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.

———

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

Although sustainability has invariably moved to the top of the corporate agenda across various sectors, businesses still face challenges in effectively implementing these transformative changes. Photo via Getty Images

Greening the bottom line: Houston expert on the ups and downs of sustainability transformation, reporting

guest column

Amid remarkable fund allocation towards tackling environmental, social, and corporate governance issues, investors deeply concerned about climate change exert substantial leverage on firms and regulators to make reforms.

Furthermore, the Securities and Exchange Commission has proposed new rules requiring all publicly listed corporations to disclose climate change risks in their regular filings with clear reporting obligations, such as information on direct greenhouse gas emissions (Scope 1), indirect emissions from purchased electricity or other forms of energy (Scope 2), as well as GHG emissions from upstream and downstream activities in the value chain (Scope 3).

Although sustainability has invariably moved to the top of the corporate agenda across various sectors, businesses still face challenges in effectively implementing these transformative changes. Many companies are still dealing with questions like:

  • What problems and possibilities should they prioritize?
  • Where should they devote time, effort, and money to have the most long term effect via business processes?
  • What principles, policies, and internal standards should be implemented to initiate the process and get good ESG ratings?
  • When do corporate sustainability challenges necessitate collaborations with other businesses to meet commitments and achieve goals?
  • What organizational behavior and change management measures should be incorporated to induce sustainability into the corporate culture?

One-fifth of businesses still need a sustainability plan in place, and fewer than 30 percent feel the effect of that strategy is evident to all employees.

Introducing climate-related practices across businesses and corporations takes time and effort. Since sustainability transformation initiatives span multiple business functions and units, whether they are helping or hurting the bottom line is often a fuzzy picture. It is not easy to quantify near-term profitable impacts directly emanating from sustainable strategies, disincentivizing many businesses from setting ambitious carbon reduction targets.

Businesses often struggle with what they intend to assess and what "good enough" performance looks like for the firm. Furthermore, sustainability performance reporting is infested with the inherent stakes of the legitimacy of data collection, defining the metrics and materiality, accountability to the stakeholders, the dynamism of the business environment, the complexity of reporting standards, and the risk of obsolescence of the tool.

For context, there are approximately 600 sustainability reporting standards, industry efforts, frameworks, and recommendations worldwide. Additionally, the one-directional data collection method used by the carbon market trading systems for scoring analyses often leads to intentional or unintentional greenwashing.

So then, what is the path forward?

An effective strategy would involve adopting a synergistic approach, just like the yin and the yang elements that embody balance and harmony on two distinct yet interconnected levels. The yin aspect, prevailing at the government level, would require a robust standardization of reporting frameworks via policymaking and regulations that can effectively implement suitable transformation engines for businesses. It will entail developing adaptable market mechanisms to successfully guide businesses and consumers to identify, plan, navigate, strategize, and execute greenhouse gas reduction initiatives. It will require answers to foundational questions like:

  • What tools and resources can help businesses improve their financial performance by reducing energy waste and energy costs?
  • How do manufacturers engage their suppliers in low-cost technical reviews to improve process lines, use materials more efficiently, and reduce waste?
  • How can waste management and recycling help a business by saving money, energy, and natural resources?

There is a dire need to standardize and consolidate the industry benchmarks and reporting frameworks against which businesses can assess their performance for climate action and potentially improve their bottom line by investing in appropriate carbon mitigation activities. This will create a fundamental shift in the mindset of corporates and raise the level of conversation from "Should we implement sustainable business frameworks?" to "How we could best implement sustainable frameworks for better ROI and an impactful bottom line?"

On the other hand, the yang element operates at the business or corporation level. Successful execution of sustainability strategies entails interweaving the sustainability thread into the business core across strategies and processes, operations and personnel, and products and services.

What is the business case for sustainability efforts? From operational cost savings to expansion in new markets, from enhanced brand equity to investor interest and share expansion, companies that incorporate robust and scalable sustainable practices have opportunities to unlock new sources of value capture and new markets that can deliver immediate financial rewards. Such measures will demonstrate the overall sustainability transformation's power and potentially provide money or cost savings to fund other components.

One way to do it is by introducing circular business models to reshape the whole product usage cycle: re-engineering product designs with more sustainable materials, redesigning the manufacturing lifecycle, recycling products, packaging, and waste, and reducing emissions in transportation, water, and energy consumption activities. By leveraging technology and AI in the extended system of interactions within and outside the business, companies can monitor, predict, and reduce the carbon emissions in their supply chains and yield immediate financial results.

Designing, implementing, and managing the foundational governance of sustainable business practices, strategies, structure, and tactics will require robust governance of sustainability efforts in all key business areas, including marketing, sales, product development, and finance. Additionally, organizational values, leadership initiative from the CEO and board level to the employees, and stakeholder interest are necessary to drive value for business policy. Involving employees in decision-making will help induce better commitment and accountability to implementing economic, social, environmental, and technologically sustainable interventions and initiatives.

