As Environmental, Social & Governance (ESG) issues transition from fringe to the mainstream conversations in the financial markets, the ESG acronym has already taken hold before the “official rules” have been approved and implemented.
Right now the S in ESG is primarily dictated by the media, social media mobs and triggering triggers of polarity behavior. Let me explain a little on that one.
Let’s take WalMart. For years one of their biggest Social issues was the social cause of the “war on small business”, which was more exaggerated than real and never cause a major shift in their operations. However, when the social issue of gun ownership started taking hold on social media several years ago, WalMart made some changes with their firearms sales.
While the media reported more speculation than fact during the time period of store shootings, the reality is more people shopped at WalMart, according to a report from the S&P Global Market Intelligence. Walmart became a more “acceptable” choice for the “socially-minded” investor and consumer after it made changes to their policy that restricted the types of firearm ammunition sold.
In the world of oil and gas, the Social factors don’t just depend on how American consumers will view a company’s or executive’s behavior. This is because geopolitical events are filed under the social category in ESG investing.
The reality is that geopolitical conflicts and issues can deter or even stop companies from producing or distributing their products and services.
One example of a geopolitical “S” is a drone attack on an oil refinery in Saudi Arabia in September 2019, which temporarily halted roughly 5% of worldwide oil production.
There have been a number of geopolitical “S” examples impacting American companies and investors. In fact, S&P Global Ratings report oil and gas companies have high exposure to all the categories in all the ESG categories, not just social factors.
One very serious issue regarding ESG is the subjective Social spectrum. Until industry social policies are created and implemented, oil and gas companies should expect more polarizing uncertainty in the marketplace given the serious impact an energy accident can have or changes in a new administration’s policy or an inter-governmental conflict can have on a company’s stock price or shareholder attitude.
Dealing with the Social aspect of ESG can become very difficult. Employee pedigree, educational backgrounds and the company mission’s do not always sync or match up, so internal struggles, growing pains and mismanaged cultures can impact a company’s bottom line overnight.
From the WalMart example of reacting to the pressures of social media to the geopolitical example impacting 5% of the global oil supply, the “S” in ESG is real and can easily be manipulated, controlled and abused. This is one of the main reasons more and more companies are now examining their own employee’s behaviors and social media activities.
The more you understand ESG, the more you understand it is a business. It is a new sector of the economy that government and special interests have created, and we are in the infant stages.
Right now the ESG Economy is on the 1 yard line with 99 yards to go… in the first quarter and the refs have yet to announce the rules or bring the ball out to the field, but, the game has already started because companies, countries and economies are already being impacted.
In reality the “S” in ESG could stand for Slippery Slope or Subjective, because that’s where the “S” currently stands. Or sits. Not sure which is PC these days with the “S” in ESG.
One thing is clear when it comes to the “S” in ESG. How your company manages its internal employee culture dictates your company’s public reputation and in today’s marketplace that’s part of risk management and investment. Class dismissed til’ next week.
Everyday your story is being told by someone. Who is telling your story? Who are you telling your story to?
In addition to hosting interviews on The Crude Life, Jason Spiess hosts several radio programs, pens magazine columns and is a podcaster on The United Podcast of America.
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