Price Spike Curbs US ESG Momentum

Rising oil and gas prices and pressure from Republican lawmakers are curbing some of the momentum in the US behind the corporate push toward environmental, social and governance (ESG) principles, which generally favor investment in green energy over fossil fuels. The ESG movement will not suddenly dissipate in response to high prices, but some important investors and banks like BlackRock and JPMorgan are making it clear that they recognize more investment is needed in some new oil and gas supplies in the near-term. In many cases, this does not constitute a real shift in investment philosophy, but rather a change in tone and messaging. For instance, investment giant BlackRock, which manages a $10 trillion asset portfolio, never gave up on oil and gas, but it has become the face of the ESG push due to recent statements by its chairman and CEO, Larry Fink. In 2020, Fink used his annual letter to CEOs to focus on climate change, saying the matter was becoming a “defining factor” in BlackRock’s assessment of companies. In response, several corporations announced plans to slash their carbon footprints, showing BlackRock’s influence. While Fink's 2022 letter also acknowledged that "the tectonic shift towards sustainable investing is still accelerating," it included some caveats about the pace of the energy transition and the need to keep supplies “reliable and affordable.” Businesses "cannot be the climate police," he said, stressing that governments must lead the way with regulations and disclosure requirements. Fink emphasized the need to “pass through shades of brown to shades of green" in pursuit of net-zero greenhouse gas emissions, adding that "traditional fossil fuels like natural gas will play an important role both for power generation and heating in certain regions" in the transition.