Just this spring, a stunning headline flashed across financial news terminals: “Texas pulls $8.5B from BlackRock in a stunning blow to ESG movement.” It seems this step was taken in order to comply with a new state law opposing those who ‘boycott’ the oil and gas industry, and it illustrates the high drama that is now appearing around the topic of ‘Sustainable’ investing. To some, like the Texas lawmakers, taking ‘Environmental, Social, and Governance’ (ESG) concerns into consideration amounts to a ‘boycott’ of key industries. To others, like Larry Fink, the CEO of BlackRock, more subtle sounding approaches like ‘stakeholder capitalism,’ encourage companies to consider interests that go beyond traditional investment objectives, including notably the Climate, but may not provide much guidance as to how.
The frequency and volume of ‘clashes’ over ESG appear to be on the rise and one has to wonder if this is yet another ‘culture’ clash in our economy. Is ESG good for some and not for others?
As an observer and participant in energy and sustainable finance, it is clear to me that many companies (yes, including traditional energy sources) still need finance even though they have significant environmental footprints. In my view, the question should not be how to limit capital going to companies like this, as some of the more basic ESG ‘screening’ approaches do. To the contrary, we must look for how to attract and deploy more capital into funding the reduction and even elimination of their environmental burden. At this point, the astute reader may wonder how one can invest more capital to fund an environmental goal and also deliver acceptable returns. In fact, many investors assume that one will inevitably need to sacrifice returns for ‘ESG’ goals.
In fact, there is a more promising way to solve environmental challenges that instead delivers higher returns, and in doing so, draws even more capital towards these important ESG goals. At the company I founded and lead, we call this ‘active sustainability.’ We begin with finding practical ways to repair one or more aspects of our environment and develop new channels of capital from there. A key feature is developing distribution channels for environmental attributes; in our case, we package and sell the contractual rights to our activities that eliminate methane emissions in older oil and gas fields. And, there are a lot of older oil and gas fields, many associated with methane leaks likely in the hundreds of millions of tons in North America. By creating, seeding, and funding a business designed for a particular stripe of environmental remediation, and fostering the development of offset buyers who see Methane reduction as an attractive and capital efficient way to meet their environmental goals, we have found an approach to tackle ‘ESG’ objectives in a way that promises to draw more and more investors to help us. ‘Active sustainability’ changes the discussion on ESG away from a culture war and accelerates the changes we all want, leading to a cleaner economy while also ensuring the industries that require greater effort to clean up can attract the capital they need.
