May. 26, 2022
May 26, 2022 I am a retired energy company finance executive, and current investor in both ESG funds as well as holding stock in my former employer (one of the integrated majors). I have an MBA from Wharton, class of 1980. I have deep misgivings about what is happening with ESG investing. I think there are fundamental flaws with the concepts and approaches, which the SEC's two new proposals will not address at all. Unless and until production of oil is legally banned, investors should be allowed to own oil company shares. There should be no stigma associated with a company being in the oil production business. There should be no mandate for such a company to expand its scope to also produce cleaner energy. There is nothing wrong with one company deciding it only wants to produce conventional fossil fuel energy, while another chooses to produce only greener energy, or a third company choosing to produce some of each. In fact it may be more efficient for the companies and our economy as a whole to allow companies to do what they are best at. All of the above ought to be completely obvious. And yet many or most ESG funds are excluding the oil companies from their portfolios, because they either think, or think their investors will think, that the business of producing oil or fossil fuels is somehow bad, or needs to be financially disincentivized, or some other murky concept along those lines. There is no issue if an investment fund manager does not want to hold oil company shares in its fund portfolio if they don't think the company shares meet its risk and return objectives. It is not fine to exclude an oil company because it is an oil company which by some definition is a bad business. That is an unhelpful level of moralizing. Our country does in fact need oil for economic reasons, and will continue to do so for decades to come, in some amounts which no doubt will eventually be declining. And we should not be discouraging those companies which are most efficient at doing that if they are for example a pure play oil or natural gas company. If we do discourage the efficient companies from being as efficient as they can be, then we do a disservice to our country economic performance. There is no doubt that there should be government efforts to support and speed the green transition. But the ESG concepts and methods are fundamentally flawed. I'm close to arriving at Elon Musk's view that ESG is the devil incarnate. I hope Mr. Gensler and the SEC will take these wider views into account as ESG regulation gets refined. I would welcome any comments in response.