Sustainable Investing: A New Paradigm (Scene 1)

Abstract

Eli is in his home office and is late logging on to a Zoom call. As Eli arrives, Sydney and Gil are already talking. The three have worked at the water utility for the past 20 years and each is in their late 40s. Since March 2020, social Zoom calls have been part of their weekly routine—usually held late on a Friday afternoon, often with adult beverages. When Eli joins, Gil is talking about helping his children with their remote schoolwork, and his cat has just photobombed the call. Eli: (under his breath) I hate that cat. Gil: Eli, you're not muted—I heard that. Eli: Whoops, sorry—it's just because I'm allergic to cats—you know that, buddy. Sydney: (a bit impatiently) All right, you two, I have something I want to talk about that I think is important to our utility work. Gil: (shaking his head) No! Our agreement is that we won't discuss work during our Friday Afternoon Club calls. Sydney: (calmly) I know, but this is about sustainability, something we all care about. Gil: Okay (sighs)—what is it? Sydney: Remember when we were just starting out and our 401(k) offered socially responsible mutual funds? Eli: Yes. They helped us (makes air-quotes) “avoid bad things” like tobacco and environmentally unfriendly companies. Gil: (nodding) And they always had lower returns. Sydney: That's right. Now there's a new strategy called sustainable investing. It's not about (mimics Eli and makes air-quotes) “avoiding bad things” but instead investing in companies that do good, sustainable things—the kind of things that (emphasis) also produce good returns. There is also a scoring rubric or framework to help evaluate the sustainability of these companies. Gil: (leaning back and patting his cat) Okay, what's this rubric? Sydney: It's ESG, which stands for Environmental, Social, and Governance. Companies are evaluated on each of these elements so investors can better understand a company's approach to each. Eli: (dismissively) ESG sounds like a triple-bottom-line analysis to me. TBL looks at environmental, social, and financial impacts of projects. Sydney: Sure—sounds similar, but not the same. TBL is a way to unbundle a benefit–cost analysis into those three elements. While it is helpful for evaluating a (emphasis) project's environmental, social, and financial balance, ESG is broader than a project. (Sydney looks straight into her camera) It's about the investment risk, or lack of risk, of a company—or in our case, our utility—not just a (emphasis) single project. Gil: If it focuses on organizational investment risk, then is it like Effective Utility Management? We use that concept all the time. Sydney: I think EUM practices could improve an ESG score because EUM focuses on managing effectively. There's a connection between the two, but they aren't the same. Eli: (now buying into the idea) It sounds like there has been a historical progression of sorts, as we all try to wrap our minds and arms around the issues of working in the environment, to better society, and to keep everything financially sound forever—you know—(emphasis) sustainable. ESG must be the next step. Sydney: That sounds right—all the past steps have contributed to where we are now. While TBL and EUM are still important, what intrigues me is that ESG represents a great opportunity to strengthen thinking around the linkages of water with the sustainability of the environment, society, and our utility governance. I think, if we do it right, our utility will be viewed as a better investment for lenders. That makes all the projects that we must do more possible. Gil: (with some urgency) Okay, I've got to go make the kids’ dinner—what's next? Sydney: Well, let's get smart on ESG—what do you say? Eli: (with his typical need to organize things) That sounds good. Next Friday, I can talk about the environmental part of the ESG. Sydney, you take the social, and Gil, you take the governance. Gil: (quickly) Got it! See ya! Scene 1 fades to black as Gil, Eli, and Sydney sign off. To be continued in next month's Last Drop.