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Trump’s Proposed Regulation Could Slow The ESG Boom

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Even before the novel coronavirus pandemic battered global oil markets and gave what could certainly be a coup de grace to the coal sector, the fossil fuels industry has been facing an uncertain future. Globally, there is an energy transition underway. Although the movement has been slow, it’s undeniable that the trend for global energy is moving away from standard fossil fuels and toward cleaner, more climate-friendly alternatives. Even Saudi Aramco, the largest oil company in the world, admitted in its December 2019 initial public offering that they expect peak oil demand by mid-century.

Now, COVID-19 has caused an even more acute existential crisis for the global energy industry, as many pundits, investors, and world leaders question whether this interruption to the status quo should be used as a unique opportunity to create a “new energy order.” While many countries have seized this disruption as an opportunity to put more funding into clean energy as part of their post-COVID economic stimulus packages, however, the United States has so far resisted this trend, potentially missing a major energy opportunity.  

Instead of joining the financial revolution geared toward environmental, social, and governance (ESG) that many experts believe is coming down the pike (with or without the cooperation of the United States) the Trump administration has actively fought against this likely inevitability. A new proposed regulation from the United States Department of Labor would explicitly bar the department from taking ESG into consideration in decision making concerning U.S. employer-provided pension funds. Ostensibly, this move is because the government doesn’t believe that the nation’s pension fund managers are doing a good job, but many critics see this as a blatant attempt to redirect investment dollars towards fossil fuels, which are increasingly falling out of favor with investors.

This week Bloomberg Green reported that in this new proposed ruling, “the language reaffirms the standard interpretation of fiduciary guidelines that only financial risks and returns can be considered in the management of U.S. employer-provided pension funds; ‘non-pecuniary goals,’ for example relating to political or public policy, should not guide pension investments.” As Bloomberg Green points out in the report, “The timing is ironic, coming as the fossil fuel industry begins to confront existential questions about its near-term future. It would almost be amusing if it wasn’t for the fear, uncertainty, and doubt the proposal leaves in its wake.”

As the world inches toward a clean energy transition, the market duly moves away from fossil fuels, which, regardless of politics, undeniably have an expiration date in the global energy mix, whether from lack of demand or because they are a finite resource. “Markets tend to be forward-looking,” as Bloomberg Green sums it up. “So as doubts grow about the prospects for fossil fuels, financing becomes more difficult and more expensive to obtain.” This dynamic has caused a predictable backlash from industry leaders and defenders of fossil fuels. “In April, for example, 17 Republican senators wrote to Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin to ask that fossil fuel companies’ debt not be excluded from the Fed’s asset purchasing programs designed to shore up the economy in the middle of the pandemic.”

But while ESG and fossil fuels have become politicized, it remains the unbiased truth that investing in renewables, and not fossil fuels, makes more financial sense for the future. As PV Tech reports, there is no shortage of scientific studies that back up, in hard data, the assertion that cleantech holds unique promise for jobs creation and economic recovery in a post-COVID era. “A raft of new studies has come to underscore the business case of pushing renewables to the heart of the COVID-19 recovery, amid claims green energy plays offer a low-cost, high-return opportunity for investors,” states the report. 

If the Trump administration’s ESG ban goes through, it may give some temporary windfall to the fossil fuels industry (and it may not), but it’s almost certain that it won’t be the best thing for your pension, or for the recovery of the economy as a whole. 

By Haley Zaremba for Oilprice.com

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