It is remarkable how rapidly Environmental, Social and Governance (ESG) has transformed in just the past few years from:
Optional to mandatory
Risk mitigation tool to key value creation tool
Little to no importance to consumers and investors to a key sensitivity
The ESG Transition Company (ESG Co) is acutely aware of this fundamental shift in investor and customer sentiment, as well as local and federal policy, effectively demanding businesses address ESG factors proactively.
In concert with our portfolio companies, ESG Co is the first-of-its-kind turnkey provider of ESG solutions to small and mid-size businesses nationwide.
We have decided to focus on the “Environmental” portion of ESG for this content piece, however our core competencies extend into all areas of ESG. We will publish additional thought pieces in the future.
Backdrop
Clean, responsibly sourced energy is no longer optional for businesses — large or small. Social, political, and investor pressures have accelerated the transition to a sustainable economy, inextricably linking economics with ESG’s concerns, the precursors to sustainability. Investors and consumers alike favor corporates that proactively address ESG trigger points. The “Environmental” portion of ESG is easiest to define and report upon as the metrics already exist and can be easily tracked. One example is a company’s Carbon footprint. Today power utilities are legally required to report their greenhouse gas emissions, but many corporations are already self-reporting these same metrics to position themselves as leaders of sustainability.
The proliferation of utility scale renewable energy and local ordinances such as Local Law 97 in New York City has given rise to smaller, hyperlocal, and modularized forms of distributed energy resources (DERs), otherwise known as behind-the-meter (BTM) products and services. These are tangible solutions to managing and reducing one’s power consumption, carbon intensity, and environmental impact. Examples of DERs include rooftop solar, electric vehicle charging stations, and LED lighting. Implementation of these of products and services in concert with one another can neutralize a business’s on-site carbon footprint overnight.
Major corporations across industries, motivated by consumer interest, government environmental policies, and shareholder pressure, have been integrating ESG policies into modern business practices. For instance, Microsoft achieved carbon neutrality in 2012 and will be carbon negative and waste free by 2030. BlackRock, one of the largest institutional investors in the world, accomplished ESG-integration across 100% of their active and advisory platforms. Larry Fink, Chairman and CEO of BlackRock, went so far as to put CEOs on notice, “asking companies to disclose a plan for how their business model will be compatible with a net zero economy.” Corporations are also unifying in an effort to keep pace in an increasingly sustainable global economy. For example, Nike and Starbucks are part of the Renewable Energy Buyers Alliance which advocates for more corporate clean energy access around the world. Another example is the Amazon Climate pledge which calls for companies to achieve net zero carbon by 2040 with members including Best Buy, Mercedes Benz, and Verizon.
These economies of scale set an explicit precedent that can only be met by requiring their vendors to follow suit — thereby instituting a pressing demand for supply chain sustainability. For a company to become truly sustainable its products must be made from companies that are carbon neutral and use renewable, recycled, and/or highly efficiency materials.
Opportunity
Large companies including Microsoft, Google, Unilever, Starbucks, and Apple have embraced this transformation both publicly and privately. These industry leaders typically contract with high-profile consulting groups (Eg. BCG, McKinsey) to develop sustainability roadmaps and then partner with large energy service companies (Eg. Schneider Electric, Cypress Creek) to execute on capital intensive sustainability projects.
In contrast, the small to middle market is more regional in nature, resource constrained, and best suited to work with smaller, regional providers of ESG solutions. However, the landscape of regional providers is highly fragmented with each provider typically addressing only one or two components of the ESG equation. Most local solar developers will not also have domain expertise in the areas of battery storage or electric vehicle charging stations, let alone a suite of ESG products and services.
The middle market is therefore resigned to contracting with an array of companies that each offer an individual ESG solution. This makes the pathway to sustainability and ESG compliance for small to mid-size businesses vague, confusing, and overwhelming. This scattered network of credible providers is a primary reason that many middle market companies with ESG headwinds and/or sustainability mandates have not implemented ESG policies.
Despite enormous economic potential for this segment, it has been underserved primarily for the following reasons:
Hyperlocal nature of behind-the-meter product and service providers
Dearth of credible single source providers of end-to-end hybrid like solutions
Policy and regulation continue to evolve and vary significantly based on location and industry
ESG and sustainability as value creation tool is new concept
Edge
The ESG Transition Company is a first-of-its-kind turnkey provider of ESG solutions to underserved small and mid-size companies nationwide. It is through our network of portfolio companies, we are a trusted advisor, one-stop shop for all things ESG, and agent for change.
Our clients are forward-thinking businesses striving to achieve zero carbon emissions, ethical best practices, and social diversity goals. We operate in a smart friend capacity to educate, identify, and create a plan of action with clients. In concert with our portfolio companies we deliver bankable solutions, which can include a series of capital projects, such as solar and battery storage, and/or by addressing the softer aspects ESG such as B-Corp certification and Fair Labor Practices. Bottom-line, we help companies become sustainable by transforming their operations and through the implementation of best-in-class ESG practices.
