It's Easy To Make Oil Companies ESG

If I tell you that Company X is an oil company, you probably assume that it creates a lot of carbon emissions. Drilling for oil is dirty work, but also the ultimate users of the oil will burn it and create a lot of emissions, and it seems reasonable to attribute those emissions to Company X. If it didn’t drill the oil, they wouldn’t burn the oil. Maybe they would burn some other oil? But that’s not the point. The point is that most people associate oil companies with carbon emissions, pretty reasonably. And so, for instance, environmental, social and governance-focused (ESG) investors might lower the carbon impact of their portfolios by not investing in oil companies.

If I tell you that Company Y is an investment firm, you probably assume that it does not itself do a lot of carbon emissions. It’s some people, some desks, some computers. It uses electricity, and its employees probably take business trips on airplanes, but no more than most companies. If you care about carbon emissions, you might ask questions like “is Company Y an ESG investment firm?” or “does Company Y do a lot of investing in coal companies?” or “what are the total carbon emissions of the companies in Company Y’s portfolio?”; you might want to get a broader sense of Company Y’s contribution to carbon emissions beyond the amount of carbon that it uses in its own operations.