Jim Wicklund, Managing Director Energy Investment Banking at Stephens Inc., moderated a great panel on ESG at the Oilfield Water Markets 2021 Conference last week.
In his weekly newsletter, Things i Learned This (Last) Week, Jim led his latest edition with takeaways from the event.
With Jim’s permission, we are sharing this excerpt from his newsletter with Oilfield Water Connection readers:
“Water Water Everywhere. I had the privilege of moderating a panel at the Oilfield Water Markets conference held last week by Joseph Triepke and Peter Cook discussing the impact of ESG on the water business. Ben Schuman, a portfolio manager at the $30 billion Employee’s Retirement System of Texas, made a point that I thought was excellent. The most important letter in ESG is the “G”. I agree. Governance has the responsibility of protecting the value of shareholders. It is their fiduciary obligation. If a company does not earn its cost of capital, equity value declines. If a board of directors allows a company and its management to consistently lose money, or hopes for a price spike to save them, they are most definitely not fulfilling their fiduciary obligation. There will be increasing focus on this point. Ben said they pay increased attention to ESG and there are studies showing the better relative performance and lower cost of capital to companies that are pursuing and implementing ESG protocols. But if the equity protection of the “G” doesn’t exist, it makes the rest moot.
Jim Summer, the CEO of H2O Midstream, has a long head start in the ESG world, focusing on the “E” a great deal over a varied and interesting career. He correctly notes that the industry does a mediocre job arguing our case for the strides made and the critical nature of what we do. He is right. We are a couple of decades behind many other industries in educating our end users. We rely on incidents like the Colonial Pipeline to show people how critical but that is not constructive or effective education.
Eric Johnson, a partner at Winston Strawn, took me to task on a point. The open-ended nature of ESG in general says to identify your sins, monitor your sins over time, and have management incentives in place to reduce the sinning over time. With no boxes to check, companies will compete to be the “best”, the one who gets the best work. And this would drive our industry to “sustainability” rapidly. But Eric correctly noted that the SEC and other regulatory groups are going to institute rules and ratings, on standardized criteria, making it a much more qualitative scoring than quantitative. He is right. Though in our opinion, entrepreneurship fosters innovation, regulations push minimum compliance. The regulators are likely to end up in charge. And it will give investors a standardized ESG scorecard and boxes will be checked.
There were many observations by attendees with 350 people in a live event, complete with booth and exhibitions and a conga line lunch. Some of the themes that stuck me:
If you’d like to get in touch with Jim about his newsletter or Stephens investment banking services, drop us an email and we’ll be happy to make the introduction.
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