As published in the Calgary Herald

The Great Reset movement promulgated by the World Economic Forum is fundamentally a shift toward non-economic priorities, notably toward environment, social and governance (ESG) aspirations. It is presented as a new economic and social order, a New Deal, with an emphasis on decarbonization, sustainability, equality, inclusivity and resiliency, and is often referenced as some form of a Green New Deal.

ESG, resiliency and sustainability are fantastic essential aspirations. But to become real they must be grounded in the practical realities of economics. Absent this understanding, the Great Reset movement invites disillusionment, a further breakdown of institutional trust and could become the Great Regret.

The foundation of the ESG movement fundamentally makes sense and indeed will serve and support a positive future for society. But the construct is limited in a profound way, which is creating distortions and constraining the value of its application. This is a central point of my paper, What is the Future of Canada’s Energy Sector? Emerging Themes of an Optimal Pathway prepared for the school of public policy at the University of Calgary.

All of us in our communities and in society want a clean environment. We have a legitimate essential interest in a low carbon, low climate risk future; clean water and air; and minimal adverse environmental impacts associated with development. We also aspire for social value through public services, education, health, safety, diversity and the full inclusion of Indigenous peoples. Further, the idea of governance excellence as an aspiration rests on the fundamental importance of ethics, fairness and trust, which are foundational to the effectiveness and functionality of capital markets, our institutions and indeed the prosperity and functionality of our nation. All of this is unquestionably what we want and need.

But the mainstream ESG construct is severely limited by the exclusion of a fourth fundamental – the ever present and always important reality of economics. Nowhere is this more clear than in energy policy. The sourcing and use of energy runs through all that we do as a society and the economics of energy has relevance to all stakeholders.

Consumers are concerned about costs, affordability, reliability and security, all of which link with economics. Employees within the energy sector need opportunities and income. Indigenous peoples aspire for resource project ownership as a path out of economic dependency. Investors are concerned about appropriate returns on dollars at risk. Lenders worry about loans being fully serviced and repaid. Corporate executives and directors are accountable for the allocation of capital entrusted under their authority. Governments require a tax base to sustain public services and to meet debt obligations.

Economics includes finance and Canada is now one of the most indebted countries of the world; this poses risks and challenges for all citizens of Canada, particularly given the current context of stubbornly high inflation and the expectation of rising interest rates.

Economics should be an explicit and integral part of ESG, not an afterthought; accordingly, ESG should be expanded to include economics. The new construct thus becomes E-ESG, “economics-environment, social and governance.”

This broadened framework captures the full range of essential stakeholder interests consistent with the idea of stakeholder capitalism and corporate stakeholder governance.

The broad practical implication of the E-ESG framework is that it clarifies that policy must solve for multiple outcomes to serve all essential interests of society.

Specific to energy, the desired outcomes of policy are simply not singular; they are multiple, overlap, are often in conflict, but can potentially operate synergistically. An extreme focus on a single desired outcome is just that – extremism.

The fact that essential interests or priorities may be in conflict does not negate the importance of one outcome, for example the importance of environment. This creates complexity but it is reality. This framework and these understandings point to the need to find an optimal path through the complexities of competing objectives, varying interests and the necessity of linked sequencing and contingencies in what most agree will be a multi-decadal transition, built on existing advantages and multiple technologies.

Simplistic, shallow narratives that sound good don’t offer much value in the context of this complexity and will contribute to consequences that we may regret.

The imperative for all countries of the world is to find the optimal path to decarbonize and yet meet all essential aspirations, where supply and price shocks, such as what is currently occurring in Europe and Asia, can be avoided. Otherwise, the broad climate and decarbonization movement will lose credibility. If it loses credibility globally, one can reasonably expect that it will lose credibility and public support within Canada.

The narrowness of policy-driven decarbonization must be placed within the comprehensiveness of market-based economics and all other essential environmental, social and governance aspirations. Otherwise, the haunting spectre of the Great Regret will increasingly take hold.