ESG commitments have been transforming industries in recent years. But just what they mean for energy has remained unclear. How are companies in this sector approaching environmental, social and governance efforts? What role will ESG play in the industry’s future?
We got answers from two leading experts who are guiding companies through these challenges: Hillary H. Holmes, partner and co-chair of the Capital Markets Practice at Gibson, Dunn, and Crutcher LLP, and Dan Pickering, chief investment officer at Pickering Energy Partners.
In recent years, it’s often the “E” in ESG that has gotten the most attention, amid rising concerns about the perils of climate change. Pickering kicked off the webinar by saying he believes that when it comes to the environment, “We’ve pushed past this tipping point and companies are being forced to make statements that they’re going to have to live up to. So I think it’s the real deal.”
Still, for all facets of ESG, companies must be careful not to “turn it into a fad,” Holmes noted. “It’s important that we come up with concrete measures to actually implement these ESG initiatives”. If companies just come across as jumping on a bandwagon, “then the real initiatives that are taken will be viewed with skepticism and we will lose legitimacy.”
Holmes pointed to a new story in the New York Times. A year ago, CEOs who are part of the Business Roundtable signed a new “statement on the purpose of a corporation,” in which they vowed to end an era of focusing principally on shareholders, and instead focus on multiple stakeholders. But a new study, the Times reports, finds that these companies “have done no better than other companies in protecting jobs, labor rights, and workplace safety during the pandemic while failing to distinguish themselves in pursuit of racial and gender equality.”
As Pink Petro pointed out last year, there were many skeptics at the time suggesting this might happen.
There are strong financial reasons to advance on ESG efforts, Holmes said. Doing so boosts a company’s value and longevity. “ESG is an issue of access to capital,” she said. Investors take ESG seriously, and “responsiveness to investors’ standards is critical to make companies eligible for broad investment.”
Can energy companies afford to make this a priority? “It’s now a cost of doing business,” said Pickering. “You’re going to have to be able to afford it as an energy company, particularly a public energy company.”
While the difficult times the sector is facing will mean changes come more slowly, organizations will keep being pushed. “The court of public opinion is pretty strong on this right now. So I think it’s one of those things like taxes and safety that folks are just going to have to do.”
What effect could the outcome election have on this issue? “If you’re a die-hard ESG person you probably want Biden to win, because ESG is going to be a bigger deal going forward,” Pickering said, with more money put into alternatives and renewables, and more regulations that could “become a driver.” But even in recent years, “ESG has been rising in prominence,” he added.
Holmes said Biden’s initiatives “could make it easier to track and compare CO2 emissions” so that companies have a standardized reporting system around emissions. On the flip side, that “could negatively impact a lot of companies’ ESG ratings,” which could make investors warier and increase mistrust of the industry, particularly among millennials. Meanwhile, with “a Biden White House and a Democratic Senate you could start to see diversity and equality legislation make it through, finally.” Strides on that front “could be a positive in terms of workforce productivity for the industry.”
Both speakers emphasized that each company should take a look at its ESG goals and chart a course forward. “Companies need to figure out what they stand for and what they’re about,” Pickering said. Then, communicate that clearly both internally and externally. When a business shares its goals and plans, he said, it “sets up a really good process to make sure you’re doing what you said you were going to do.”