COBRT talks Profits and Purpose: What’s Next for ESG?

BY FREDA MIKLIN STAFF WRITER

A panel of financial industry leaders led a fair and frank conversation on Environmental, Social, Governance (ESG) at The Colorado Business Roundtable (COBRT) on February 23 in The Dome at AMG National Trust Bank in Greenwood Village.

Panelists were David Bohigian, Managing Partner, Pluribus Impact Capital, Michael Lane, Head of iShares U.S. Wealth Advisory, BlackRock, and Chris Wright, CEO and Chair of the Board, Liberty Energy.

Five members of COBRT’s 33-person board of directors offered introductory messages.

Centennial Mayor Stephanie Piko delivered the message that, “What businesses need is consistency and confidence in the regulatory environment they’re working in.”

Lynn Granger, executive director of the American Petroleum Institute, added, “If we don’t have that regulatory certainty, that can drive location decisions and capital investment decisions, making Colorado less competitive.”

Those ideas were echoed by Chris Wright, Liberty Energy, Chris, and Shawn Osthoff, President, Bank of Colorado, who also cited inadequate affordable housing as an ever-present issue for Colorado businesses.

Debbie Brown, COBRT president, welcomed leaders from academia, business, government and the community. She noted the important role each of the groups play in Colorado’s economy and COBRT’s mission.

Focusing on the tax and regulatory pillar in COBRT’s four identified policy priorities, Brown said, “Sustainable economic growth can be maximized when we achieve a business-friendly regulatory balance and support consistent fiscal policies that incentivize innovation, job attraction, and retention.”

The event was sponsored by Brownstein and CAP Logistics. Before the panel took the stage, Jason Downs, Shareholder, Brownstein, and former Chief Deputy Attorney General for the Washington, D.C. office of the Attorney General, said, “ESG is one of the more politically divisive topics, especially in the State Attorneys General community.” He quoted a Republican State Attorney General who said that ESG “is a financial smokescreen (that) distracts from maximum returns,” and a Democratic State Attorney General who called ESG, “a financially responsible way to mitigate risk.”

Richard Goring, COO, CAP Logistics, shared that his company has formalized its contribution to ESG by using renewable (solar) energy at all three buildings that comprise its Denver campus, starting this year. The solar energy system will generate 200% of the com-

“The topic of ESG has recently become greatly divided amongst the business community. At the end of 2022, there was more than $2.5 trillion invested in ESG funds… Nearly two-thirds of private companies and 88% of public companies had ESG initiatives in place. However, on the flip side, ten states have adopted anti-ESG regulations… and other states are presently debating similar legislation.”

– Jeff Bloomquist, managing director, JP Morgan

pany’s needs. The excess energy credits generated will be donated to non-profit and low-income housing in the Denver community as the company’s tangible ESG initiative.

Jeff Bloomquist, managing director, J P Morgan, and head of the COBRT tax and regulatory pillar, introduced the panel, noting, “The topic of ESG has recently become greatly divided amongst the business community. At the end of 2022, there was more than $2.5 trillion invested in ESG funds…Nearly two-thirds of private companies and 88% of public companies had ESG initiatives in place. However, on the flip side, ten states have adopted anti-ESG regulations… and other states are presently debating similar legislation.”

Bohigian opened the discussion by posing the rhetorical question of whether business should be more focused on its shareholders or its stakeholders, and where government’s responsibilities fall, related to ESG. He noted, “Google searches (on ESG) are up ten times over the last three years, so people are having this conversation today,” adding that the U.S. Congress is also talking about it.

Lane expressed concern with the “politicalization and divisiveness” that has arisen over ESG, explaining that his company, BlackRock, has been “brought into the narrative” because it is “the leader in terms of assets that are invested in ESG products,” but that is not a significant part of BlackRock’s portfolio of “$8 to $10 trillion,

“Natural gas is used to synthesize nitrogen fertilizer. If we just banned this one use of this one hydrocarbon, global food production would be cut in half. The surest way to kill a couple billion people in the next year or two is to ban this one product.”

– Chris Wright, CEO and Chair of the Board, Liberty Energy depending on the day,”

For context, he pointed out that BlackRock’s equity assets are 90% invested in Index Funds. Said Lane, “From my perspective, and from BlackRock’s perspective, our job is to be capitalists and to earn our clients more money for the different risks and returns that are associated with publicly traded companies.”

Wright offered, “People running businesses care about the environment, care about the societies they live and operate in…” His concern was, “Who defines what’s virtuous and what’s good?”

In the oil and gas industry, Wright reported, For (us), ESG is really code for greenhouse gas emissions reporting.”

He continued, “I see my peers writing their reports… Saying things I know they don’t believe…They’re highlighting their 4% reduction in their scope three greenhouse gas emissions, which in climate terms means completely irrelevant cubed.”

“A company in the renewable (energy) space is trading at one hundred times earnings right now because people have such a high expectation of the growth area of that business… There’s going to be incredible opportunities for growth over the next hundred years in additional forms of energy.”

– Michael Lane, Head of iShares

U.S. Wealth Advisory, BlackRock

It’s complicated and multi-factorial. For instance, the reality about coal, Wright said, is that, “Coal is the largest source of electricity in the world, by far. We have a billion people without electricity, another billion people with only a few hours a day. We need more coal. In poor, remote Africa or South Asia, it’s either no electricity or coal-powered electricity.” Yet, he said, we can’t have coal in an ESG fund, and the impact is, “Coal prices are higher today than they’ve ever been.” We can reduce coal production, he explained, but that doesn’t reduce the need or demand for it. “It just means higher prices,” Wright explained.

He said one definition of ESG is, “Political action being taken by a small number of people using the force of other people’s money.”

What he saw as a real accomplishment is, “One hundred million families get to use clean cooking fuel (so) they are no longer burning wood, dung, and other things indoors, which kills millions of people. (Now) they are burning propane in a cookstove. I’m very passionate about this. We want to make the world a better place.”

Wright sees businesses as organically delivering social justice because it is not economically viable to practice discrimination or other anti-humanistic activities. Historically, said Wright, “Businesses have been enormous forces, by their nature, for social improvements, for increasing wealth, for energizing the world.”

On the topic of natural gas, the cost of which has risen dramatically and impacted the energy bills of Coloradans, Wright pointed out that “Natural gas is used to synthesize nitrogen fertilizer. If we just banned this one use of this one hydrocarbon, global food production would be cut in half. The surest way to kill a couple billion people in the next year or two is to ban this one product.” Demonstrating a political complication, Lane added, “Russia and China are huge producers of it.”

As the program wound up, Lane pointed out that, “A company in the renewable (energy) space is trading at one hundred times earnings right now because people have such a high expectation of the growth area of that business…There’s going to be incredible opportunities for growth over the next hundred years in additional forms of energy.”

In an op-ed in the Wall Street Journal on March 10, Mike Edleson and Andy Puzder took issue with the concept of ESG, saying, “While individual investors while individual investors are free to support whatever causes they wish with their dollars, those who invest other peoples’ money have a fiduciary duty to focus solely on clients’ financial interests.” To determine the financial impact of ESG, they performed an in-depth financial analysis, over time, of the performance of funds whose investment managers acted strictly on traditional financial principles, compared to funds that were impacted by ESG. Edleson and Puzder determined that, “Companies that focus on profits outperform companies that don’t…It’s hard enough to generate profits and returns when that is your focus, let alone when you’re trying to change the world.” Edleson is a former chief economist