I watched an interview last week on CNBC that was a take by an analyst on the impact of ESG (economic, social and corporate governance).
The analyst was pointing out that some of the largest private equity companies like Blackstone has taken it upon themselves to take push fossil fuel companies to move away from future investments in fossil fuels toward renewable energy.
The reasoning is the need to fight climate change and the impact it will have on our future.
He pointed out that large companies like Chevron have given up on exploration is areas around the world.
His concern was that those areas were now going to be developed by foreign companies state-backed in Russia and China.
His point was that particularly China will get its cake and eat it too.
China is producing most of the wind turbines and solar panels installed in the U.S. so that they are making significant profits.
I was on an electric utility board and we contracted for both solar and wind to meet our base load.
We did such because we could get long-term contracts at a low price.
It was a total economic decision that was available due to government subsidies for these means of electric generation.
Anything with natural gas would have been short term due to variable nature of gas prices.
Not only will China sell the products to countries like the U.S., but it will develop fossil fuels for its own economy and to sell to others.
Of more importance to the analyst was that the private equity companies that were pushing ESC were hedging their bet.
They had large investments in foreign petrochemical companies like Petro China.
It seemed somewhat ironic that these companies would push U.S. transition, but make sure they were safe investing in foreign energy firms that they couldn’t influence.
His concern was that we seem to take on policies that are of good intent but all come at a cost to our economy.
We only have to look back at the economic shutdown to fight COVID.
He was not advocating ignoring the consequences of climate change, but hoping to point out that there will be economic consequences to any and all actions we take.
Moreover, he was acknowledging that as significant as the U.S. is globally, we are not the only players or the only option to the rest of the world.
You will witness that this winter as Europe will convert gas-fired electric plants to coal to offset the loss of gas from Russia.
These real consequences are what make such a boring subject as finance, economics and investing so actually interesting. is hard to predict the outcome of any action taken.
The only thing you know is that it will cause a reaction.
