Happy Anniversary, SCC! At this first milestone, a look back and a look ahead for ESG and Cannabis
It has been one year since the launch of the SCC and its campaign. This effort was designed to create awareness, education, and influence on issues at the intersection of cannabis and sustainability. A lot has been accomplished in just 365 days, and many have been inspired and influenced. To that, a big congratulations is due to the SCC membership and those who have supported this effort around the industry.
The SCC has been incredibly active over the past year, talking about broad environmental, social, and governance (ESG) and sustainability principles like packaging, energy, and water. It has also gotten granular on big topics like energy-efficient building design, improved greenhouse performance, supply chain management, regenerative agriculture, digital transformation, and so much more.
Collectively, SCC voices have created awareness and education for the cannabis industry, and quite a bit of influence on notable initiatives. The progress made with ASTM D37 is a big step, and the Dartmouth/Rocky Mountain Institute pilot project has the potential to be very meaningful. (Read more about these key initiatives in my previous post.) Collaboration with groups like the USCC and the MCBA has proven to be important to broadening the sustainability conversation.
While it has been a productive first year and a milestone to be celebrated, sustainability is a journey that has no end. We are constantly trying to do more, better – there is still significant and pressing work to be done. As we embark on another year full of growth potential, let’s look back at the past 12 months in ESG and where we hope to see continued progress in the months ahead.
In Business
2021 saw a proliferation of ESG across the broader business community.
This fall, the Conference of the Parties, or COP, picked back up in Glasgow. COP26 was highly anticipated, mainly because of the more broadly accepted existential threat of climate change amidst a record number of natural disasters. Nevertheless, and somewhat inexplicably, COP26 was frustratingly ineffective because there was little concrete agreement among the parties and no enforceable regulation. However, one key takeaway was that the private sector will have the opportunity to lead the way with emissions accounting and movement toward a net-zero goal.
This past year has seen unprecedented ESG focus among leading financial sponsors across the world who control trillions of dollars. These financial institutions are prioritizing climate issues and a host of social causes, both in their own actions and among their portfolio companies.
As is customary this time of year, BlackRock’s Larry Fink released his annual letter to corporate America, and in it he spoke to the shift our economic system is undergoing: “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.”
Mr. Fink was particularly focused this year on how ESG does not require compromising profits; reducing one’s carbon footprint can make a business more resilient, and that is inherently valuable. At the same time, he seemed to dismiss the activist investor by saying, “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.” And, like we saw from COP26, Mr. Fink challenged governments and companies alike to show greater support for green energy investments.
In a recent Financial Times opinion column, Paul Polman, a former Unilever CEO, referenced Fink’s letter and his reference to “woke capitalism.” He wrote, “Expectations of business leaders have changed dramatically. When I was a young executive, the chief executive was expected to deliver increased profits, happy shareholders, and more jobs. Today, staff and customers believe you should embody the company’s values and speak out on big, touchstone issues, from race to fake news and climate change.”
In the column, Mr. Polman reflects on recent examples of large companies and their CEOs taking principled stands on ESG issues, from climate to voting rights and other social equity causes. Without passing judgment on the positions taken, the point is that ESG issues and stakeholder capitalism are driving corporate strategy and decision-making.
In response to the proliferation of ESG considerations for fund managers, CohnReznick’s Financial Services team’s comprehensive Emerging Managers Resource Guide, released in January, includes a section on best practices for successfully establishing and implementing ESG goals. Similarly, our Global Consulting Solutions team has begun working with clients to support the collection, organization, and analysis of data that can make ESG metrics part of the bridge between operational and financial reporting.
In November, Trulieve, an SCC member since inception, published the first ESG report from a U.S. MSO, which is setting a trend for others to follow. Innovative Industrial Properties, a REIT focused on lending in the cannabis industry, has also published an ESG report that will be a model for other influential ancillary companies. We continue to see that ESG strategies and reporting are not restricted to large companies. Many of our clients in the lower middle market are getting very focused on what ESG and sustainability mean to their corporate positioning and competitive advantage.
In Government
Beyond what we all see in the business realm, the past 12 months have also seen ESG acceleration from federal, state, and local government. At the federal level, there were quite a few ESG-related policy provisions in both the American Rescue Plan Act and the Infrastructure Investment and Jobs Act. While the proposed Build Back Better bill is stalled as of this writing, it has the most ambitious ESG-related provisions and would reimagine major aspects of the economy.
These legislative efforts are designed to leverage innovation while simultaneously creating good-paying domestic jobs and improving the environment with positive, tangible health and wellness implications. States and municipalities across the country are taking this same approach to accomplish the same goals at the local level.
Federal money is being pushed down to places where it can be most impactful, and localities are addressing the most pressing issues they have faced with maybe the most significant pots of money they have ever had. We are being appropriately bombarded with ESG coverage on major networks, publications, and sponsored content, all of which is reflective of the scale of opportunity that is right in front of us and the broadness of what we can include as ESG. This can create some ambiguity, but that itself is an opportunity for – say an industry – to control its own destiny and be proactive about aligning around its stakeholders rather than being reactive to them.
In Cannabis
For all the growth that has taken place in the cannabis industry, it should still be considered in a nascent stage. And yet, compared to more traditional, well-established industries, the cannabis sector’s focus on ESG and sustainability is impressive. For example, cannabis companies like Culta, which recently announced its membership in the SCC, have always had social consciousness and ESG at the root of their corporate ethos and reflect it in everything they do.
Similarly, employees and customers of cannabis brands are being given a greater voice in how their values are reflected in products. On a broader scale, industry publications regularly feature headlines surrounding social equity, gender parity, sustainable packaging, and opportunities for more efficient energy and water usage. And states exploring new cannabis programs are working hard to make social equity and environmental justice part of how cannabis can be a force for good in society.
As industry events have come back to an in-person setting, ESG has been a major subject of conversation. At Cannavest West in December, I was privileged to be able to moderate an ESG panel with Steven Hawkins from the U.S. Cannabis Council, Khadijah Tribble from Curaleaf, and Marc Ross from Vicente Sederberg. The conversation was honest and hopeful about where these industry leaders and their organizations believe we can take ESG in cannabis. From Steven’s reflections on cannabis as a civil rights issue, Khadijah’s discussion of Curaleaf’s “Rooted in Good” and their principles of sustainability, and Marc’s reflection on the corollary from other industries, it is clear that the momentum is strong. Many more need to join the conversation and collaborate to make a bigger difference.
Here’s to another year of progress and change
Sustainability is a constant journey to make things better for people, purpose, and planet, and the cannabis industry is uniquely positioned to do just that. Just before his untimely passing, SCC co-founder Peter Dougherty challenged us to “Be the change.” That call to action will continue to resonate with the SCC and all those who want to make a difference with this amazing plant.
