DECEMBER 15, 2020
Corporate social responsibility (CSR)… stakeholder theory … sustainability … environmental, social, and governance investing (ESG). Whatever the term, the premise is that business is a cultural failure as well as a “market failure” and therefore must be socially regulated in addition to being governmentally regulated.
In the climate-alarmism era, CSR and ESG have focused intensively on energy companies. The very term ESG is recent, adding climate change and social justice to more traditional concerns about resource depletion and employment diversity.
Yet, instructively, the corporate darlings of this movement—Enron in the 1990s and BP thereafter—turned out to be anything but good corporate citizens. Enron’s systemic failure cost many tens of thousands of jobs and brought capitalism into disrepute. BP’s Deepwater Horizon blow-out resulted in nearly $70 billion in clean-up costs, fines, and other charges, in addition to manslaughter verdicts.
Now, the past forgotten, a new generation of ESG-pressured business is emerging, some for a second act (BP). Caveat emptor.
Remember Enron? Ken Lay’s colossus was the first major US corporation to bang the climate drum (in 1988) and invest heavily into solar panels and wind turbines. Enron, in fact, resuscitated the dormant solar industry in 1995 and struggling wind industry in 1997. (The story can be found in my 2018 paper, “The Economic Fall and Political Rise of Renewable Energy.”)
In the fall of 2001, Ken Lay set the tone for what would be Enron’s last Environmental, Health, and Safety Management Conference:
We believe that incorporating environmental and social considerations into the way we manage risk, govern our projects, and develop products and services will help us maintain our competitive advantage. As we move forward, we will leverage our intellectual capital and innovative capabilities to promote sustainable business practices around the world.
At this meeting, Enron’s Corporate Social Responsibility (CSR) task force listed its Accomplishments to Date.
- Secured board oversight of social/environmental performance
- Expressed support for Universal Declaration of Human Rights
- Completed corporate responsibility task force
- Developed and pilot-tested human rights audit
- Developed security and human rights guidelines
- Established formal partnerships with WBCSD [World Business Council on Sustainable Development], IBLF [International Business Leaders Forum], and CI [Conservation International]
- Identified language to strengthen code of ethics
- Providing project support—Calypso, Transredes, Dabhol and Cuiabá
- Responding to stakeholder concerns on an ongoing basis
The goals for 2002 included:
- Formally adopt CERES Principles
- Complete indigenous peoples’ policy
- Specify social/environmental expectations in formal relationships with vendors and contractors
- Review results of stakeholder survey and develop strategy to address outcome
- Create awareness of social/environmental trends among [Enron’s] origination and investment groups
- Add corporate responsibility performance attribute to PRC [Performance Review Committee] process
- Present task force recommendations to Dr. Lay and senior management
Enron’s CSR was about trying to be everyone’s favorite company—and helping to monetize its “green” energy investments (seven profit centers in all). It ended in December 2001 when, out of money and time, Enron went down with its green lights on.
Remember “beyond petroleum” BP? Then-head John Browne bought into the climate alarm in a 1997 speech and, despite a fortuitous purchase of Amoco the next year, drove his company down with the help of his successor, Tony Hayward. A group of environmental problems (BP was more interested in climate imaging than boots-on-the-ground safety) culminated in the preventable May 2010 Deepwater Horizon blowout.
The Left’s favorite energy company (like Enron before), BP became Exhibit A against offshore drilling and fossil fuels in general. The “sustainability” crowd was again embarrassed. “Oops: ‘Socially Responsible’ Funds Hold Big Stakes of BP,” a Wall Street Journal article was titled at the time. And in his piece Beyond Pathetic, Andrew Wilson noted:
With great big blobs of oil washing up on the shore, it is almost comical—no, it is comical—to see some of BP’s erstwhile friends in academia and other centers of high-minded thought running for cover. To cite one example, thanks to BP sponsorship, 300 researchers in white lab coats at Berkeley are busily searching for ways to make green fuels that will reduce our dependence on oil. In 2007, BP set up the Energy Biosciences Institute, saying it would spend $500 million over the next ten years to support research into plant-based fuels at Berkeley and two other universities. This is the largest corporate donation ever for university research.
Biofuel for transportation in place of gasoline and diesel? Once mighty Exxon Mobil has since shinnied down this path. The hoped-for “fuel of the future,” politically correct, economically incorrect, has attracted criticism from all sides.
At BP, “big promises” has replaced “beyond petroleum.” New CEO Bernard Looney talks big about “net zero” carbon dioxide (CO2) emissions by 2050. (“The world’s carbon budget is finite and running out fast,” he states.)
For an oil and gas company, this seems somewhere between fanciful and bizarre. To environmentalists, it’s greenwashing. To consumers, it’s an unnecessary corporate cost item. To stockholders, it is a warning sign of a distracted corporation.
Real Corporate “Responsibility”
“I have never known much good done by those who affected to trade for the publick good,” Adam Smith wrote in the 18th century. “It is an affectation, indeed, not very common among merchants, and every few words need be employed in dissuading them from it.”
“The two greatest enemies of free enterprise in the United States,” Milton Friedman once stated, “have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.”
Centuries apart, Smith and Friedman fingered the contra-capitalist business models of Enron, BP, and other companies that banked on fads, misdirection, and political favor. What is now called ESG (environmental, social and governance investing) is old vinegar in new bottles.
Businesses are not and cannot be governments or nonprofits. For-profit enterprises are wealth creators in the realm of mutually advantageous exchange, not arbiters of debatable ideologies. Carbon-based energy providers should not pretend to be otherwise at the expense of consumers and/or owners.
America is reaping the rewards of what largely is free-market energy policy. Energy dominance should not be compromised by ESG, much less government intervention in the years ahead.