Breaking the Link between Oil & Gas and War: Putting Human Rights into ESG
Hosted by Clean Trade, Amati Global Investors, and King's College London
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How did we end up in a situation where Russia has been able to wage full scale war on Ukraine funded largely by oil and gas sales to European nations?
How do we make sure this mistake is not repeated?
There is a greater urgency than ever to address the global supply chains of oil, gas and other commodities from a human rights perspective. The natural resources curse, whereby resource-rich countries suffer from corruption, conflict, and poverty, has been a root cause of much of the world’s worst violence and kleptocracy in the post-WWII period. In the case of Russia this now has adverse consequences of massive proportions for all of us. The CIA call it Blowback.
Under human rights law, any exploitation of natural resources must be accountable to citizens. When authoritarians control resource revenues without being accountable to citizens, there are strong links to corruption and violence, which frequently spills outside the borders of the source country. We see this today.
The failure of ESG frameworks to comprehend this kind of risk is painfully apparent. Refinitiv, a representative ESG scoring provider, in March 2022 graded Rosneft at 76.8% (grade A-), Gazprom at 59.6% (grade B) and Severstal, a large Russian mining company, at 73.7% (grade B+), with some marking down beyond that for what they call ESG Controversies based on reports of bad corporate behaviour of various types, whereas Serica, a UK North Sea company providing 5% of the UK’s gas supply, they rate at 41.9% (grade C+). Investors integrating ESG into their investment process might think it preferable to invest in Russian oil and gas companies rather than a company which is key to UK energy security. Most people would now agree that this is deeply wrong-headed.
Take one example from the companies above: Rosneft is a constituent of the FTSE4Good index and claims to be committed to the Universal Declaration of Human Rights, the OECD Guidelines for Multinational Enterprises and the UN Global Compact. This means the company must respect internationally proclaimed human rights, which include the right that ‘all peoples may, for their own ends, freely dispose of their natural wealth and resources’. Yet the revenue that Rosneft generates for the government through taxes has been used for over 20 years to strengthen the grip of an oppressive government whose willingness to use violence to squash all opposition knows no bounds, a regime which now presents a deadly threat to us all. This is not a country where citizens are free to dispose of their natural wealth and resources for their own ends.
How can this aspect of ESG remain invisible? Respect for basic human rights in the countries that companies operate in is a critical dimension of ESG policies. Our contention is that in order for ESG frameworks to be useful as a guide to what makes an investment ‘Responsible’, they will need to take human rights seriously, and attend to the destructive outcomes of the natural resources curse.
1. “The Resource Curse and the Clean Trade Proposition”
Leif Wenar, Professor at Standford University, Chairman of Clean Trade
2. “How Investors Can Adopt Clean Trade Principles and Why it Matters”
Paul Jourdan, CEO of Amati Global Investors, Trustee of Clean Trade
3. "Russia - A Step Too Far?"
Nick Butler, FT Energy Columnist, former Vice President of BP, Professor at King’s College London
4.“China’s Oil & Gas Policy and How Western Investors Can Respond.”
Sam Olsen, Founder at Evenstar, Author of WhatChinaWants
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5. "Russian Oil & Gas: What are the Alternatives"
Nathan Piper, Head of Oil & Gas Research, Investec Bank
6. “The Struggle for Human Rights in Investment”
Sasja Beslik, Senior Executive in Sustainable Finance, author of “Where the Money Tree Grows” (2021) and the weekly newsletter “ESG on Sunday”
7. “Lessons from the Russian Oil & Gas Majors over the Last Decade”
Valentina Kretzschmar, Energy Transition Director at Capricorn Energy
8. Q and A
Background on Clean Trade
Since 2017, Clean Trade has promoted the understanding of human rights abuses that flow from international trade in natural resources, most especially oil and gas, still the world’s most valuable commodities. The workings of the ‘Natural Resources Curse’ were described in detail by Leif Wenar’s book Blood Oil: Tyrants, Violence and the Rules that Run the World (2016). A central idea in this book is that revenue streams arising from the export of natural resources can enable a local ruler to become immensely rich and powerful without developing a thriving and diversified economy. The higher the value of the revenue stream, the more likely it is to be guarded with coercion and corruption. The results are often a local economy starved not just of development but also of freedom, ruled over by an elite that becomes increasingly entrenched and violent. Wenar shows that the purchase of natural resources from states where freedom falls below critical levels contravenes Article 1 of the International Covenants on Human Rights, hinders human development, and often leads to intrastate or interstate violence.