Why You Should Care About ESG

By Chrissy Blasinsky   read

Because in Washington, what starts out voluntary always has the potential to become regulatory.

November 04, 2022

ESG.jpgI’ll say it—ESG is a boring acronym that sounds like an outpatient medical procedure. But, alas, it is not. It stands for environmental, social and governance, and ESG scoring has quickly become an indicator of a well-run company that is focused on a long-term vision rather than short-term profits.

In (some) other words, if you want access to capital, or will down the road, you’ll want to keep reading.

An ESG report defines what your company is doing and what it will commit to in the areas related to the environment, social issues and the structure of your business. It’s how your company manages its risk, and it’s also becoming common for financial institutions to consider ESG factors when making corporate loans or providing borrowers with lower interest rates based on their sustainability profile, which includes attention to climate risks and areas such as executive pay, political affiliations and working conditions.

Speaking of climate risks, the U.S. Securities and Exchange Commission proposed two rules earlier this year that seek to mitigate misleading or deceptive claims by U.S. funds on their ESG qualifications and increase disclosure requirements for those funds.

NACS has strong concerns about one of the proposed rules and the negative impacts it would have for retailers with publicly traded equity and debt securities, and those that are privately held and not subject to SEC regulation. Here are our comments:

“The industry takes seriously its role in reducing carbon emissions and recognizes that structure and consistency in reporting are helpful goals. In our view, however, the proposal exceeds the SEC’s statutory authority, conflicts with its mission, creates unwieldy economic burdens on businesses entirely outside of its jurisdiction…”

The SEC’s proposal would also amplify ESG and “bring to the front the importance of relationships between suppliers and retailers at a level that we haven’t seen before,” said Mike Roman, senior fellow for public policy and ESG at the American Council for Capital Formation, and a member of the Fuels Institute Board of Advisors, during a recent Convenience Matters podcast.

In late October, the SEC announced it would miss its deadline and found a technical glitch in its commenting system. However, expect this issue to keep moving … just not as quickly as expected.

In the meantime, let’s get back to the “why” behind ESG planning and reporting, which Roman sums up:

“I’ve had discussions with banks. They are being asked by their shareholders, ‘Where are you investing your money, and who are you financing?’ In terms of financing, the discussions around the fuel and convenience retailers becomes important because banks are being asked that question. … Retailers … are going to buy new sites, and they’re going to introduce electric vehicle service equipment and other types of fuels, but they’re also going to have to maintain and upgrade their existing facilities. To do that, they’re going to have to borrow money and have to explain to a bank—so a bank can explain to its shareholders—where that money is going. That’s a challenge, and it’s a new one that they haven’t had to face.”

Regulatory Outlook: Expect Change

Although ESG reporting is voluntary, that is poised to shift. The convenience and fuel retailing industry sells 80% of the fuels purchased in the United States, which means ESG requirements would absolutely have an impact on your business. And it’s not just for the publicly traded retailers—privately held retailers seeking investors, access to capital, insurance coverage or loans also will be affected by ESG policies.  

However, the greater impact will be felt by the publicly traded companies. Under SEC’s proposed rules, phased-in requirements would stipulate that these companies must provide their direct CO2 emissions (Scope 1) and report all indirect emissions (Scope 3). Associated companies—public and private—would have to report emissions to the publicly-held SEC reporting company. This means that ESG requirements would touch every organization in the supply chain.

Should the SEC include Scope 3 emissions, Roman noted that “the road to net zero is not a one-lane road. It’s a multi-lane highway. It’s going to take a lot of fuels, and it’s going to take a lot of thinking about the realities of technology and the availability of resources to let us continue to be able to utilize fuels in an efficient and environmentally sound way that allows our economies to continue to grow so we can pave this road to net zero.”

Going back to the comments that NACS filed with the SEC, the Scope 3 reporting requirement will hit our industry’s 90,000-plus single-store operators hard: “These businesses do not have the professional or financial wherewithal to determine their emissions as required by Scope 3 of the proposed rule. Many would lose their ability to contract with issuers of securities or absorb significant financial losses trying to comply with the rule to provide emissions information.”

NACS also amplified that these dislocations would not only hurt these small businesses but also increase costs in the motor fuel supply chain “and thereby significantly increase the retail prices of gasoline and diesel fuel. This financial hardship, therefore, would be felt not only by the small businesses in the convenience industry but also by the 160 million American consumers they serve every day.”

And for those keeping track, none of this analysis appears in the proposed rule.

What Can You Do?

I’m not a fan of scare tactics to drive awareness, but the unfortunate fact is that when Washington gets involved, you’ll want to pay attention to all the players and the moving parts. That’s where NACS comes in on the advocacy side, and where the Fuels Institute can help on the ESG information and reporting side.

The Fuels Institute not only offers free ESG resources like “The Case for Developing an ESG Plan” whitepaper, the organization also developed ESG Integrity. This program provides ESG reporting for transportation-related companies and is based on stakeholder input, analysis of ESG frameworks and transparent emissions modeling. ESG Integrity enables companies of any size to begin their ESG journey.

Hightowers Petroleum, a private Midwest company that distributes gasoline and diesel nationally, got started with ESG Integrity in 2021 and shares the journey in the NACS Magazine feature, “Crafting Your ESG Story.”

The program formalized a lot of what the company had already been pursuing: “We realized that a lot of the things the program asked for are things that align with our company’s core values,” said Stephen L. Hightower, president and CEO of Hightowers Petroleum. “We’ve always committed to supporting our employees, volunteering and giving back.”

No need to check your pulse after reading this, but bear in mind that ESG could sneak up on you if you haven’t been paying attention. Kind of like a cold sore.

Chrissy Blasinsky is the Content Communications Strategist at NACS. Chrissy has been at NACS long enough to remember when the concept of sustainability was introduced as “green to gold.”