Jeff Lenard:
Welcome to Convenience Matters. My name is Jeff Lenard with NACS. And today we’re going to talk about ESG now ESG, first off, let’s explain what it is. Those three initials that are increasingly discussed in the business world, stand for environmental, social, and governance, and to join us today and have a conversation about what it means for the convenience industry, for the fuels retailing industry, we have two people. First off, we have Jeff Hove who is Vice President of the Fuels Institute and Ryan Scott, Vice President of HPW Resources. Welcome gentlemen.

Ryan Scott:
Good afternoon, Jeff. Thanks for having us.

Jeff Hove:
Thanks for having us, Jeff.

Jeff Lenard:
Let’s start out, Ryan, with you in terms of the big picture. Give us a rundown. Now. I think a lot of people are familiar with ESG, but just take us through what it is and why it matters to businesses now.

Ryan Scott:
So ESG has been around for a while. I,t’s gained a lot of steam in the past, I’d say five years or so. Historically if you go back a few years, you could look at things like corporate sustainability reporting that was kind of a precursor to ESG. other other terms associated with what is now largely fitting in the ESG bucket is social license to operate. So I think what it started off as was an effort to show communities, show governments and just show shareholders that these companies are essentially good actors. So to say, look, we invest in these schools, we care about your community, we hire locally. If you operate internationally, we use local content. We don’t…all the way down to, we don’t use slave labor or child labor. It covers a lot of ground.

Ryan Scott:
And I think what ESG has become is an attempt to quantify some of these reporting mechanisms {that} a lot of folks have viewed as being kind of fluffy or even worse, easy to manipulate. So as ESG has evolved, it’s gone from a buzzword and frankly the reaction to ESG can be pretty polarizing. You know, I work with people within the same company on the energy side and at the same company, you’ll have somebody who says this is fantastic and it’s an opportunity for us, we’re going to prove and show all of the good that we’re doing while also maximizing shareholder value. And on the other side, people say, this is a plot of the government of some other countries to make us uncompetitive. So it can be polarizing, but at the end of the day, I do view it as an opportunity for companies to use the ESG framework and metrics to really look at in particularly in the E space, the environmental space, look at those metrics that yes, do impact the environment, but also most importantly impact your key operating metrics.

Ryan Scott:
So are there places where an environmental metric can impact how successfully you conduct your business, how your core operations can improve. So I use this example. I live in Texas and shale, hydraulic fracturing has been a big deal. Horizontal hydraulic fracturing has been a big deal and water is a huge input to hydraulic fracturing as the name implies. And water also tends to be scared simply people where people and companies conduct fracking operations. So how do those two things converge? How does that ESG term convert to business operations? And it’s fairly simple. Where there is a scarce product in this case, water, maintaining that supply of water is both good for how you interact with your community and the environment, but it’s also absolutely integral to being able to conduct your core business. So I think there are a lot of places where your E and your S and your G should, and really ought, to relate to how well you can operate, how efficiently you can operate when it comes to your core operations, that really indicate what the success of the company is.

Jeff Lenard:
And then I think, Ryan, with ESG and how you framed it up you almost described everyday conversations where nobody can agree on everything and the moment you say something, there’s somebody ready to challenge you. Now what strikes me that’s a little different about ESG in looking at where it’s common, and you’ll hear things that’ll say, ‘well, it’s been around for 50 years’ and it’s really how consumers originally said, ‘well, I either believe in this company, or I don’t believe in this company, I will reward them with my money.’ And then that’s kind of gotten combined with sustainability where sustainability is the business saying, this is what I believe in. So is it fair to say ESG is almost the co-mingling of the two. It is the consumer side saying, ‘this is what I believe in.’ And it’s the retailer saying, ‘this is what I believe in.’ And it’s agreeing on some things that even though nobody agrees on anything, you can kind of agree upon and say, ‘this is how I get measured and this is where I’m comfortable being.’

