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ESG: It's in Alaska's DNA
by ANCSA Regional Association for Petroleum News
ESG. Environment. Social. Governance.
Separately, they are three important but distinct aspects of life. Taken together, they've become an increasingly influential, though not always well-defined, business and investment philosophy meant to help money managers and CEOs approach decisions on everything from large equity investments to day-to-day operations more holistically.
Environment, social and governance, collectively known as ESG, has taken a particular foothold in a growing segment of the investor community that pays close attention to issues such as a development project's potential impact on climate change or a company's commitment to local stakeholders when deciding where to put their money.
ESG considerations have become such an important factor for many investors that in March 2022, the U.S. Securities and Exchange Commission issued proposed regulations attempting to standardize corporate reporting of climate-related disclosures and similar risks that could have material impacts on a company's well-being. SEC Chair Gary Gensler said at the time that the proposed rulemaking was in response to investors who represent "tens of trillions of dollars" demanding consistent, comparable information regarding climate issues and how they might impact a company's financial performance.
When backed by research and applied thoughtfully, ESG guidelines and metrics can be helpful tools that enable investors to see a more complete picture of a prospective investment and its potential impacts on a wide range of areas, positive or negative. However, when even well-intentioned ESG values are used with haste or too broadly, or when mandates are set, pressure to meet those thresholds can force decisions that don't take the whole picture into account, quite the opposite of the initial intent.
ANS projects prime example Alaska's new North Slope oil projects are a prime example. Shareholders and investors in some of the country's largest banks and other lenders who are worried about the negative impacts of burning fossil fuels and climate change on Arctic ecosystems have managed to pressure leadership of several of those institutions to issue sweeping bans on investing in Arctic oil and gas projects, among other developments in the region.
But these efforts to mitigate impacts on the Arctic ecosystem that is often seen as the most vulnerable to a changing climate can be misguided and often counterproductive.
For starters, it's very understandable to want to protect environments in the coldest regions as temperatures increase around the globe. But in practice, prohibitions on Arctic oil and gas investments, especially those in Alaska, neglect the reality that climate change is a global challenge -- not one that can be solved or managed on a regional level. It makes no difference if the oil is produced and shipped from California, the Gulf Coast, the Middle East or Alaska.
In fact, stringent environmental regulations, good geology and cool temperatures make Alaska's North Slope one of the least carbon-intensive oil basins on Earth. In other words, Alaska is among the most environmentally responsible regions in the world to produce from.
Deep history with land The complexity around ESG investing decisions regarding oil and gas projects on the North Slope is but one modern example of Alaska's long history at the forefront of responsible resource development and a more holistic, values-based approach to business. Those values are perhaps best exemplified by Alaska Native corporations, created under the Alaska Native Claims Settlement Act.
Passed by Congress and signed into law in 1971, ANCSA, as it is best known, acted as a framework to settle Indigenous land claims. Settling land claims also allowed Trans-Alaska Pipeline System development to proceed.
Practically, ANCSA provided the resources and land base to establish the 12 Alaska Native regional corporations active today and more than 200 village corporations. As part of the settlement, a total of 44 million acres of land were set to be conveyed to Alaska Native corporations, or ANCs, lands the corporations still use to provide for their Alaska Native shareholders in a multitude of ways.
Through ANCSA, Alaska Native people born on or before Dec. 18, 1971, with one-quarter or more Native blood quantum were eligible to enroll in their regional and village corporations. ANCSA uses the term "shareholder," but in a very different way than the Western business world, as ANCSA shares cannot be sold or traded -- only gifted, willed or bequeathed.
The deep history Alaska Native people share with the land, combined with Congress' mandate through ANCSA that Alaska Native corporations provide for not just the economic, but also the social and cultural well-being of their more than 160,000 Alaska Native shareholders, has formed a powerful force in Alaska business and the state's economy that quietly led the way in ESG-style practices for decades before the current trend began.
Environment -- the E in ESG Alaska Native people have an indelible connection to their homelands, which have provided for them for over ten thousand years. For ANC leaders, that connection extends through shareholders and into the boardroom.
It's why ANCs ensure their shareholders can participate in harvests and other subsistence activities on the vast majority of their lands. Shareholders hunt, harvest berries, flowers, and other plants, and maintain multi-generational fish camps and traplines on traditional homelands.
These traditions secure a crucial connection to the culture that modern life so often challenges. Their importance is reflected in how ANCs steward their lands. Shareholders have the assurance that they will always have access to these places that allow them to connect with their history and live their culture, and ANCs carry the obligation of that assurance.
ANCs further utilize their lands for the economic benefit of their shareholders, descendants and communities -- benefits that are manifested in myriad ways. Carefully planned resource development projects, such as the Red Dog Mine on NANA land in northwest Alaska or oil projects on a select few Arctic Slope Regional Corp. leases on the North Slope, provide revenue not just to those specific corporations but support ANCs across the state through unique revenue sharing (more on that later).
ANCs regularly negotiate shareholder hire into use agreements for their lands, ensuring shareholders can secure well-paying jobs near home in often remote communities. Approximately 39% of more than 17,000 in-state ANC employees are Alaska Native, while Alaska Native people comprise 19% of the state's total population.
Across Alaska, ANCs have become central players in the state's booming tourism industry, utilizing their lands to offer visitors sustainable ways to experience this incredible place we call home and learn about its rich history from an Indigenous perspective.
