Providing coverage of Alaska and northern Canada's oil and gas industry
September 2023

Vol. 28, No.1 Week of September 24, 2023

Arctic Directory Sept 2023: ESG in Alaska's DNA -- it's our money

Corri Feige

for Petroleum News

For the past several months, it would seem that the fervor over ESG (environment, social and governance) investing practices has died down considerably from where it was in 2022. And while Alaska has certainly not changed its approach to being the global "gold standard" for environmentally and socially responsible resource development, ESG analysis no longer seems to capture the headlines.

But has ESG financing practice and its severe limitation on conventional energy projects really lost favor or just gone dark?

Late last year, as the war in Ukraine raged on and along with it a global energy crisis, awareness about the heavy-handed tactics being used by a number of banks, capital providers and lending institutions to drive funding away from conventional energy projects and toward renewables drew a lot of attention. Elected officials and investors alike were surprised to learn how and where their money was being spent - or not - and why. Designed to force the financial sector to change its investment approach to drive energy transition, decarbonization and net-zero emission goals, the ESG investing initiative was being pushed by activist board members, the U.S. Department of Labor, the SEC, and through special ESG investment funds, all with the promise of higher returns and a moral bonus of saving the planet from a looming climate catastrophe.

But as the year came to a close and the smoke cleared briefly on a highly volatile stock market, the reality of the returns on the large ESG Funds hit the harsh light of day. Both BlackRock's and Vanguard's ESG Funds posted significant double-digit losses, while the S&P Energy Index realized large gains, as the world struggled to find secure, long-term energy supplies.

Congress moved to rescind a Labor Department rule that would allow retirement plan investment managers to consider ESG factors when making investments - something that would clearly violate their role as fiduciaries for their clients - think retirees - and may violate anti-trust rules. President Biden recently took the first veto action of his presidency to reject Congress's rollback of that rule.

So, while it may not be on Page One, the ESG financing movement is still very much alive and well outside of the mainstream media, and possibly even gaining ground while no one is watching.

Vanguard exits NZAM

Shortly after Vanguard's ESG Fund took big losses in 2022, and after a watch-dog group called Consumers' Research and 13 state AG's requested that the Federal Energy Regulatory Commission review a bid by Vanguard, BlackRock and State Street to purchase large positions in energy and power companies that would exceed FERC policy limits, Vanguard abruptly announced they were exiting what is called the "Net-Zero Asset Managers" initiative or NZAM, and eschewing further ESG investment practices altogether.

NZAM is just one of several initiatives under the broader United Nations' Environment Program, UNEP, umbrella aimed at driving member investment fund firms, and the global monetary system, to reach net-zero emission targets by 2050 or sooner. NZAM claims 301 signatory member firms and a total of $59 trillion in assets under management.

Vanguard, the world's second largest asset manager with some $7 trillion in assets under management, made a bold statement on their withdrawal from NZAM and the ESG strategy. In an interview with the Financial Times in January 2023, Vanguard's CEO Tim Buckley explained that "It would be hubris to presume that we know the right strategy for the thousands of companies that Vanguard invests in. Vanguard is not in the game of politics. Our research indicates that ESG investing does not have any advantage over broad-based investing."

And in a written statement about the withdrawal, Vanguard stated, "We have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks - and to make clear that Vanguard speaks independently on matters of importance to our investors."

In simplest terms, Vanguard was saying they were divorcing themselves from global groupthink around topics like net-zero goals and ESG and returning to the fundamentals of managing their clients' wealth with independent risk analysis and quantification, and with their focus being on the best interests of their clients. That is exactly what being a fiduciary is all about!

Umbrella of United Nations

So, what of the other asset managers they were separating themselves from? Are they acting independently and in the best interests of their clients?

Vanguard's statements seemed to me to be very powerful both for what they said and for what they alluded to. So, I began to research NZAM and soon discovered a whole alphabet soup of similar organizations and initiatives - all under the umbrella of the United Nations' programs grown out of the Paris Agreement on Climate Change. These organizations go far beyond simple ESG Funds, fund management and criteria assessments.