Ryan Scott:
I’d say probably. I wouldn’t disagree with that. And that makes sense to me. But I think the ultimate driver of these practices really comes down to dollars. So yes, consumers want this. Yes, some of the retailers say, ‘hey, this is good for my customers.’ And that’s great. But what takes it from a nice idea or a feel-good story to the board of directors saying ‘this must happen,’ is companies have begun to get squeezed a little bit. And what I mean is if you have a company that requires any access to capital, whether it’s through a hedge fund, equity markets, bank financing, whatever it might be, as soon as those entities start to demand that you follow some sort of ESG discipline and report on your E, S, and G metrics.

Ryan Scott:
And the example here, go back to the beginning of 2020 and that’s when Jeff and I, Jeff Hove and I, really started talking about this was you had BlackRock, which is a huge market-mover in the New York financial markets. Their leader said, look, everybody – they’re a market mover – look, if you guys don’t start – and by you guys, he means publicly traded companies – if you do not start reporting on ESG and taking it seriously, and this is primarily driven by climate change discussions, but if you don’t take this seriously, there will be penalties for you and you have a year to get started. And that’s when…and I’ve been talking about ESG for a very long time – I’d say I’ve been seriously talking about it for four or five years at this point – so it was early last year when people started coming back to me that I had been trying to speak to for a long time.

Ryan Scott:
They said, “hey, didn’t you mention these three letters to me back in 2014? And I heard somebody from BlackRock talk about it. And now, I’d like to know more.” So the way that manifests itself is companies either will not get access to funding. So let’s say some sort of a ratings agency will look at two very similarly situated companies. They’ll try to look at their key operating metrics. And they’ll say, “look Company A does really well in the S and G, Ccompany B doesn’t do as well. We recommend you invest in company A.” That’s a share price driver, a bank may come along and say if you, comply with this ESG program that we recommend or require, you will get access to superior terms on financing. So instead of paying a 5% interest, you pay 3% interest and you can lose it if you don’t continue to comply.

Ryan Scott:
So the examples go on and on. And so if some companies are just outright banned. And the institutional investor like the Harvard endowment will say, “hey, you know what? We’re just not investing in any of these companies unless, and until, these things happen.” So that has been the big driver. So the feel-good stuff is the feel-good stuff. And I like it. I like it a lot. And I think I’m glad that I think a lot of people would argue that this is how markets can actually change behavior in a positive way.

Jeff Lenard:
Now it trickles down, then it plays out, I should say, in the fuels market, Jeff Hove, and just 10,000 gallons of wholesale gas right now is $30,000. So now you’re probably looking at some loans along the way. We know what an average convenience store with fuel does in a year. We know how much it costs to build one, and we’re talking millions of dollars. So you’re not going to dig onto the mattress for this. So when ESG really first started, I first noticed it, it tended to be around publicly traded companies. Should we invest in this company? Should we not? But our industry, the convenience and retail fuels industry, very few are publicly traded., how does this play out that you’re seeing, Jeff, at the retail level and with fuels?

Jeff Hove:
Yeah. I mean, it really is, to to Ryan’s point, this started with the big financial institutions. So in other words, impacting publicly traded organizations. And right now I think I saw $51 billion recently is in the sustainability investments portfolio. So the number’s huge, it’s significant, and its growing. And so, it is this cascading effect and so it’s impacting privately held companies in a couple of different ways. One, those privately held companies are doing business with banks, they’re looking for capital for all those things you just mentioned, Jeff. They are also finding themselves in positions of mergers and acquisitions, whereas historically, as somebody is approaching a merger or acquisition, the idea is to put all the risks out on the table, determine what the buyer is actually buying here.

Jeff Hove:
And so that could be environmental site assessments for what’s the risk in the ground for potential contamination, it could be financial risks on the books, and now we’re hearing of buyers asking for ESG reports, what is the environmental, social, and governance risks. And, so it’s impacting everybody, especially if you’re in the supply chain and you are doing business with a publicly traded organization, they are going to want you, a privately held company, to have an ESG report so then they can take those metrics and that data and they can include it in their ESG report. So it’s a bit of a chain reaction with how ESG is rolling out between public and private. That’s what I’m seeing today. Every day there seems to bring a new nuance to this and we’re not doing big pivots or big turns.

