At a World Affairs Council of Houston event, Yale University professor Dan Esty and Council CEO Leslie Beyer discussed the need for companies to take ESG concerns seriously, as society demands action on climate change and governments begin requiring reporting of certain criteria.
“The reality is the world is shifting very quickly in terms of expectations on companies,” Esty said. “Not just what companies are saying to the investor world, but more broadly about who they are, what they’re doing, and their performance across the spectrum of ESG.”
Esty, author of the new book, “Values at Work: Sustainable Investing and ESG Reporting,” and Beyer engaged in an in-depth analysis of increasing pressure on companies to take action on climate change, inclusion and diversity, and issues of corporate governance.
“The Biden Administration is committed to the U.S. going back into the global conversation and rejoining the Paris Agreement,” Esty said. “So companies are being asked what they’re doing on climate change, with the expectation that at the end of the year, there will likely be a move to a deep decarbonization over the next several decades.”
Esty said many working in climate policy are talking about reaching net zero greenhouse gases by 2050.
Beyer and Esty delved into anticipated changes in reporting requirements. Where ESG was once viewed primarily as a matter of private data collection, companies should expect increased scrutiny from governments and third-party observers. Esty said that private data collection and publication has sown chaos and confusion because there are no universal definitions of what sustainability means.
“A lot of companies feel like the picture painted of them hasn’t really been fair,” Esty said. “It may get resolved because I think you’ll see a trend towards a mandatory framework of reporting. It’s already the case in Europe. It would not surprise me to see the Biden Administration do something similar over the next year or maybe two.”
This isn’t something being driven by political agenda, Esty told Beyer. It reflects investor interest.
“What we’ve seen the past couple years is a growing percentage of mainstream investors who want to understand what’s behind the companies in their portfolio,” Esty said. “They want better alignment between their values and their investments.”
COUNCIL MEMBER COMMUNICATION
Beyer emphasized the importance of companies and the industry effectively communicating the progress being made on ESG.
“It’s important to approach this as an opportunity to talk about the great things you’re doing,” Beyer said. “Taking these criteria seriously gives you a competitive advantage and the chance to get your company’s story out there.”
Beyer pointed out that Council Member Companies are leaders in showing the value of oil and gas across the energy value chain.
“We’re the ones that can get to these lower carbon technologies because we understand how to do it at scale, “Beyer said.
Esty said there’s an opportunity for companies to monetize decarbonization. One possibility is a pricing mechanism on greenhouse gas emissions. He said companies positioned to take emissions out of the system may be able to sell those reductions in certain contexts.
“The biggest piece of monetizing this is to solve your customer’s sustainability challenges,” Esty said. “If you can help your customer reduce greenhouse gas emissions, or for that matter, water use or air pollution, you’re going to have a big opportunity. Because as your customer gets more and more pressure to report on their sustainability performance, they’re going to turn to suppliers who are helping fix the problem for them.”
Listen to the entire conversation here.
To get involved in the Council’s ESG initiatives, contact Senior Advisor ESG and Sustainability Andy Knapp.