The Fossil Fuel Industry Is Talking About ESG Like Never Before
(Bloomberg) -- The U.S. fossil fuels industry is still churning out emissions, but it’s talking more than ever about what to do about them.
That, at least, is the conclusion of a Bloomberg analysis of conference calls involving the nation’s oil and gas behemoths, including Exxon Mobil Corp., Chevron Corp. and Kinder Morgan Inc. A search of ESG-related terms reveals how in the space of just a few quarters, the management teams of the industry’s leading companies went from being almost able to avoid the topic entirely to devoting significant time discussing it.
What changed so quickly? Clearly the election of President Joe Biden, pushing an environmental agenda and rejoining the Paris climate accord, fundamentally changed the calculus for U.S. oil and gas companies. But even before that, many investors had started demanding answers to how companies will adapt to climate change and tackle problems like methane leaks and natural gas flaring. Last year’s pandemic-induced oil price collapse also helped put the industry on the defensive.
Government policies supporting alternative and low-emission technologies will likely remain in place even if Democrats don’t get a second term, as climate change has become a more bipartisan issue, said Katie Bays, managing director at FiscalNote Markets, who advises institutional investors on regulatory and political risk analysis.
“It’s the mainstreaming of climate policy,” she said.
In many cases, more talk about ESG reflects more spending commitments to lower emissions, the touting of improved metrics, and new corporate strategies. For example, Kinder Morgan said this month it’s forming a new unit to identify and pursue commercial opportunities amid the transition to low-carbon energy.
In November, Occidental Petroleum Corp. became the first large U.S. oil producer to aim for net zero emissions from everything it extracts and sells. Exxon, the largest U.S. energy company, said in February it’s advancing plans for more than 20 carbon capture and storage projects. While the company has spent years working on the technology, it acknowledged the growing pressure to act.
“If you look at our portfolio of products that we’ve got today, one of the biggest challenges is in the policy and regulatory framework space,” Chief Executive Officer Darren Woods said on Exxon’s most recent earnings conference call.
Still, unlike Occidental and European rivals including BP Plc and Royal Dutch Shell Plc, the vast majority of big U.S. energy companies haven’t committed to net-zero emissions. Despite a recent change in tone, with more public discussion of their energy transition strategies, Exxon and Chevron have committed about 3% of their total planned capital spending to lower-carbon initiatives, compared with an average of 18% for their European peers, according to Jefferies analyst Giacomo Romeo.
“I do think to some degree that companies are trying to seize on the moment, and kind of greenwash themselves a bit,” Bays said.
The conference call data is based on a search of ESG-related terms in the transcripts of quarterly earnings and other events related to the 23 members of the S&P 500 Energy Index. The transcripts include questions and comments from analysts and investors.
The rise in mentions of ESG in particular is eye-popping. The acronym and related terms including “sustainability” were cited almost 300 times during the first quarter, up from 36 a year earlier.
The data also show how hydrogen, a fuel touted as an eventual replacement for natural gas in heating and power generation, has quickly emerged as a hot topic. It was talked about over 80 times in the calls analyzed in the first quarter, twice as many as in the preceding quarter. The fuel was cited at least 23 times just on the two calls pipeline operator giant Kinder Morgan hosted in January. Prior to the second half of 2020, hydrogen was never discussed on the company’s calls.
“As you take a look at what’s going on in the U.S. today, ESG is coming to the front of almost everything that every corporation is doing,” Merrill Miller Jr., who will be the chairman of a new drilling venture being formed by Baker Hughes Co. and Akastor ASA, said earlier this month.
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