Jeff Hove:
I mean, the direction is pretty clear. The direction from the SEC is getting clearer as a global view on sustainability. And it really is being driven by emissions. All those things under social and governance are equally important from a risk standpoint and a lot of times we’re asking for information that a company doesn’t really want to talk about too much. We’re talking about how, for example, how does your company manage scenarios where there’s a sexual harassment lawsuit? Nobody wants to talk about that, but investors and the public want to know. Do you have in-house protocols to meeting those types of requirements? Because if you don’t and you can’t say that in your ESG plan under social or governance, well, then you have a higher risk of being sued. So it comes down, as Ryan said, money. So there’s all sorts of different risks.

Jeff Lenard:
And you mentioned, Jeff, the mergers and acquisitions, and of course, that’s been really heating up the last few years. How small an organization does this affect? Does it affect anybody that needs a loan? Because there’s so many things we have to worry about right now – we have to worry about shortages of people, of products, of merchandise racks, of fuel – but it sounds like if there’s a shortage of money and investment, that might be the worst shortage of them all. Who, right now, should be saying, I need to do something.

Jeff Hove:
So I don’t believe it’s getting down to the fuel purchasing level. That would be something I have not heard of but, definitely when you’re looking at a new store build-out, ground up build, talking millions of dollars, then you’re probably likely going to run into this with your lender. And we are in the process of speaking with those lenders right now to determine what are you looking for? Some of them don’t know what they’re looking for yet and turning around and asking us, “what can you provide us?” So we’re trying to build something that is very user-friendly and something that gives the fuel retailer, wholesaler fleet operator, or owner the tools to have these discussions and have the information on hand when they do find themselves in that.

Jeff Hove:
But if I were to classify, I would say any organization that’s looking at liquidating their assets, that’s looking at getting out of the business, then you should – and I don’t care what size you are – you better be looking at this as a tool to help the valuation of your property, to help the process of the sale along, and it’s not all negative either. You know, there are ways to really build in the positive messages of all of the things that this industry does, so I don’t want people to think that this is just somebody out trying to get a pound of flesh from them. These guys do a lot of good things for the community. Some of them have armies of store clerks that have been trained on recognizing human trafficking and criminal activities. That’s a message that we got to get out there. It’s a great message, so this is an opportunity for that as well. So I would think any size company should at least take a look at this. Look at where they’re at, as far as a business, and, if they’re being approached with an acquisition or a merger that that would definitely be a good time to take a deeper dive into ESG.

Jeff Lenard:
So Ryan, just quickly just asking a question about the score. Is it like a credit score where there’s a range and over a certain point, is this better and ,best and worst? Or is it like swipe left, swipe right where it’s either one or the other and is it disturbing I talk in that way?

Ryan Scott:
So that’s a tougher question to answer. So look, there are scores that are comparable. So there’s one company that may get a better score than another. However, they aren’t apples to apples because one of the big challenges – and one of the reasons I think people are correctly skeptical about some of the things associated with ESG – is there are all kinds of different ratings agencies out there and they’re all trying to be the standard. So one of the challenges – Jeff and I have been working on this for a while – we’re actually trying to figure out a way for companies to actually represent how they’re performing in metrics that work across multiple frameworks that are easily communicated and understood. So we’re talking about the standard measures for emissions of carbon or methane or things of that nature rather than saying, ‘hey, here’s the score that gets spit out at the end of your black box.’

Ryan Scott:
And I think it actually gets to the point of why I believe that being proactive in ESG is really important. And it’s the old mantra, if you don’t tell your story, someone else will tell your story for you. And so, if going back to your previous question Jeff, if somebody might be divesting, or might be acquired, or if you’re entering into any type of big financial transaction or milestone, I think there’s a decent chance the issue may come up at which point, you’re going to be asked a lot of these questions. So, I’d like to think that if you’re able to be aware of what the possibilities are, what types of questions you might be asked to be better prepared, to get the best value for your company, or to get a better deal on a company you’re trying to acquire precisely because you know what types of questions to ask and how to prepared for those conversations.

Jeff Lenard:
And Ryan, I like what Jeff had said earlier. It’s a lot of this is talking about things that you already do well. We know that convenience stores give about a billion dollars a year to charity. We know they’re involved in a lot of social issues. There’s a lot of giving back and being a part of community. So you know, at its heart, some people may see ESG as a threat. Some people may look at it after this conversation say it’s as much an opportunity as there is anything. And I suppose Ryan, they’re both right?

