Governments shouldn’t push oil & gas ESG
What is the social responsibility of business? The answer, most famously provided in Milton Friedman’s essay in the New York Times magazine in 1970, is to increase its profits. Next question: what is the social responsibility of oil companies? As it turns out, this is not a trick question. It does not take a logician to reason that: 1) an oil company is a business, and 2) the social responsibility of business is to increase its profits, so 3) the social responsibility of an oil company is to increase its profits.
Left-wingers are not and cannot be expected to be enthusiastic about business profits. But today, disappointingly, even Conservatives affirm, and have adopted as government policy, the left’s doctrine that businesses in general and oil companies in particular are obligated to pursue collateral social objectives. This can be seen in Alberta, where the Conservative government is pushing an ESG (environmental, social, and governance) agenda for the oil and gas sector and in its latest budget established a $2-million per year ESG government bureau.
Not to be outdone, federal Conservative leader Erin O’toole has called for a national clean-energy strategy to promote the “ESG-I leadership” of the oil and gas industry, with the “I” standing for Indigenous engagement. It remains to be seen whether there will be further acronym inflation as O’toole and others come up with more priorities — just about anything except increasing profits, it seems — that they think corporations should be made to pursue.
There are at least two problems with government pushing an oil and gas ESG agenda. The first is the basic one that these companies should not be made to abdicate their responsibility to increase profits for the sake of collateral pursuits. This is not to say that businesses should be environmentally reckless or poorly governed. Businesses should follow environmental laws (as Friedman wrote, they must conform to the basic rules of society), while a poorly governed business is not likely to succeed.
At bottom, however, oil companies should be run for the benefit of shareholders, and society is better off when they are. Adam Smith was in fact correct when he wrote, on the one hand, that self-interested investors of capital are led by an invisible hand to promote social good that they did not intend, and, on the other, that people who affect to trade for the public good usually do not actually do much good. He did not qualify his observations with, nor should we add today, the phrase: “except for oil and gas companies.”
The second problem with government pushing an oil and gas ESG agenda comes from the first part of the phrase: “government pushing.” In Alberta, this takes the form of the government directing the industry’s public relations strategy, as industry associations have little choice but to follow the government’s ESG lead. But corporations and industry associations should handle their own public relations work. Government is not good at it and taxpayers should not be paying for it.
The Canadian Energy Centre, often called the Energy War Room, is a provincial corporation in Alberta, which since its establishment in 2019 has been promoting the ESG activities of the oil and gas industry. It is staffed with some excellent researchers and has produced some good content: a piece on gas prices in Asia, a précis of which appeared on this page Tuesday, is but the latest example. Overall, however, the operation has been a failure. The energy industry, long the object of persecution by the federal government and environmental NGOS, certainly deserves greater public sympathy. But its cause is not helped by the provincial government giving the industry a multi-million dollar per year taxpayer-funded public relations outfit, especially when much of this money is not effectively spent.
When the war room was first established, it was promptly forced to change its logo, which it had paid a marketing agency to produce, because the logo turned out to be a near copy of one already trademarked by an American software company. Other missteps followed, including a war room critique of a toughon-oil Netflix children’s animated movie that attracted widespread ridicule.
If Conservatives want a robust oil and gas sector, bigger government is not the answer. Included under the heading of bigger government are taxpayer-funded war rooms, national energy strategies, and the adoption of fashionable leftwing doctrines on business responsibility. Instead, markets should be allowed to work and businesses should focus on increasing profits.
THE ENERGY INDUSTRY ... CERTAINLY DESERVES GREATER PUBLIC SYMPATHY.