Arctic Directory Sept 2023: : ESG in Alaska's DNA -- investors wise up?
for Petroleum News
Summer, or some soggy, cool semblance of what we usually call summer, is upon us and Alaskans are eagerly watching the fruits of early gardening labor come to bloom -- and fighting the constant battle of keeping the weeds from choking the life out of the beauty.
Last week, as I was debating if chickweed really could be considered "an edible bitter green" and therefore not have to be culled from the lettuce patch, a familiar quote came to mind - "a weed by any other name, is still a weed!"
Shortly thereafter, while enjoying a lunch salad (devoid of chickweed) and reading online new feeds, I caught a short piece in the New York Post, "ESG is on its way out -- now that investors have been forced to wise up."
It's been several weeks since I have seen much in the popular press about "ESG" and its trajectory in the energy landscape -- both conventional fossil fuel development and the energy transition arena -- so this piece caught my interest. Especially the notion that ESG is on its way out.
I read with interest and learned that many in the financial sector are shunning ESG investments due to their lack of performance, many going so far as to call ESG investing a "fad" that was never really to be taken seriously.
Investment data supports this notion. In a recent study, the New York Stern School of Business found and reviewed more than 1,000 research papers on ESG. When it examined the results, it found 33% of the investor-focused studies showed positive outcomes for ESG-themed investments, and 67% showed neutral, mixed or negative results.
But never letting the facts get in the way of a good crisis, the stalwarts of the ESG movement, like its principal champion, Larry Fink, CEO of BlackRock, announced at a recent investment conference in Aspen that the term "ESG" will be dropped from their branding because the term has been "weaponized", and it brings "toxic" connotations.
Yes, I would agree, losing money and having investment managers violate their fiduciary responsibility in favor of a political agenda is, in-deed, toxic! But instead of facing this reality, some 56% of the heretofore referenced "ESG Funds" will now be rebranding themselves as "thematic."
ESG isn't going away, it's just getting a makeover. As the chickweed in my garden can attest, a weed by any other name is still a weed. "ESG" or "thematic" -- it's all bad for Alaska and the nation. Our nation's energy security and national security will suffer greatly, and Alaska will bear disproportionate harm in both.
It's oozing into insuranceFirst, let's talk about one of the latest directions that the ESG "theme" has turned in its attempts to stifle conventional energy development. Initially, it was focused on cutting off financing for fossil energy projects. Now it has oozed into the insurance sector, coverage that energy companies must carry.
Following the ESG financing movement and working through the UN-convened Global Financial Alliance for Net-Zero (GFANZ), the Net-Zero Insurance Alliance (NZIA) was convened in 2021 under the UN Environment Program's Principles for Sustainable Insurance Initiative, and it is a member of the Global Financial Alliance for Net-Zero (GFANZ). (GFANZ and its web of influence was the subject of a previous ESG OpEd published here in Petroleum News.)
Just like GFANZ, NZIA states it is "committed to transitioning all greenhouse gas emissions from its insurance and reinsurance underwriting portfolios to net-zero emissions by 2050.
In the fine print of the Statement of Commitment of Member Companies, they hide the fact that in order to achieve the goal of net-zero emissions by 2050, the UN Climate Panel has determined that there needs to be a "50% reduction in global greenhouse gas emissions by 2030." We've talked before about the infeasibility of that target.
Even with the very best of intentions, the world still has more than 1 billion people living in energy poverty who deserve better living conditions. And we have industrialized nations like China who see greater benefit -- and possible strategic advantages -- in not crippling their economies in support of a controversial and somewhat alarmist UN agenda.
Unless a company in any line of business is large enough to "self-insure," they must seek coverage in the insurance market. But when political agendas lean on the scale, it immediately places certain lines of business at a disadvantage in securing that coverage, especially if those businesses are not aligned with the politics. In this instance, conventional energy developers and any other business not aligned with the politics of ESG and net-zero targets are particularly disadvantaged, regardless of the value or importance of the end use of their products or services.
It is this blind allegiance to the ESG/net-zero/UN cause that is breeding the problem. So is the fact that these initiatives are being undertaken in the shadows, not in the bright light of day where companies and consumers who will ultimately pay for this political agenda are made aware in real time.