Ryan Scott:
Yeah. I mean, I think they are both right. I think it’s more of a threat if you try to ignore it and not take a look at it. And I think a lot of problems are not nearly as bad as they seem once you turn the lights on and you see them for what they really are. So, yeah, if a company does not want to address it and suddenly they’re forced to address it, yeah, I think it’s a threat then. If they’re able to be proactive about it and take a look at it and just be really intentional about how they approach ESG, I think it could be a massive opportunity.

Jeff Lenard:
And I first heard the term, but having a couple teenage daughters, one of them wanted to take a little extra money and invest in stocks and went to Vanguard and we looked at things that she’s like, “Ooh, I wouldn’t look at ESG!” And then they had all the things that are excluded from the ESG funds and it was tobacco, it was petroleum, it was gambling, and she’s like, “oh, I don’t want that.” And I said, that’s a convenience store, you know, that’s tobacco and beer and lottery tickets and whatever else. I said well, you also never should go to Las Vegas. But you know, a lot of this is being driven by younger consumers that are just talking about this is what they believe in and certainly they’re not…Jeff, when you had mentioned “they” earlier they’re not the ones that are defining their criteria and there’s different groups involved, but can you describe what you and Ryan are doing together to really make it easier for our industry to make their voice hear, because as, as was said earlier, if we don’t make our voice heard somebody else will, and we may not like how they define it.

Jeff Hove:
Yeah. And I think that’s a great point, Jeff. I mean, if you’re not involved, you basically forfeit your seat at the table for these discussions moving forward and that’s especially true on anything that’s climate-driven in this Administration today. I think that’s been made very clear from a number of different angles. If you’re not involved and you don’t have skin in the game in some form or fashion, then you just simply won’t be at the table. So that’s, that’s a big driving factor into what Ryan and I have been working on and the other couple things that went into this – when our Board of Directors asked us to put together a toolbox, it includes information, guidance, information, there’s so many different frameworks out there that you can follow in crafting an ESG plan.

Jeff Hove:
We went through a series of interviews with industries, NACS Members, other fuel retailers and looked at what is material to them? How does what is material fit into the different frameworks and pull that all into a report. So what we ended up with was an online system that basically allows the retailer to look at what their emissions are because CO2 emissions – greenhouse gas emissions – are a huge driver in ESG. Climate change is a huge driver. And there is a big part of the industry that doen’t even want to talk about it, as somebody refers to it as ‘the third rail.’ But, it is what it is and when it comes down to money and access to money, we better consider this. So, we worked with Argonne National Labs, pulling in the GREET model, and really kind of standardized how are those emissions calculated.

Jeff Hove:
And, what does it mean when you, for example, introduce low-carbon biofuels, how are you reducing your emissions? How do we collect that data, calculate the CO2 emissions avoided by some of these blending practices for biofuels, even if we’ve got a DC fast charging system and we’re charging vehicles on a per kilowatt-hour basis compared to a gallon of gasoline, what is the CO2 avoidance? So we have all these calculations in there. It’s very reproducible. It’s auditable. We cannot be accused of greenwashing. These are all things that were really important to us when we built this out. And lastly, our goal was to get fuel retailers out of the situation where they’re spending anywhere from $100,000 to $200,000 to develop an ESG plan and that’s what they’re doing. That’s the feedback that we’re getting.

Jeff Hove:
So, we built out this application with the guidance and the tools to create the report. Ryan refers to it as almost a TurboTax format where we can introduce new metrics and plug in all of our data and create the actual report. But it’s a fraction of the cost of what people are paying for it today. So, just trying to make a good tool where companies can set their baseline on what they’re doing. And, again, nobody expects your ESG plan, to just come out of the gates scoring well. The ESG program is about setting goals for improvement. And so we have folks that we’re talking to that aren’t blending any biofuels right now. That doesn’t matter. What the reader wants to know is what are your plans for the next year? Five years? 10 years? And that includes what are your plans for installing electric vehicle charging equipment? Things like that. How are you going to make improvements? And so, it’s a good risk assessment tool and it’s a good way to really step back and kind of future-proof your organization. How do we prepare for what’s coming at us?

