Energy crunch causing ESG to fall out of favor, warns ex-BP CEO

Jessica Shankleman May 20, 2022

(Bloomberg) — The former chief of BP Plc warned that investors are pushing environmental, social and governance concerns aside as fears about energy security and mounting costs take precedence.

John Browne, who ran BP between 1995 and 2007, was speaking 25 years after becoming the first boss of an oil major to acknowledge the link between manmade carbon emissions and rising global temperatures. His former company is among several large energy firms to see investor support for climate resolutions fall in recent shareholder votes.

“People are saying: maybe in these very tough, trying times where we have energy shortages, oil and gas prices at record-highs and a lack of security in energy, maybe we should be focused on those things rather than ESG,” Browne said in an interview. But now is not the time to “kick the ESG can down the road.”

With proxy season under way -- when companies hold their annual meetings -- hundreds of shareholder resolutions related to ESG issues are being put to a vote, but some are gaining less support than last year. Asset manager BlackRock Inc. said last week it won’t support efforts by investors who try to micromanage companies on climate, showing the difficulty of navigating what’s likely to be a bumpy transition to a low-carbon economy in the coming years.

Read more: BlackRock to Withhold Backing for Some Shareholder Climate Plans

Browne last year resigned from his role as chairman of L1 Energy, a unit of investment firm LetterOne. He now chairs General Atlantic’s investment venture BeyondNetZero, which backs technologies that cut carbon emissions. He said the world must “redouble” ESG efforts, “rather than let it go out of fashion.”

Despite a surge in ESG investing in the past two years, ESG markets have underperformed amid broader financial-market weakness. The average US-based ESG fund is down 13% this year and analysts predict the slump will get worse before it gets better. Meanwhile, Moody’s ESG Solutions forecasts that green, social and sustainability-linked bond issuance will remain flat in 2022 at around $1 trillion, down from an original projection of $1.35 trillion.

“ESG investing is going out of fashion on the back of energy supply fears, Ex BP CEO @LordJohnBrowne tells me”]

— Jess Shankleman (@Jess_Shankleman) May 20, 2022

“We have to continue to focus on ESG, but in the right way, as well as focus on affordability and security of energy,” Browne said in London on Thursday. 

He said global investors have not yet bought into the transformation taking place in the oil industry because they are waiting for more action from governments, such as introducing carbon pricing, or extending tax credits in the US that encourage companies to capture and store carbon dioxide.

“These sorts of things will make a big difference,” he said. “But right now I think a lot of people are holding back, saying, well, let’s see how this develops. And there is not time to do that.”

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