was issued, Biden was chastising oil majors at the White House Competition Council. 

BlackRock Clarifies its Position on Oil and Gas

BlackRock has some $10 trillion in assets under management and continues to be one of the top investors in American energy companies, including oil and gas. In this vein, BlackRock has actually received criticism from climate activists, saying the asset management firm was doing too little to truly prioritize emissions cuts among the companies it invests in.

As the one tasked with implementing the new Texas law, Hegar began making a list that includes BlackRock, and many other firms and funds which have been seen as “boycotting” the energy industry. This determination is made based on factors such as how much the firms and funds have pushed back against the companies in their portfolio to cut emissions. Seeing this as an overreach and a threat against the energy industry players in the state, Texas fired its salvo in the form of this new law.

In a recent statement, BlackRock wanted to set the record straight—”We DO NOT boycott the energy industry” stating they have been accused of boycotting energy companies but in reality, have invested over $170 billion on behalf of clients directly in American energy companies. 

Who’s Right When Everybody’s Wrong?

We’ve previously reported on oil and gas companies being vilified by climate activists even though these companies are now quite prominent fixtures in ESG investments. Also referred to as “socially responsible investing” or “impact investing,” ESG investments look to see sustainability in action with how a company rates in terms of overall conservation practices, how they treat their people, and the effectiveness of management. 

Investment rating service, Morningstar, looks at exposure to ESG risks and how well they are managing ESG initiatives internally to provide a score. With extremely high exposure to ESG-related issues, supermajors like Shell, Exxon, and Chevron all have “strong” ESG management ratings. Per Morningstar’s rating system, this means the “robustness of their ESG programs, practices, and policies” are absolutely top-notch. So, we have three of the world’s top oil majors all strongly managing their ESG programs, making them ideal investments in an ESG-focused portfolio.  

So, we have the Whitehouse and climate activists on one hand, who if they are investing in ESG funds, most likely hold positions in oil and gas majors, and the State of Texas saying the asset managers like BlackRock behind ESG investing are “boycotting” oil and gas on the other. Neither narrative is true.  

Global majors already invest billions in research and development of a wide array of ESG projects, including resilient hydrogen, bioenergy, expanded EV charging, wind and solar at scale, cutting CO2 emissions, carbon capture and storage, and so much more. In fact, between Chevron, bp, Shell, and ExxonMobil, there is a combined $26.6 billion pledged over the next few years specifically for ESG, net-zero, and decarbonization. 

 

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At Shale Magazine, our sole mission is to look at the facts from an objective angle and report on current events that matter most to energy industry stakeholders. Actions like the Whitehouse unfairly characterizing oil and gas profits as “evil” while Texas plans to divest from ESG funds showcases where both sides certainly have a long way to go. By never shying away from a story and sticking with the facts, Shale Magazine offers fresh insights into each and every issue. Make sure to check out our latest issues to stay in the know about all things energy. You’ll find great opportunities for networking and events, exclusive interviews and one-on-ones with top industry execs, and all the latest news from upstream, midstream, and downstream.

Tyler Reed began his career in the world of finance managing a portfolio of municipal bonds at the Bank of New York Mellon. Four years later, he led the Marketing and Business Development team at a high-profile civil engineering firm with a focus on energy development in federal, state, and local pursuits and picked up an Executive MBA from the University of Florida along the way. Following an entrepreneurial spirit, he founded a content writing agency servicing marketing agencies, PR firms, and enterprise accounts on a global scale. A sought-after television personality and featured writer in too many leading publications to list, his penchant for research delivers crisp and intelligent prose his audience continually craves.

If you would like to contact our staff writers, you can reach them at [email protected]

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