Jeff Lenard:
So, Jeff, you mentioned it’s available now?

Jeff Hove:
Yes, we just rolled it out. We went live with the application during the most recent NACS Show and it is continuing to get interest. We’re doing a lot of demonstrations of the application and it’s not just retailers in the states that are looking at it. So that’s been kind of interesting how we’re getting more of a global response to it because it turns out my Board of Directors was actually right, and we did need this in this space. So kudos to them.

Jeff Lenard:
Always good when Board of Directors are right. Jeff, one final thing for you. And then I’ll give Ryan last word. First off, Jeff, where can they learn more about the availability of this report that you two have put together?

Jeff Hove:
So, we have if you want to schedule a call if you Google ESG Integrity that will get you to our website and for the most part, what we’re doing right now is we’re scheduling calls. We’re having one-on-one discussions with companies that are interested in this and then providing them a demonstration of the application. And, they can contact me at any time to set up a call.

Jeff Lenard:
So, Ryan, last question for you besides, and my question is what is the one thing that somebody should do starting now besides Googling and setting up an appointment to learn more about this. But what is something that they should fundamentally do that they haven’t been doing until they listened to this podcast?

Ryan Scott:
Well, they, the good news is they may be doing it already. What I would emphasize is, I think it’s important for companies to understand what the really important numbers are, the counting numbers that they can track to communicate how well they’re just accomplishing their core operations. So if it’s gallons of fuel delivered, or barrels of fuel delivered, that’s fantastic, but if it’s hours driven without an accident, that’s great. But start thinking about those things and start thinking about what questions, your potential investors, your bankers, and others might want to ask you when it comes to how safe you are, how environmentally friendly you are, and how that relates to how well your business actually runs. And I’m hoping, I suspect, and I believe they’ll find there’s a lot of convergence between what fits into the ESG buckets and what’s important to their business.

Ryan Scott:
And Jeff, I wanted to actually comment on one other thing you and you and Hove talked about. You mentioned the ESG investments that are available and more importantly, what’s not available. And I would say that’s actually a really good example of why it’s so dangerous for companies to not tell their story. So you ha you have an investment tool that says, “hey, we’re going to give you an ESG fund.” And they apply whatever rigor they apply and may say, “hey, we’re just going to X out petroleum and tobacco and whatever the third category was…gambling” and especially in the case of petroleum, I can make a really good argument that there is much more good that comes from the availability of petroleum and petroleum goods than than not having them.

Ryan Scott:
So what I think is, we start to tell the stories and really dig into the metrics. And then we start to be able to benchmark data for, let’s say, petroleum retailers, and we start to actually benchmark some of that data for other types of companies that aren’t necessarily in the bad category. We’ll see there’s actually that the petroleum retailers and the petroleum industry is actually doing a very good job of minimizing emissions and maximizing the value for them. I mean, an example that comes to mind is if you look at a Facebook or an Instagram, they have an incredibly high carbon footprint. Bitcoin has an incredibly high carbon footprint. So if we’re gonna penalize companies for being a quote/unquote emitter of carbon let’s arm ourselves with the data to do a comparison to the rest of the economy. And it’s not saying that you’re a bad guy if you have emissions, it’s just saying let’s acknowledge it, let’s measure it, and manage it as well as we can.

Jeff Lenard:
Yeah. Great point. And I would imagine…first off, thank you both. This has been really insightful and also thinking about how when you develop one of these ESG reports, that doesn’t mean that it’s the only place you can use that information. You can kind of look at it and say, “hey, team, here’s some interesting things we might want to tell this story in our marketing, we might wanna tell this story in our PR, we might want to ramp up this, we might want to do a little bit more in this area.” So it’s also a cool tool to just say at the end, we’re doing a lot of cool stuff, let’s tell that story better. And thank you, Jeff. And thank you, Ryan, for helping tell that story, because I think there are a lot of good things out here. So thank you both for joining us today. And thank you all for listening to Convenience Matters.

Convenience Matters Outro:
Convenience Matters is brought to you by NACS and produced in partnership with Human Factor. For more information, visit convenience.org.

show less