NZAM is a member alliance of GFANZ (Glasgow Financial Alliance for Net-Zero) which was launched in April 2021 at the UN's Conference of Parties (COP) 26, in partnership with the UN's "Race to Zero" campaign. According to their website, GFANZ exists to coordinate efforts across all sectors of the financial system to accelerate the transition to a net-zero global economy. Wow!

Financial world royalty like Michael Bloomberg, Mark Carney (Chair of Brookfield Asset Management), Mary Schapiro (former SEC Chair under President Obama), Larry Fink (BlackRock CEO), and John Kerry (Special Climate Advisor to President Biden) are all headline leadership at GFANZ.

The membership roster boasts of more than 550 firms that include banks, insurers, asset owners and managers, financial service providers and investment consultants. All GFANZ members have independently pledged to reach the goal of net-zero by 2050, with interim targets for 2030 or earlier, and are to report progress annually.

One such affiliated group calling themselves the Energy Transitions Commission recently estimated that it will take roughly $3.5 trillion per year of capital investment between now and 2050 to build a net-zero global economy, up from the $1 trillion per year currently invested. Some of this new investment will come, they say, from shifting about $500 billion per year away from global fossil fuel investments. This as the world struggles through an energy crisis in Europe and Asia, inflation is the highest in decades, and global economies are on shaky ground.

In November 2022, the UN convened COP27 at a luxury resort in Egypt to discuss actions being taken in alignment with the Paris Climate Agreement. UN members and representatives of GFANZ, NZAM and a long, long list of other such organizations gathered to talk about their view of climate change and moving the global economy to net-zero by 2050, or sooner. This included making funds available to poorer countries for carbon-free energy sources, with certain strings attached.

Left in the dark

What's wrong with all of this, you ask? Aside from the fact that some 1.2 billion impoverished people globally, who currently have no access to electricity, will literally be left in the dark, the world simply can't get to net-zero by 2050, or sooner, regardless of how many fingers are quietly put on the financial scales.

Our global energy system has been built over hundreds of years, is complex and is continually evolved and optimized as new proven, energy technology enters the mix. It simply can't be changed in the 7-to-27-year window being espoused by the UN and their cohorts in the financial sector, no matter how loudly they scream "the sky is falling!"

UN delegates from African countries made it clear they were having no more of the COP27 ESG mania. N.J. Ayuk, executive chairman of the Africa Energy Chamber, expressed his frustration in a piece in the Washington Examiner shortly after COP27. He pointed out that ESG criteria for financial investments are being "weaponized" to impose green energy on African nations that desperately need cheap reliable energy.

"If we are going to solve energy poverty, the world needs to invest in Africa's oil, natural gas and other God-given resources," Ayuk said.

He went on to point out that over 80% of the oil and gas taken from Africa ends up in Europe, China and India, and yet according to the COP27, Africa is not allowed to pursue their own priorities and lift over 700 million people out of energy poverty.

Alaska similar to Africa

As I read Mr. Ayuk's remarks, I was struck by how much Africa's situation parallels Alaska's. Financing for energy development projects that support the U.S. broadly has been weaponized to impose a whole-scale energy transition on an unattainable timeline, that just won't work in Alaska.

That's not a judgement, it's physics and geography. The net impact of this imposed agenda will greatly limit Alaska's ability to provide for her citizens, have a robust economy, and develop low-cost, reliable energy for our communities.

The International Energy Agency has studied the level of investment and critical mineral development that will be required to meet both net-zero by 2050 policy goals, and those of the Paris Agreement ("SDS"). (Source: IEA "Role of Critical Minerals in Clean Energy Transitions")

This, too, has huge implications for Alaska because many of those critical minerals will be mined here.

Alaska is home to significant recoverable accumulations of 30 of the 32 critical minerals identified by the USGS as necessary for the strategic economic security and national security of the United States.

With current geopolitical tensions brought on by Russia's war on Ukraine and the resulting alignment of Chinese interests with those of Russia, the U.S. will need Alaska's minerals to ensure our national security and economic interests remain free from manipulation.

