Proponents of investment based on ESG principles have touted it as a way to protect the environment and advance social equality, but the movement has also created losers as it has spread throughout corporations.
With heightened environmental standards being pushed by investment firms, including BlackRock, energy producers have seen some of the harshest effects from the implementation of ESG, short for environmental, social, and governance.
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The possibility of banks and investment firms cutting off funding and thereby shuttering power plants and mines and halting the construction of pipelines has led to a backlash from officials and representatives of states that produce fossil fuels who say their constituents stand to lose.
This has come to a head in the past few years, with one turning point being BlackRock CEO Larry Fink’s 2020 letter saying that the need for climate change to influence investment decisions was becoming a “defining factor.”
Two board members of the Oklahoma Energy Producers Alliance, a group of oil and gas producers within the state who look to protect and promote their industry, Chairman David Little and Mike Cantrell, told the Washington Examiner that environmental policies implemented as part of the ESG push have hurt energy producers in the state.
Cantrell said raising capital has become more difficult because ESG policies favor renewable energy sources while shunning natural gas and oil.
“The trickle-down effect is the concern. It is getting harder and harder to get bank financing, especially if you are an entry-level player, in the oil and gas space, even in Oklahoma. That has been my experience, anyway. We have been discouraged — I’m on a bank board — and we’re definitely discouraged from making oil and gas pumps by the regulatory authorities,” Cantrell said.
Cantrell accused the Biden administration of having “weaponized” federal government agencies against small businesses through ESG. The administration has advanced a Labor Department rule permitting fund managers to consider ESG factors in making investment decisions for retirement accounts. The Securities and Exchange Commission has also proposed rules to define ESG to ensure that funds advertised as environmentally or socially conscious meet certain definitions.
Little said the combined policies from the government have been “scary” for the industry.
“It’s really scary because they take little bites, and now the bites are getting bigger and it’s hard to stop the train once it’s left the station and it’s rolling pretty good right now,” Little said.
The downstream effects of ESG investing are seen in other industries, such as farming.
Charlie Masters, a farmer from Fleming County, Kentucky, said he has felt pain from ESG policies when stocking his farm.
He and his wife raise beef, vegetables, and honey at his farm, but last year, fertilizer and energy prices spiked, leading to problems with production. In 2022, prices for fertilizer went from $300 per ton to $1,000 per ton, hurting his production for the year and forcing him to have to dig into his savings to offset the losses.
“Last year, I saw two coal-fired power plants be destroyed because the generating company decided to become a distribution company and buy their electricity from somewhere else — or not use coal to generate it,” Masters said.
In 2022, the two units at the Robert D. Green Generating Station in Robards, Kentucky, converted from coal to natural gas, one of the latest coal plants to be converted or turned offline.
Earlier this year, lawmakers in Kentucky passed a law that makes it more difficult for energy companies to retire coal power plants. The law, which passed without Gov. Andy Beshear’s (D-KY) signature, instills a “rebuttable presumption against the retirement of a fossil fuel-fired electric generating unit” when power companies request permission from state regulators to retire the plants.
“I couldn’t really afford to buy as much [fertilizer] as I should have, and so our production went down. Meanwhile, our other costs went up — like I said, the fuel. And I attribute that to ESG because the environmental pressures put on the electric companies to quit using coals,” Masters continued.
When discussing the motivation for why companies are pursuing ESG policies, Masters said he believes that “the problem is: Follow the money.”
A local power company, East Kentucky Power Cooperative, recently invested in a solar farm. Masters said the farm would be inefficient due to the region’s climate.
“East Kentucky Power, which is the cooperative that provides electricity for us, put down an 80-acre solar — they call it a farm, but it’s not really a farm. It’s a solar industrial complex — in Winchester, Kentucky. If you round up … it operates at about 17% efficiency. Why? Well, it’s cloudy here today, and we [have] 40 inches of rain annually. There’s a lot of days when you can’t produce energy,” Masters said.
“So, we know that higher electric prices are gonna come down the road,” he said.
The solar farm was dedicated in 2017 and was touted by Energy Secretary Jennifer Granholm during a visit in 2022, during which she emphasized “the importance of lowering costs for Kentuckians by building a clean energy economy.” Granholm also discussed tax credits and incentives the Biden administration has authorized for renewable energies to replace fossil fuels.
Masters specifically placed the blame on the Biden administration’s rule to allow retirement managers to consider ESG when making fiduciary decisions and rejecting President Joe Biden’s claim that Congress’s effort to overturn the rule, supported by some centrist Democrats as well as Republicans, would hurt retirement accounts.
“ESG funds don’t perform as well as a lot of other ones do, so it’s a lot of falsehoods, and I guess the fact that I can see the falsehoods makes me angry,” Masters said.
He added that he is “proud” that the Kentucky treasurer has stood up to financial firms that are pushing ESG policies, specifically energy policies.
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Kentucky State Treasurer Allison Ball’s office in January published a list of 11 firms accused of “boycotting” fossil fuel energy and are subjected to being cut off from state business, including behemoths such as BlackRock, Citigroup, HSBC, and JPMorgan.
As the implementation of ESG has garnered more winners and losers, it has become a topic in the political sphere, with it shaping up to be a sleeper issue in the 2024 election.