Several regional corporations, including Bristol Bay Native Corp., Arctic Slope Regional Corp., Doyon Limited and Koniag, also operate remote upscale lodges where visitors can fish world-class waters; view Kodiak Island's renowned brown bears as they feast on salmon; get up close to Denali, North America's tallest mountain; or find another once-in-a-lifetime adventure.
Providing high-end accommodations accessible only by boat or airplane is a logistically complex undertaking that requires a tremendous amount of support, whether local staff or vendors. As a result, many of these lodges are fundamental economic drivers in the nearby communities where full-time employment opportunities can be limited.
Social -- the S in ESG This is where ANCs truly become more than corporations and where Alaska distinguishes itself from other regions. ANCs are hubs for Alaska Native history and current cultural events. They support traditional gatherings and festivals across the state, from the smallest villages to Alaska's largest cities. They host culture camps for youth, offer internships and scholarships for shareholders and descendants, provide bereavement assistance to shareholders and their families, fund and support language revitalization efforts, and provide additional distributions to elder shareholders. ANCs have, in fact, become a part of Alaska Native culture themselves for several generations.
The Alaska Native values that provide a steady foundation for ANCs to chart their business course emphasize the notion of "sharing the catch" with the rest of one's community, whether that's a net full of salmon or a bucket of berries in summer, a moose in fall or sharing the benefits of financial success. It is why ANCs work so hard to provide benefits to their shareholders that include distributions but go far beyond that.
Nowhere is "sharing the catch" more evident than in the provisions of ANCSA known as Sections 7(i) and 7(j). While the names drawn from the Congressional Record are a bit arcane and the mechanics of the distributions can sometimes be complex, the fundamentals are simple:
Each regional corporation shares 70% of its revenue derived from timber sales and subsurface resources, such as oil and gas and minerals, with other ANCs -- 50% of which is distributed to the 11 other regional corporations, and the other half to village corporations.
Yes, nearly three-quarters of all the resource revenue a regional corporation generates from ANCSA land is shared with Alaska Native people in every corner of our vast state, and some cases, throughout the country, through their corporations. This revenue (7(i) for regional corporations and 7(j) for village corporations) is crucial to some ANCs' ability to provide their shareholders with as many tangible benefits as possible.
Since their formation, ANCs have shared more than $2.5 billion through the 7(i) and 7(j) provisions, according to a study from Alaska-based McKinley Research, ensuring Alaska Native people everywhere benefit from the bounty of our lands and the development of our natural resources. This revenue sharing is why building carefully planned resource projects, such as Red Dog Mine, on ANC lands is so important. The positive impact of those projects has a tremendous reach.
Governance -- the G in ESG From generating roughly $1 billion per year in payroll in Alaska or collectively contributing an average of more than $170 million per year to shareholder distributions, to providing $7 million in scholarships annually or more than $20 million to Alaska Native non-profits each year, ANCs are able to accomplish all they do because of a strong framework that has enabled them to grow into the economic and social drivers they are today.
Drafted more than 50 years ago with input from our Alaska Native leaders, ANCSA provided a vision for what ANCs could be -- a new type of corporation built on Indigenous values and meant to grow more than just a bottom line. The 7(i) and 7(j) programs offer a great example. Nowhere else in the Western business world would a for-profit organization share the vast majority of a large revenue stream with its peers to the level that ANCs do for their shareholders, descendants and communities.
Additionally, since Alaska Native corporation shares can never be bought or sold, they are instead passed down through families. This creates a unique bond between corporation and shareholder and is one reason why ANCs and their shareholders are more like extended family than a company and a group of investors.
That everlasting bond also encourages ANC leaders to plan generationally, whether about land use or finance, in a way traditional corporations simply do not. ANCs will continue with new generations of Alaska Native shareholders. Simply put, they are forever corporations.
Beyond ANCSA Beyond ANCSA, federal legislation governing oil and gas development in the 23 million acre National Petroleum Reserve-Alaska (NPR-A) directs up to 50% of royalty revenue from production to the state-led NPR-A Impact Mitigation Grant Program.
Northwest Alaska and North Slope communities impacted by nearby oil and gas projects, such as ConocoPhillips' Willow project, are eligible for funds to support subsistence activities or community infrastructure. These funding opportunities not only work to reduce the impact of nearby industrial developments on traditional lifestyles but also help provide amenities in remote communities that most Americans take for granted.
Here for thousands of years Alaska is sometimes viewed as a young, isolated state with limited infrastructure and opportunities. However, Alaska Native people have been thriving here for thousands of years by adhering to our culture and living our values toward the land and each other. These values emphasize community well-being and are at the heart of ANCs' success.
From an Alaska-centric view, large Outside corporations often come to our state to share in its bounties but still send the majority of their revenue to other jurisdictions.
ANCs work the other way, bringing revenue into the state and working to keep it here. Alaska Native regional corporations generated $10.5 billion in 2019, accounting for more than 16% of Alaska's total state product.
ANCs can confidently serve as a guide for sustainable business going forward by demonstrating a business model that uses a long-term focus to positively impact shareholders and other potential stakeholders. It is one that takes an Indigenous approach to land stewardship and embraces the rich history of our home.
Many parts of Alaska Native culture are derived from ancient values and traditions. Today, the values that form the basis of ANCs are becoming increasingly sought after on Wall Street and in C-suites across America through the modern ESG movement. With that foundation, ANCs can help lead a more sustainable corporate business model for generations to come and lead in Alaska's economic future by making the case for investment in our state.
Editor's note: This piece was written at the request of Petroleum News and Corri Feige, author of PN's monthly column titled ESG in Alaska's DNA.
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