The U.S. is currently more than 50% import reliant on China and other nations for more than 23 of the 32 critical minerals, and as much as 90% reliant on China for the processing of these minerals.

This reality has been recognized by two presidential administrations. First by President Trump issuing an Executive Order that directed the Department of Defense to assess U.S. mineral stockpiles and spur domestic mineral production to address national security vulnerabilities, and later by President Biden's Executive Order to address a shortage of minerals needed for electric vehicles and battery manufacturing.

But mining and mineral processing are not net-zero activities - anywhere. In fact, as IEA points out, ESG funding limitations tend to drive mining and energy production to regions where governance and environmental protections are low, and emissions are high.

With alliances like GFANZ, NZAM and the rest of the alphabet soup group forcing a near-term net-zero global economy by using weaponized ESG investment practices, how are projects going to secure the funding necessary to meet the dramatic increase in minerals required for electrification and protect the national security interests of the U.S.? This is a clear conflict of policy priorities.

One central theme in all of this is the UN and the Paris Agreement, around which all of the global financial alliances have formed. The entirety of the current climate change hysteria has grown from the UN's IPCC (Intergovernmental Panel on Climate Change) Reports and the modeling therein. We've been told for years that "the science is settled," but it is not.

IPCC models are highly controversial for their lack of consideration of what many scientists believe to be fundamental processes like documented solar cycles and planetary cycles. The justification for not considering them has been that they are too complex and difficult to manage within the model.

But given the IPCC only popularly publishes the executive summary of their report, which doesn't highlight the model deficiencies or what variables are considered (or not) and why, the news media and average person fail to get the full story.

If the population of the world is being pushed to completely upend the entire global energy and economic system, shouldn't we and our leaders want to know what the model deficiencies are and what the range of possible outcomes really might be? (Each IPCC Report is several thousand pages long and is available for download with some digging and effort, but I encourage you to make the effort.)

The United States is the single largest financial supporter of the UN. According to the Council on Foreign Relations, in 2021 the U.S. paid $12.5 billion in annual "dues" for the UN's $65 billion general budget, and additional funds in excess of $1 billion for the peacekeeping budget.

Must act with our wallets

Are the American people getting our money's worth and shouldn't we be concerned about how those funds are being used to dangerously manipulate the global energy and economic systems?

ESG investment strategies grew from the early mandates of the UN Environment Program and have now expanded dramatically under the Paris Agreement and COP. These strategies and mandates make a significant impact on our everyday lives, even right here in Alaska. They limit the ability of our businesses to secure financing for resource development projects which employ Alaskans and pay royalties and taxes to the state. That directly impacts revenues flowing to the Permanent Fund and the state's ability to pay for the services Alaskans need like education, social services, health care and infrastructure.

It may seem as though we have gone beyond the point of no return in this lunacy, but I don't think so. It is still our money! Our money, paid in taxes, that supports the UN. Our money, invested with ESG asset managers through retirement accounts, banks and personal investments.

I researched my own bank and retirement account and have made changes to be sure there are no ESG fund investments or investments with asset managers known to be engaged with a net-zero alliance. That is one tiny piece but it's something. We must ask the hard questions and act with our wallets.

A perfect storm

+Alaska is still home to world-class oil and gas and mineral resources, expanses of forest and open lands that can all be put to good use in building a robust mix of cheap, secure energy for our communities.

And we can do our part to reduce emissions and even store carbon long term in depleted reservoirs.

But we can't do any of it without funding. I believe the misalignment between the vastly expanding need for minerals to support the expansion of renewables and the restriction of funding by net-zero financing initiatives will be the perfect storm that forces a return to a rational process of energy transition. One that makes the best mix of all energy sources. We've already seen shades of this with the response to Europe's energy crisis.

When that perfect storm hits, Alaska will be here to do our part to provide the resources and the energy required. But in the meantime, we need to call out the misaligned policies and direction of ESG and net-zero financing, and the real toll it takes on people's lives. We must know how our money is being used, and make sure it isn't working against us. After all, it is our money.

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