Why Big Oil Belongs in ESG Portfolios, According to Goldman Sachs Insight
In a thought-provoking update from Wall Street, Goldman Sachs is making it clear: excluding major oil and gas companies from ESG (Environmental, Social, and Governance) investment portfolios is a serious strategic mistake.
Today’s leading energy firms — names like ExxonMobil, Shell, and Saudi Aramco — are not only pivotal to global energy supply but are also investing heavily in emerging clean energy technologies such as carbon capture, hydrogen, and low-carbon innovations. While these companies are historically large contributors to greenhouse gas emissions, their extensive resources, infrastructure, and spirit of innovation are seen as essential drivers of the world’s energy transition.
The Shifting Landscape of ESG Investing
A few years ago, ESG investing surged in popularity, particularly during the COVID-19 pandemic when low oil prices and heightened climate awareness pushed investors to favor alternative energy and sustainability-driven funds. However, by 2022 and 2023, this momentum began to cool. Rising oil prices, political pushback — especially from states like Texas — and mounting accusations of greenwashing caused many investors to rethink their ESG strategies.
In fact, some states have gone so far as to bar public investments in funds that divest from fossil fuels or certain other industries like firearms. This political backdrop, combined with evolving market realities, has influenced how investors now view oil and gas companies in the broader ESG conversation.
Big Oil Adjusts Its Clean Energy Strategies
Notably, some energy giants have recently scaled back certain clean energy ambitions. BP, for instance, revised its decarbonization strategy to slow its withdrawal from upstream oil and gas investments. Shell, meanwhile, announced plans to wind down new offshore wind initiatives and paused major hydrogen projects due to lack of demand. Norwegian energy firm Equinor also abandoned plans to build a hydrogen pipeline to Germany, citing insufficient regulatory support and customer demand.
Despite these shifts, Wall Street analysts, including Goldman Sachs’ Michele Della Vigna, argue that the energy transition remains a long-term journey that requires the full participation of the traditional oil and gas sector. Della Vigna emphasizes that oil companies are more than resource providers — they are risk-takers and market makers, vital for building the complex systems needed for a successful energy future.
U.S. Companies Lead with Innovation
American oil majors agree. ExxonMobil CEO Darren Woods has encouraged European policymakers to adopt a more pragmatic approach, warning that overregulation risks pushing major players out of the market. Exxon’s investment in carbon capture technologies and its growing Low Carbon Business Solutions division are prime examples of Big Oil’s commitment to a lower-carbon future — one that still recognizes the critical role of oil and gas.
Exxon has made major moves, such as partnering with industrial gas company Linde on a carbon capture project capable of sequestering up to 2.2 million metric tons of CO2 annually. Similarly, energy services giant SLB (formerly Schlumberger) has launched a New Energy division focused on high-potential sectors like carbon solutions, geothermal energy, and critical minerals.
Saudi Aramco, the world’s largest oil producer, has also set an ambitious target to reach net-zero emissions by 2050 — without reducing its substantial oil output. Its cutting-edge research into carbon capture and efficiency improvements highlights how Big Oil is working to reconcile energy production with climate goals.
The Resistance to Including Big Oil in ESG
Still, challenges remain. Critics point out that oil and gas companies are among the largest contributors to global CO2 emissions. Saudi Aramco and a handful of other producers were responsible for nearly 18% of global emissions in 2023, while ExxonMobil, Chevron, Shell, TotalEnergies, and BP contributed around 5%.
Despite this, the reality is clear: meaningful progress toward global decarbonization will require the financial strength, technological expertise, and innovation capacity of the oil and gas sector.
Why This Matters for Direct Participation Investors
For individuals considering or already involved in direct participation partnerships (DPPs) in the oil and gas industry, this evolving dynamic is particularly important.
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Broader Acceptance: Wall Street’s endorsement of Big Oil’s role in ESG-friendly initiatives strengthens the legitimacy of investing in oil and gas projects.
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Long-Term Viability: Energy companies are adapting to the transition, ensuring that oil and gas will remain critical — and profitable — for decades.
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Innovation-Driven Growth: DPP investors stand to benefit from the sector’s growing focus on clean energy technology, which may open new revenue streams.
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Policy and Public Sentiment: As regulatory and political landscapes shift, oil and gas investments are likely to be seen as part of a balanced energy future, not as outdated or risky.
Direct participation investments offer unique opportunities to take part in both the traditional strengths and the innovative future of the American energy sector.
Summary
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Goldman Sachs argues that excluding Big Oil from ESG portfolios is a strategic mistake.
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Major oil firms are investing heavily in carbon capture, hydrogen, and other clean technologies.
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Political backlash and changing market dynamics have reshaped ESG investing.
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Energy companies are adjusting their strategies, but their role remains crucial to the energy transition.
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U.S. companies like ExxonMobil and SLB are leading with significant investments in low-carbon solutions.
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For direct participation investors, the continued strength and adaptability of Big Oil presents opportunities for long-term growth and stability.