Sounds like extortionI know from discussions I have had with some Alaskan companies that they first learned of the new rules of the insurance game when they applied with their longstanding underwriters for renewal. Extra environmental policy riders were suddenly required without any forewarning. When queried by one Alaskan energy company with a spotless compliance and claims record, the response offered by the underwriter was essentially "pay it or we can't renew your policy."
The Oxford Dictionary defines "extortion" as "the practice of obtaining something, especially money, through force or threats." Sounds menacingly familiar, and illegal!
Treg Taylor among them -- have been watching NZIA closely, analyzing their policy statements and asking questions. In May, the AGs sent a letter (see letter at https://attorneygeneral.utah.gov/wp-content/uploads/2023/05/2023-05-15-NZIA-Letter.pdf) to NZIA demanding information from more than 30 US-operating insurers about their commitments to NZIA, the related terms of membership that will require the insurers to meet overarching greenhouse gas reduction targets or press for reductions on a sector-by-sector basis, and mandates to increase the number of clients they have with net-zero strategies.
Violating laws?These targets and requirements are a commit-ment of membership, and the insurer signs a document to that effect upon joining NZIA. That, according to the AGs, makes them more than just aspirational, and appears to be counter to both state and federal laws.
The AGs' primary concern is that the NZIA members have a considerable stake in the in-surance industry and could have the ability to flex market power, influencing the entire insurance industry (anti-trust) and increasing costs (price-fixing), especially in the oil and gas, energy and transportation sectors. NZIA members could also violate state laws if they refuse to cover entities based upon their carbon emissions or compliance with the UN's Paris Agreement.
NZIA losing membersIn response to the letter from the Attorneys General, some NZIA members immediately dropped out of the Alliance and others have followed their lead in the past month. A look at the NZIA website now shows just 12 members listed.
Even as the ESG/net-zero craze rebrands itself in an effort to hide its true intentions, the implications of these actions go far beyond conventional energy exploration and production.
The very framework of "energy transition" and its reliance on renewables will fall prey to the very same misguided policies that are hampering conventional energy development. At the very heart of energy transition is electrification.
Electrification will require a drastic increase in the amount of copper, nickel, cobalt, lithium, graphite and rare earth minerals in order to achieve even a fraction of the Biden administration's -- and the UN's -- stated energy transition goals.
These minerals and several dozen more are all part of a list of minerals defined by the USGS as "critical minerals" -- those minerals that serve an essential function in the manufacturing of a product, the absence of which would have substantial consequences for the US economy and/or national security interests.
If the US doesn't control the supply of these "critical minerals" or can't get them from friendly nation sources, then the "critical minerals" become what are called "strategic minerals."
According to the International Energy Agency (IEA), the future demand for the critical minerals necessary for electrification and energy transition will skyrocket. By 2040, IEA estimates a 700% increase in the demand for rare earth minerals, a 1,900% increase in nickel demand, a 2,500% increase in graphite demand, and a staggering 4,200% increase in lithium demand. And copper, perhaps the most important of all, is expected to see demand growth in the next 25 years equivalent to all of the copper mined on the planet over the last 5,000 years!
China doesn't play wellBut the US controls only a small fraction of the minerals required to meet this demand. China controls the vast majority of the world's critical mineral production and processing, the two essential pieces in the global critical mineral supply chain.
China has also demonstrated a willingness to flex their market muscle and either curtail ex-ports or take production from competitors through predatory commercial practices when they believe it is in their interest.
This was demonstrated back in 2015 with the Mountain Pass Mine -- a rare earth mine in California which China forced into bankruptcy by tanking commodity prices, only to then buy the company for pennies on the dollar and put it back into production.
And again, just last week when China announced that effective August 1, they would curtail exports of germanium and gallium -- two minerals essential in the manufacture of semi-conductors and electronics in the US, Japan and South Korea.
So where, in the midst of the growing "cold war" posture between the US and China, will we get all of the critical minerals needed for the energy transition that the Biden administration is driving?
Canada and Australia will certainly be a part of that supply, but they are interruptible and can't fill the demand gap entirely. There has got to be a significant increase in US domestic production, and Alaska is unquestionably America's storehouse of critical and strategic minerals.
