How ESG Policies Can Work For, Not Against, Arctic Oil and Gas
A panel at the Alaska Oil & Gas Association conference featuring, left to right, Jason Brune, Commissioner of Environmental Conservation; Lucinda Mahoney, Commissioner of Revenue; Tara Sweeney, CEO of Tack 71 Strategies; Lisa Pekich, village outreach director for ConocoPhillips Alaska; and Julie Kitka, president and CEO of the Alaska Federation of Natives.
“That last barrel of oil that’s produced should be coming from Alaska, not anywhere else,” said Jason Brune, commissioner of the Alaska Department of Environmental Conservation. Brune was not predicting the imminent end of oil production. Indeed, he was moderating a panel at the 2022 Alaska Oil & Gas Association (AOGA) conference, which opened with BlueCrest Energy CEO Benjy Johnson forecasting oil and gas consumption worldwide increasing for the next few decades.
ESG Is the Message
Rather, the commissioner was touting Alaska’s rigorous standards for the oil industry. That track record ought to appeal to the Environmental, Social, and Governance (ESG) goals that many large corporations have set for themselves. The theme of the panel was that ESG is “one of Alaska’s keys to energy independence,” and each panelist agreed that such policies can benefit the state’s industries and economy.
Brune’s cabinet colleague, Revenue Commissioner Lucinda Mahoney, believes Alaska is a model for ESG strategies in resource development. “We have already demonstrated that we can responsibly develop our resources,” she said. “We need to encourage our financial institutions to spend the time to understand Alaska. We need to educate ‘em, and it takes everybody in this room.”
And not just everybody attending the oil and gas conference, noted Julie Kitka, president and CEO of the Alaska Federation of Natives. “It cannot be the oil and gas industry telling the world how important and good you are. You need the allies and people that are speaking on your behalf,” Kitka said.
Kitka pointed out that the involvement of Alaska Native people and communities in resource development decision making counts toward the social aspect of ESG policies. Tara Sweeney, CEO of consulting firm Tack 71 Strategies and former Assistant Secretary of the Interior for Indian Affairs, said Alaska is the gold standard in that regard.
Lisa Pekich, village outreach director for ConocoPhillips Alaska, suggested the state should be an example for others to follow. “We need all of our stakeholders and advocates of all the socially responsible barrels we produce here in Alaska,” Pekich said. “We can do the best barrels.”
While ESG can be a weapon in Alaska’s arsenal, politicians view it as a double-edged sword.
For instance, after he hosted the Sustainable Energy Conference in May, Governor Mike Dunleavy welcomed a boost in the State of Alaska’s ESG score with bond raters, as a consequence of holding the conference. That same month, ESG standards came under attack from US Senator Dan Sullivan with the introduction of his Investor Democracy Is Expected (INDEX) Act. The senator accused major banks of “blackballing” Alaska resource development in the name of ESG policies.
“At the same time, these financial institutions, banks, and insurance companies were eagerly and continue to eagerly do business with Communist China,” Sullivan told the Senate Banking Committee in June. “These financial institutions do this in part because of pressure from their largest shareholders, the big three investment advisors, and their index funds.”
Those “big three,” Sullivan told the committee, are Blackrock, Vanguard, and State Street. “They manage around $20 trillion in combined assets, are the largest owner shareholder in around 90 percent of the S&P 500, and cast nearly one-quarter of all votes at annual meetings for the public companies in America,” the senator said.
As a remedy, the INDEX Act would require investment advisors of passively managed funds to vote according to instructions of fund investors, not at the discretion of an advisor. Deconsolidating their voting power, Sullivan said, would foster a more democratic corporate governance system.
As it happened, an aide to Sullivan appeared at another panel at the AOGA conference, this one about federal interference in business activities. Jake Tyner warned of “NIMBY folks” flooding public comments on federal environmental actions and “environmental groups weaponizing the process” by filing lawsuits at every stage.
The same voices have persuaded financial institutions to steer clear of investing in Arctic oil and gas development. “Those groups and think tanks that want a very strong climate policy, want to ‘keep it in the ground,’” said Ryan Steen, a partner with the law firm of Stoel Rives, “and when you look at the list of areas that they prioritize for keeping it in the ground, the Arctic is at the top of the list.”
In this case, an excess of democratic governance seems to be running counter to Alaska resource development interests.
However, public opinion that pushes one way can pull another, given time. Dustin Van Liew, vice president of global policy and government affairs at EnerGeo Alliance, sees an opportunity for change at the federal level. “Increased prices and increases at the gas pump have a way of forcing politicians and policymakers to do things they may not necessarily agree with in their campaigns. Those pocketbook issues really speak to them through the constituents that vote for them,” he said.
Pocketbook issues need not conflict with ESG policies. As long as environmental concerns guide investor decisions, they can be made aware that Alaska is already playing the ESG game. As Commissioner Mahoney put it, “We all need to be constantly marketing Alaska and constantly sharing our success story.”