Courtney Cochran Butler
Zero formal policy. No conformity. Daily reports of what may or may not move from mere recommendation into regulation. Oh, and a growing (and loud) swell of activist shareholders.
It’s nothing if not a complicated world to traverse for companies intent on developing environmental, social and governance policies across sectors.
Courtney Cochran Butler – co-lead of Hunton Andrews Kurth’s capital markets practice group, seventh-generation Texas and Houston native – is working on the front lines to address what this could mean for clients, especially as it pertains to issuers.
Butler, who joined the firm in March 2006, compared the current climate around ESG and clean energy pushes to the treatment of cybersecurity about a decade ago.
Butler’s clients understand that developing policies tied to ESG is crucial, but the uncertainty around precedent paired with non-conformity among government agencies and across industries and sectors doesn’t make the challenge simple. Let alone the fact that many companies must deal with policies across U.S. borders.
Much like how the adoption of cybersecurity standards and the hiring of employees tied to the charge are now pervasive, ESG is expected to follow suit. That is, if all of the appropriate agencies can come together to find a sensible, cohesive solution.
Butler spoke to The Texas Lawbook further about what companies are facing right now as they work to address ESG policies, what it means for issuers and banks, and more in the following interview.
The Lawbook: Broadly, what are some of the challenges your clients are facing when it comes to ESG?
Butler: There are zero regulations around how this works, and there’s also zero conformity among companies across industries.
That is where the danger lies for issuers. Investors, the market and the media are telling them that if you don’t do this, you’re the bad guy and you’re falling behind. There is risk to that, too, greenwashing, for instance.
So, where does the risk fall? It falls on the banks.
I am having conversations with underwriter counsel about the diligence side of green bonds. The banks are hyper-focused on whether, if an issuer is proposing a green offering, they don’t want the liability associated with the fact that they’re the one that is the backstop on whether a green bond is really a green bond; that they are going to be what the company says they are going to be; and that the funds are actually going to be deployed in such a way that it has the impacts they say it’s going to have.
Green bonds have been around for a while, but for a lot of these issuers and these industries, it’s still in the infancy of what that means, how it works and ultimately the risk of what it means to the banks and the companies.
There is then some investor concern over what they’re investing in.
The onus is on the banks, the SEC, the Fed and all these other agencies to come in and address that, but it has to be done in such a way that is cohesive across the market, across all these agencies and across the federal government.
It is a lot. And it is a lot because you have so many different groups within the federal government that are all enacting their own rules, guidelines and recommendations. They need to be working cohesively so that issuers and underwriters can actually understand what it is they’re supposed to be doing and have a framework that they can work within effectively and efficiently. I think that will ultimately be the challenge.
The Lawbook: What does that mean for access to capital?
Butler: I don’t think our clients have definitive concerns about access to capital because of where they sit on the spectrum, but I think that that will change over the next five years – and maybe even sooner than that.
The SEC over the past few months has become hyper-focused and has put out releases in terms of what they’re looking at for climate risk and what public disclosures mean in the context of climate risk and ESG issues.
I think that will be the first thing that will happen: Even issuers that aren’t looking to seek investment in ESG or sustainability products will have to beef up what they’re telling the market about who they are with respect to these issues, like where are their assets, what their assets are doing currently and what they anticipate doing in order to do their part to make their company more green.
General disclosure is where you’re going to see the first push. Then you have the directives coming down to the bank as to how they manage their portfolios with respect to climate risk, in addition to managing their appetite and what they’re telling their investors. So, once you have issuers putting out more information, the banks are going to respond to that information.
The Lawbook: It brings up the question of who is going to do it when it comes to enforcement and how that relates to disclosure across a range of issues and industries.
Butler: Every client that I have has environmental specialists, and now many have brought in ESG specialists.
Let’s take environmental risk, for instance: Across every industry and every company, the impact of environmental risk is so broad. An environmental lawyer doesn’t access financial risk or production risk. It’s not just about having the expertise, but how to incorporate these new concepts.
One benefit – and there’s a host of concerns and positives and negatives that go along with this – is the impact is like a shotgun. The impact this can have even for a single company is more widespread than I think a lot of people have ever considered, which is something that you need to remind companies and issuers that you have to look at this in a more holistic way and not as an environmental issue because it’s broader than that.
The Lawbook: Being in Texas, when I think of ESG, I typically think about what the environmental piece means for energy.
Butler: For energy companies, that’s where the real concern and potential impact lies.
It’s not only something that companies are having to deal with, but it’s becoming a very integral part of how they’re positioning themselves going forward.
We saw a huge hit to oil and gas prices in the past two years – and we’ve seen things rebounding now. A lot of the diversification into renewables for oil and gas companies was a by-product of that, and now it’s something that a lot of energy and time is being put into.
All of these things that are timely and fit very well into this broader framework of ESG are helping with opposition.
But then you look at something like Exxon with a dissident shareholder group coming in and trying to take over the board. Exxon, in my opinion, is one of the majors that has done a better job in putting in a real effort into greening what it is that they’re doing, moving into renewables and trying to do that in a very measured, focused way. It becomes a real concern that even energy companies at the forefront of this space aren’t seen by their investors as doing enough quickly enough.
The Lawbook: Any other thoughts?
Butler: For most issuers, knowing what the rules are and understanding the playing field is going to be key.
The SEC has been saying that you need to put forth disclosures – without having the rules in place. Issuers put themselves at risk if you say too much. So, it’s damned if you do, damned if you don’t.
What issuers are concerned about is that they’re not saying too much or too little in order to do right not only by their stockholder base, but the public at-large, including people who are not currently stockholders but may want to invest. Yet, at the same time, they have to be very cognizant that there is no level set of rules.
Until you see some real definitive rules and guidelines about what needs to be disclosed in liability documents, I think you’re going to continue to get this big hodgepodge of what companies are doing.
Note: This interview has been edited for brevity and clarity.