guest column

Houston energy tech entrepreneur on if 'ESG' is a dirty word

ESG has certainly come a long way, but has it come too far, actually? Photo via Getty Images

Whose responsibility is it to care for the social good? That’s an important, yet hopelessly complex question, particularly when aimed at sustainability.

When it comes to businesses and other profit-seeking firms, they tend to search for a balance between success today and success overtime. Too much focus in either direction can be deadly.

An apt analogy is a virus: too much reproduction too fast and the host dies, which is why the most successful viruses find the threshold for maximizing reproduction without overly weakening the host.

Payment is about to be due, but from whom?

The ESG movement encapsulates targets from ethical investing related to environmental issues, social values and corporate governance. As it relates to climate, people are working hard to determine how much cumulative effect of human activity is too much for our survival. And there continues to be open questions about how businesses should react to the scientific consensus that climate conditions will continue getting worse, without immediate and severe corrective action. If the consensus is that this is a problem for businesses to fix, whose money do they spend to do it?

Greed was good, once

Nobel-winning economist Milton Friedman famously advocated for firms to focus primarily on returning value to shareholders. With respect to social good, he advocated that shareholders use their returns to pursue them; businesses should just chase profit. His 1970 article in the New York Times Magazine is worth a read, particularly his last paragraph, where he observes that corporate dollars spent advancing social responsibility represent the theft of money from investors, customers, or employees. The challenge is, how many negative externalities do we absorb before seeking to redirect corporate profits?

Making impact be part of the analysis

Others have argued that firms have a social responsibility and should pursue, using the term John Elkington coined in 1994, a triple bottom line approach, focusing on profit, people, and planet. Adherents to this approach believe you only get what you measure, and therefore,businesses should measure more than just profit. The challenge is, who is smart enough to balance these accounts?

ESG to the rescue?

The term ESG itself was the result of good intentioned actors in the investment space who wanted to track the efficacy of investing in businesses that scored well for social responsibility. They theorized, and had some support, that these companies outperformed the market. The result was the formation of the Principles for Responsible Investment in 2013, with its six core principles for “incorporating ESG issues into investment practice.”

ESG has certainly come a long way from Milton Friendmen, though it’s challenging to say how the movement is going. From one perspective, it looks like everyone is in trouble. Banks for investing in companies who are not moving fast enough. Energy companies and other producers of consumer products for greenwashing their efforts. Private equity firms for forcing ESG standards that some view as a step-too-far. Financial service companies for assisting in greenwashing. And, of course, the worst offenders are “the woke.” From the other perspective, we are finally starting to see some incentives for companies to address and solve long-ignored problems.

One size fits no one

The question of “Who is responsible for ESG?” reminds me of a presentation I attended in spring 2022, given by a senior executive of a large landfill operator. Before he began his discussion of the environmental impacts of operating a landfill, he noted that his billion dollar company did not really create any trash, it simply collected and received trash from all of us! He was begging the question, “Am I solely responsible for your bad decisions?”

And that’s really the issue with ESG, is it not? Who, for example, is responsible for creating pollution? The energy companies for producing oil and natural gas from underground reserves, or the members of the public who drive cars, buy plastic goods, and flip on the lights? The government for letting those things happen? The answer is sadly both none of us and all of us.

Regulators, mount up

Regulating and investing are often in conflict, but they share one common characteristic: few people have ever done either well. That doesn’t mean we quit trying. There are those among us who can find the signal in the noise, who can stare at a pile of numbers and find the rule that answers the question, or at least correlates well to the desired outcome.

People change expensive behaviors

Charlie Munger famously said, “Show me the incentive, and I’ll show you the outcome.” If I had a magic wand, I would want the power to create global markets for the right to release harmful pollutants / emissions or deposit certain types of waste in landfills. It has worked before, and it will likely be what leads us where we need to go. Until we create marketplaces limiting the release of pollutants and disposal of waste, society will continue to fall prey to complex regulatory solutions that are easy for incumbent industries to strike down. Instead, putting a price on these activities will allow the incumbents to innovate and new companies to compete.

When it comes to ESG, I think we fear two outcomes equally: a world that feels a little out of control and a class of people, or institutions of government, who appear all too confident they have the answers. Maybe we can turn the heat down in the ESG debate by prioritizing what we measure and report and creating marketplaces that incentivize people to solve the most pressing problems.

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Chris Wood is the co-founder of Houston-based Moonshot Compost.

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A View From HETI

20-plus companies will pitch at Energy Tech Nexus' Pilotathon during Houston Energy & Climate Startup Week. Photo via Getty Images.

Energy Tech Nexus will host its Pilotathon and Showcase as part of Houston Energy & Climate Startup Week next Tuesday, Sept. 16, featuring insightful talks from industry leaders and pitches from an international group of companies in the clean energy space.

This year's event will center around the theme "Energy Access and Resilience." Attendees will hear pitches from nine Pilotathon pitch companies, as well as the 14 companies that were named to Energy Tech Nexus' COPILOT accelerator earlier this year.

COPILOT partners with Browning the Green Space, a nonprofit that promotes diversity, equity and inclusion (DEI) in the clean energy and climatetech sectors. The Wells Fargo Innovation Incubator (IN²) at the National Renewable Energy Laboratory backs the COPILOT accelerator, where companies are tasked with developing pilot projects for their innovations.

The nine Pilotathon pitch companies include:

  • Ontario-based AlumaPower, which has developed a breakthrough technology that converts the aluminum-air battery into a "galvanic generator," a long-duration energy source that runs on aluminum as a fuel
  • Calgary-based BioOilSolv, a chemical manufacturing company that has developed cutting-edge biomass-derived solvents
  • Atlanta-based Cultiv8 Fuels, which creates high-quality renewable fuel products derived from hemp
  • Newfoundland-based eDNAtec Inc., a leader in environmental genomics that analyzes biodiversity and ecological health
  • Oregon-based Espiku Inc., which designs and develops water treatment and mineral extraction technologies that rely on low-pressure evaporative cycles
  • New York-based Fast Metals Inc., which has developed a chemical process to extract valuable metals from complex toxic mine tailings that is capable of producing iron, aluminum, scandium, titanium and other rare earth elements using industrial waste and waste CO2 as inputs
  • New Jersey-based Metal Light Inc., which is building a circular, solid metal fuel that will serve as a replacement for diesel fuel
  • Glasgow-based Novosound, which designs and manufactures innovative ultrasound sensors using a thin-film technique to address the limitations of traditional ultrasound with applications in industrial, medical and wearable markets
  • Calgary-based Serenity Power, which has developed a cutting-edge solid oxide fuel cell (SOFC) technology

The COPILOT accelerator companies include:

  • Accelerate Wind
  • Aquora Biosystems Inc.
  • EarthEn
  • Electromaim
  • EnKoat
  • GeoFuels
  • Harber Coatings Inc.
  • Janta Power
  • NanoSieve
  • PolyQor Inc.
  • Popper Power
  • Siva Powers America
  • ThermoShade
  • V-Glass Inc.

Read more about them here.

The Pilotathon will also include a keynote from Taylor Chapman, investment manager at New Climate Ventures; Deanna Zhang, CEO at V1 Climate Solutions; and Jolene Gurevich, director of fellowship experience at Breakthrough Energy. The Texas Climate Tech Collective will present its latest study on the Houston climate tech and innovation ecosystem.

CEOs Moji Karimi of Cemvita, Laureen Meroueh of Hertha Metals and others will also participate in a panel on successful pilots. Investors from NetZero Ventures, Halliburton Labs, Chevron, Saudi Aramco, Prithvi VC and other organizations will also be on-site. Find registration information here.

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