The ESG Perspective: Where are we headed?

In my last ESG column, we talked about a fork in the road resulting from the West Virginia vs EPA ruling concerning the Clean Power Plant rule. Simply, it was ruled that a government agency does not have the authority to create new rules. This power rests in the Legislative branch. The bigger concern is that the new SEC ESG disclosure rules can fall into this category and possibly be challenged. So will we embrace ESG, or will there be a push back? Frankly it’s a been a little bit of both. 

More balance. We recently have seen BlackRock push back against claims by the Texas Attorney General that it is anti-oil. Of course, BlackRock was not singled out, and ultimately this could have resulted in a backlisting of it and other investment firms in Texas for being anti-oil. So, the pushback was to be expected, and they did state their continued investment in oil and gas. In addition to this, we have seen the European Commission rule that natural gas is now a sustainable source of energy, and the UK has lifted the ban on hydraulic fracturing to start developing natural gas. So, people within the ESG movement pushing for an elimination of oil and gas are losing out to a more practical, balanced approach that includes natural gas. Even Elon Musk is calling for balance and the need to develop gas reserves. 

The bigger question is will the oil and gas industry embrace the ESG movement? We definitely see the super-majors, like Chevron, Oxy and ExxonMobil, embracing decarbonization and alternative energy and making it part of their business, but there are others still pushing back. Will there be a challenge to the SEC Disclosure rules because of the West Virginia vs. EPA ruling? We have yet to see. We continue to see greenlighting within our industry. I continue to see many service companies doing the same thing they have for years but calling it sustainable or environmentally friendly. 

Greenlighting isn’t just an issue in our industry. Clothing retailer H&M was forced to remove sustainable-related claims from their clothing and website and are required to donate money to sustainable causes by the Netherlands government. The same was imposed on sports retailer Decathlon by the Netherlands. In the UK, a number of fashion retailers are also under investigation for similar actions. As we see our industry using ESG labeling or advertising claims, we need to make sure we are realistic about the claims, because it will catch up to us. I continue to see chemicals add the word “green” before their name, without changing anything about the formulation. I recently saw an advertisement calling a chemical “certified green” by the EPA. The problem is the EPA does not certify chemicals as green. A little bit of greenlighting? 

Earlier, I asked whether our industry will embrace ESG. Personally, I think it’s inevitable, if we want the public acceptance that comes with it and, for publicly traded companies, the boost in stock prices. Every major industry is embracing ESG. PepsiCo and ADM just announced a new partnership to reduce emissions from agriculture. McKinsey and Microsoft are teaming up for decarbonization. It is not surprising that Warren Buffet continues to invest in Chevron and Oxy, as they also are focused on low-carbon ventures. ESG is becoming an industry in itself, and we need to pay attention. 

Are we in a full embrace? Not today, but we aren’t social distancing either. Not quite holding hands but at the same table. Regardless of your position on ESG, it will become a new emerging industry. Major corporations are building ESG teams and elevating positions to the executive level, with titles like Chief Sustainability Officer. Access to capital will consider your ESG position. Harvard Law School recently participated in a study that found 99% of general counsels expected a sharp increase in ESG-related work, and 96% said they don’t have the expertise to handle these issues.  

We need to stop looking at ESG as a burden and start embracing its opportunity. We will see ESG scores in the future like we see ratings on stock. Clear standards have not been established, so we are dealing with very subjective standards today. This isn’t getting from point A to B, following this road; there are speed limits and weight restrictions, as well as many other laws to follow. This is making progress from where you are today—reducing emissions, lowering carbon footprint or creating offsets, and figuring it out. We are in uncharted territory but better to participate in the rulemaking than wait for it and react. We have seen the carbon tax credit increase, and many expect a larger increase in the future. In the Inflation Reduction Act, there are provisions for a cash option on carbon credits, making this even more attractive. In Canada, they are pushing for a $400/ton credit while we are at $86/ton. This is an emerging industry that potentially could change the way we do business in our industry, and that’s really the intention.  

I’ve said it before, but imagine an industry that through carbon capture and sequestration can offset its carbon footprint, while providing the cheapest energy on the planet. If we can combine this with taking hundreds of billions of gallons of produced water and converting it to freshwater, will there be a more sustainable industry? The challenge and opportunity are staring us right in the face. The ESG movement has passed the olive branch by adding natural gas to its list of sustainable sources. It’s time we reach across the table and receive the olive branch. Like I said earlier, this is an opportunity—the developing of a new industry. We should welcome the opportunity and embrace it.  

About the Authors

Mark Patton

Hydrozonix

Mark Patton is president of Hydrozonix and has more than 30 years of experience developing water and waste treatment systems for the oil and gas industry. This includes design, permitting and operation of commercial and private treatment systems, both nationally and internationally. He has seven produced water patents and two patents pending. He earned his B.S. in chemical engineering from the University of Southern California (USC) in 1985.