Alaska is already known for its world class endowment in zinc, copper, gold, silver and graphite. Alaska is currently North America's largest producer of zinc at the Red Dog Mine and is home to one of the largest flake graphite deposits in North America, being developed at Graphite Creek near Nome.
Through either its existing mining operations or those in advanced stages of exploration, Alaska is either producing as by-product or has identified potentially economic accumulations of 32 of the 34 critical minerals on the USGS's most recent list.
Same poor policiesBut what stands squarely in the way of Alaska realizing its mineral potential in support of energy transition goals are the very same Biden administration policies aimed at curtailing conventional energy supplies like oil and gas.
If the proponents of ESG financing limitations and net-zero emissions goals are to stay true to their cause, they would be required to refuse financing and insurance coverage to mineral development operations taking place in support of energy transition because mining is not a net-zero activity -- anywhere!
Most new mining activities of sufficient size and economy to support the demands of energy transition will take place in locations well away from populations centers, in areas with limited infrastructure like northern Canada and Alaska.
Merely expanding existing mines or trying to "mine" landfills as many have off-handedly proposed, are oversimplified notions that don't reflect ore deposit geology, economics or even come close to meeting the mineral demand imposed by energy transition and net-zero goals.
This lack of infrastructure and available power production in the vicinity of new mines will mean that power for the operations will need to be generated on or near site, just as is the case with oil and gas development on Alaska's North Slope.
That power generation and the mining equipment itself will count against the project's total emissions in the eyes of the ESG financiers and the insurance companies married to the ESG "thematic" investments.
The same will be true of the processing refineries necessary to convert the mined minerals into a usable product, ready for consumption by the manufacturing industry. All will carry an inherent emissions profile that will exceed the criteria being applied to conventional energy investments.
Driving industry to third worldYet, the energy transition so critical to the Biden administration and the environmental community won't be put off and will doggedly pursue the minerals needed for success. That push, combined with the lack of financing caused by misguided ESG policies, will result in driving investments away from modern, well-regulated, environmentally responsible mining jurisdictions like Alaska and even Canada, and into places like Africa, Indonesia, China or possibly even Russia, current geopolitical unrest aside.
So, are the Biden administration and their ESG cronies really willing to trade modern, environmentally and socially responsible mining for minerals sourced from countries adverse to US interests or from places where children and the desperately poor are used to mine ores in unsafe, archaic operations?
Based upon their policies and unenthusiastic approach to fixing problems with the federal permitting process that plague both energy and mineral development in the US, it appears they are. Where is equity or social justice in that?
SUBHEAD: High level regulatory oversight
Just as with the oil and gas industry in Alaska, the mining industry here is subject to the high level of regulatory oversight and environmental scrutiny.
Mines in Alaska, just like our oil and gas operations, successfully tackle some of the most challenging and dynamic operational conditions in the world. Our industries have demonstrated unique capabilities to innovate and craft solid engineering solutions to the issues that present themselves, reducing risks and increasing operational integrity.
Those learnings don't just stay in Alaska, either. They are shared between company operations and ultimately the broader global industry, setting the standard for the next generation of operations and continuing to reduce risks to people and the environment. This is exactly the arena in which the US and our financing sector should be making it easier to invest and underwrite -- not harder.
True energy transition can only occur where we have sufficient, secure mineral supplies to build and deploy optimized energy systems, and sufficient conventional energy supplies to allow the transition to happen logically and systematically. We simply can't have one without the other.
Energy surplus necessaryIn order to achieve real decarbonization, if that is truly the goal of the current administration and the United Nations, we need first to have an energy surplus, not energy shortfalls and crises.
Alaska can and will be a part, once again, of America's new energy future, just as we were back in the 1970's. It took grit and vision back then, and it will again this time. Alaskans are up to the challenge, but we have to ask ourselves whether or not our country, as a whole, will have the visionary leadership in Washington, DC necessary to deliver the clear, honest policy direction required.
These are not just energy issues or mining issues; these are serious issues central to both the US economic well-being and our national security. With another election cycle just ahead, I think it's time to do some serious weeding in the DC garden.