The word 'ESG' is vanishing from earnings calls. Here's what companies are pitching instead

0
324

Companies may be changing how they present their social responsibility initiatives to the public. Sara Mahaffy, an analyst at RBC Capital Markets, says that the term “ESG”, which is the acronym for environmental social and corporate governance, has been used less on earnings calls around the world. Mahaffy’s study found that this isn’t necessarily due to companies abandoning socially-conscious strategies. She pointed to a rising use of “sustainability” and other words such as “climate” or ‘decarbonization’ that fall under ESG. This comes as ESG is becoming more controversial in the political arena. Mahaffry pointed out that in areas such as the U.S., where ESG is the subject of most scrutiny, the use of this term has dropped the most on earnings calls. She said that these companies also try to link socially conscious themes and the broader business models in a manner in which investors can see value. Several companies, spanning a wide range of market capitalizations and industries, have attempted to sell this work in two ways. Yes, they claim, it is good to promote causes related to ESG. It’s good for the business, and it helps share prices. Williams CEO Alan Armstrong said, “To us sustainability means running our businesses in a manner that creates value for the eternal shareholder” on the company’s earnings conference call earlier this month. The company completed its climate questionnaire and released its sustainability report for 2022 a week before its earnings call. LyondellBasell Industries, a chemical producer, said that a $50,000 investment in systems to improve yields and reduce energy consumption would result in a value of $1.4 million per year. According to CEO Peter Vanacker, the project will reduce carbon emissions by over 9 kilotons. Carrier Global CEO David Gitlin stated on the company earnings call that the decision to “lean in” to sustainability and healthy building trend can be attributed to the sustained growth and continued robust backlog. Lowe’s CEO Marvin Ellison stated on the retailer’s call this week that sustainability and productivity “go hand in hand.” Constellation Energy’s CEO Joseph Dominguez explained that its unmatched network of clean energy production facilities is a major factor in the company’s marketing pitch. Dominguez said earlier this month that the uniqueness of Constellation Energy’s network allows it to provide customers with the visibility and certainty they want regarding energy costs and sustainable solutions. This, in turn, leads to a margin expansion and a better value to you. Some executives have also mentioned the possibility of more business-to-business deals if their products are sustainable. Engineering company Jacobs Solutions ‘ CEO Robert Venkat Pragada said it has a portfolio driven by sustainability-focused themes such as water scarcity, reshoring and energy transition. Ansys, meanwhile is supplying engineering simulation software to help aircraft engine manufacturer Pratt & Whitney move from 50% use of sustainable fuel blends to almost 100%. Microsoft’s “Cloud for Sustainability”, which was mentioned during its earnings call last week, is a prime example of how the trend has reached the top of the market cap. Microsoft’s Sustainable Offering uses its vast ecosystem of software to help companies make positive changes in their IT, operations, and value chains. Satya Nadella, CEO of Microsoft, said that it has been used by companies such as Land O’Lakes REI. David Sewell is the CEO of WestRock, a packaging company. He said that Costco approached his company to replace the plastic handles on multipack drinks with fiber-based options, which are more environmentally friendly. The partnership also included helping automate production and packaging lines. Sewell said on WestRock’s earnings call, earlier this month: “This is only one of many examples of how WestRock’s unique capabilities positions us for growth.” CNBC’s Michael Bloom contributed this report