Finally, businesses need to understand that they could truly develop long-term business success and shareholder value when they stop viewing sustainability from a compliance or ESG reporting lens. Long-term business success cannot be achieved solely by maximizing short-term profits but through market-oriented yet responsible behavior that automatically drives enhanced business bottom lines. This demands a collaborative partnership between policymakers, the private sector, nonprofit organizations, academia, and civic society to usher in economic growth, competitiveness, and consumer interest. This partnership is essential for environmental protection and social responsibility to ensure a sustainable future.

———

Ruchi Gupta is a certified mentor and vice chair at SCORE Houston.

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6 Houston energy transition events to attend in June 2025

Mark Your Calendar

Editor's note: June has arrived, and with it more must-attend events in the energy transition sector. Mark your calendar today for these conferences, symposiums, summits, expos, and more.

June 4 - Energy Capital Conference

Join 300-plus corporate leaders, financial executives, and institutional investors across the energy sector. Capital partners and energy experts will share market and sector trends, insights, and look ahead to what to expect over the next decade. This conference is now in its third decade.

This event takes place June 4 at the Post Oak Hotel. Click here to register.

June 4-5 — 2025 AWS Energy Symposium

The fourth annual AWS Energy Symposium is the premier AWS event for the energy industry. Hear from leading energy and utility customers, partners, and startups about how they're using AWS to scale innovation and transform their organizations. The event is invitation only and is geared toward senior leaders and director-level executives from across the energy value chain. Click here to submit a registration request.

June 11-12 — Energy Projects Conference & Expo

The Energy Projects Conference & Expo (EPC Show) is the largest event in North America for professionals working at the heart of major energy projects. The show will bring together five leading conferences under one roof for the first time, uniting 3,000-plus engineering, construction, commissioning, supply chain, operations, and maintenance professionals. Conference subjects span LNG exporting, hydrogen and ammonia, midstream, petrochem and refining, and sustainable aviation fuels.

This event begins June 11 at the George R Brown Convention Center. Click here to register.

June 12 - Transition on Tap

Head to Greentown Labs for this casual networking event, where some of the incubator's newest members will be introduced. Hear lightning pitches from these startups that are working on climate solutions across industries. Following the pitches, guests will network with fellow entrepreneurs, investors, leaders, and other climate champions.

This event takes place June 12 at Greentown Labs. Click here to register.

June 16-18 - Energy Drone & Robotics Summit

This three-day summit, the largest of its kind, will connect 1,500-plus leaders in the global energy/industrial robotics, drone and data sectors. Attendees will glean the latest ideas, use cases, best practices, tech, and trends from a wide variety of robotics and drone industry experts.

This event begins June 16 at Woodlands Waterway Marriott. Click here to register.

June 25-26 — Carbon Capture Technology Expo

Tackling climate change is one of the biggest global challenges that requires immediate action, and many industrial sectors are now looking to new technology to help meet net-zero emission targets. The Carbon Capture Technology Expo is North America's leading event for carbon capture, utilization, and storage. The expo offers opportunities to network with industry frontrunners and best-in-class solution providers.

This event begins June 25 at NRG Center. Click here to register. It is co-located with the Hydrogen Technology Conference & Expo North America. Expo passes are free.


Greentown Labs combines forces with MassChallenge to support more climate startups

strategic partnership

Climatetech incubator Greentown Labs has formed a strategic partnership with global zero-equity accelerator MassChallenge.

The two organizations have headquarters in the Boston area, while Greentown Labs is also co-located in Houston. MassChallenge has a hub in Dallas, as well as others in Israel, Switzerland and the United Kingdom.

The new partnership aims to strengthen the ecosystem for early-stage climatetech startups by providing more mentorship, support and a broader commercialization network for members, according to a news release.

Greentown Labs will share its expertise with the 23 startups in MassChallenge's first climate-specific accelerator, known as the MassChallenge Early Stage Climate program. Additionally, Greentown Labs members will benefit from MassChallenge's network of expert mentors, judges, entrepreneurs, partners, investors, philanthropists and others.

“There are so many synergies and shared values between MassChallenge and Greentown that launching a collaboration like this feels like a natural next step for our organizations as we strive to support as many early-stage climate founders as possible,” Georgina Campbell Flatter, Greentown Labs CEO, said in the news release. “We want to reduce the friction and barriers to market for these climate entrepreneurs and ultimately increase their opportunity for success—ecosystem collaboration is an essential part of solving these challenges together.”

Combined, Greentown and MassChallenge report that they have supported more than 4,500 founders and more than 1,000 climate startups. MassChallenge has awarded more than $18 million in equity-free grants to startups, which have gone on to raise over $15 billion, since it was founded in 2009. Greentown Labs has helped more than 575 startups raise more than $8.2 billion in funding since it launched in 2011.

Greentown recently added five startups to its Houston community and 14 other climatetech ventures to its Boston incubator. It also announced its third ACCEL cohort, which works to advance BIPOC-led startups in the climatetech space, earlier this year. Read more here.