Environmental, Social, and Governance is part of every business decision, even when you don’t understand that it is. ESG boils down to economics. If you make it hard on your neighbors or don’t follow the rules, things will be hard for you and your return on investment is going to be very low.
“I like to think of myself as a tree-hugger…” said Joe Schindler, SVP Business Development, for Tomorrow Fund, when asked about his position on ESG. “Where I grew up, there were few [trees], and you only cut one down if you really had to. It might be the only shade for a mile, maybe more. If you had a tree where a well was staked; you moved the stake. I don’t like to waste things.”
Schindler explained that it’s easier and cheaper to get along as neighbors than it is to fight in court. “If I’m working with someone and I make them happy, they’ll tell someone else about it and they will want to work with me. That’s the social side.” Regarding governance, “you only have to let the newspaper see you do one stupid thing, and nobody wants to work with you. It’s not that hard to behave properly.”
When Colorado recently enacted tighter air quality standards around well sites and reduced the allowable methane emissions, there was a tremendous uproar about the foreseeable cost. Soon there was a noticeable increase in the sales volumes from many wells. A $20,000 FLIR (Forward Looking InfraRed) camera used to detect methane leaks only needs to find a 1 mcf per day leak in 11 wells to pay for itself in a year. Schindler says, “… that camera is going to pay off pretty quickly, and the money from gas goes in your pocket. Cleaner air, happy neighbors, no fines. That’s ESG going into your wallet.”
Schindler also relayed a story of not understanding the social aspects of his neighbors. “We were leasing on a big play; and had brokers going through neighborhoods. We were the big company and we were offering big bonuses. We knew we would come out ahead. At nearly every door our brokers knocked on the owner would say they were already leased to, or that they were going with our competition. We were offering cash; but our competitor offered something more tangible, new appliances. Our neighbors had both cash and appliances; but it was the excitement of Christmas day when that truck backed up to their door. We didn’t understand our neighbors and missed out.”
“Governance is pretty self-explanatory;” Schindler said. “Rules and laws are there to protect us all. If you don’t like playing by the rules, you have to ask yourself why. I’d rather work with someone that’s not at the courthouse every week because they wouldn’t pay to do something right the first time. And then there’s the fine if things don’t come out your way” says Joe. “ Why not just do it right the first time; rather than paying for a lawyer and a fine, and then going back and paying to do it right? I don’t get it; but companies do that all the time.”
Many people have expressed anger that ESG is just offset trading and a government overreach. Schindler said; “… [that] there are going to be some big winners in the offset trading, but if you’re doing so well that you can afford to sell off some of your good deeds; it makes me wonder how badly someone that needs them is doing. If they’re doing so much, so wrong that they need to buy goodwill from others, they won’t be in business long; and the trading will eventually stop. As for big brother telling me what to do and how to do it; there will always be someone – government or not – doing that. If I do it right the first time; I’m on to the next thing that much quicker.”
“You have to look at your own values and decide what is important to you…” Schindler added. “You can fuss and stomp, or you can try to get along with others; only one of these is going to be successful. It’s your decision. I once picked up a big lease because the landowner saw how much trash my competitor left behind. To think that the cost of a trashcan kept my competition from a big opportunity boggles my mind; but we were going to pick up our trash anyway. Sure, I get called ‘woke’ even though I don’t know what it means. I’ve been called worse. I’m still going to pick up my trash. It’s not that hard. I’d rather be a good neighbor.”