A Tribute to Co-ops: Leaders Weigh in on ESG Principles as Part of Their DNA
Episode ID S2E10
October 31, 2022
U.S. cooperatives have successfully run for more than a century by adhering to key principles and core values that stand the test of time. Now with ESG on the radar of consumers and investors, co-ops are well positioned to show how their fundamental values align with ESG philosophies. We catch up with the leaders of Southern Maryland Electric Cooperative, Guadalupe Valley Electric Cooperative, GreenPoint Ag, and Blue Diamond Growers to hear about their ESG journey.
Jeff Blair: I think the biggest thing when you think about ESG is for most of our folks is like, what the heck is ESG? [chuckles] It's the first thing that everybody gets at. Most of us have to look it up. I think that's one of the challenges as we talk about ESG is being clear what we're talking about first.
Teri Viswanath: That's Jeff Blair, the president and CEO at GreenPoint Ag, and he's right. There's a lot of confusion around ESG, but listeners, you're going to hear that environmental, social, and governance are three factors that are commonly considered, reported on and measured by cooperatives. Well, certainly the cooperatives we interviewed for this program. In fact, some might say that co-ops should be considered the original ESG vehicles. I'm Teri Viswanath, the energy economist at CoBank, and I'm joined by my co-host and managing director, Tamra Reynolds. Hey, there.
Tamra Reynolds: Hey, Teri. Why don't we start at the beginning? Why are co-ops discussing ESG strategies? We caught up with Sonja Cox, CEO for Southern Maryland Electric Cooperative, or SMECO. SMECO is a fairly large sized distribution co-op located south of Washington D.C., serving four counties with approximately 174,000 meters and more than 10,000 miles of distribution line. Here's what she had to say.
Sonja Cox: I started looking into ESG because it was just becoming something that was talked about. For us, ESG is something that we've always focused on, even if we didn't refer to it as ESG. We feel like it means providing products and services that our community values, while we respect the environment and the people around us. It's so important to us that we incorporated it as part of our strategic plan. Our strategic plan consists of five pillars or themes, and those are, build a smarter grid, transform our member experience, empower, engage and equip our employees and lead sustainably in our communities, with the fourth one being innovation. We feel like we can incorporate parts of our ESG program into each of those pillars or themes.
Tamra Reynolds: Sonja's comment suggests that ESG considerations are possibly just a new label for something that co-ops have been doing all along. Darren Schauer, the general manager of Guadalupe Valley Electric Cooperative, a South-Central Texas cooperative serving 95,000 meters in a growing broadband segment explains further why his co-op is focused on ESG.
Darren Schauer: ESG has become more and more of a hot topic, especially in the private markets- because we're involved in the private financial markets, because we're involved in the power supply side, we are rated by S&P and by Fitch. They certainly look to our ESG activities as part of the ratings of the cooperative. I would add more and more of our industrial customers, large industrial customers who are actually international types of entities that are looking to us to show and prove what type of impact we're having on the environment or helping them to improve their impact on the environment.
We have actually one customer, large customer who's building onsite solar at their location from, we're talking to one to two megawatts of solar at their plant that they're building. It's a partnership that we had to work through with them that's allowing them to be able to interconnect that solar into the system. We've also just recently developed a new tariff that basically passes through renewable energy credits to large industrial customers who want to purchase renewable energy credits and be able to lower their, and show their lowering their environmental impact.
Tamra Reynolds: A recent PricewaterhouseCoopers's Consumer Intelligence Series survey found that consumers and employees want businesses to proactively shape ESG best practices, not just react and adjust. Dr. Dan Sonke, director of sustainability with Blue Diamond Growers echoes this sentiment.
Dan Sonke: I have a deep background in agricultural sciences. Over the years, I've just seen more and more scientific evidence that the types of sustainability practices we're talking about actually can pay back in more resilient agriculture, ability to withstand droughts better, withstand flooding better, provide higher yields, higher quality. It's not a guarantee, but if you take the weight of evidence and a long-term view, you really do see a more stable production system come about. The other big driver, and we see it a lot at Blue Diamond, is our customers are asking for it.
If you want to maintain a good relationship with the customer, maintain those sales that come along with that relationship, they are increasingly driven by consumers that want sustainability attributes to their products. By lending institutions or investment institutions that are looking at sustainability out every week to 10 days, I field yet another customer request for information on sustainability. If there's no other reason than your customers want it, then that alone is enough reason to think about sustainability.
Teri Viswanath: Tamra, you caught up with Jeff Blair, CEO of GreenPoint Ag, and he makes a slightly different but certainly compelling business case for pursuing an ESG strategy.
Tamra Reynolds: That's right. For those listening that might be unfamiliar with GreenPoint, this organization was formed about two years ago as a combination of various farmer-owned businesses, AGRI-AFC, GreenPoint Ag, Tennessee Farmers Cooperative, and most recently Tri-County Farmers Cooperative. Collectively, they provide all of the critical farm inputs, serving farmers across 20 million acres in 10 states from about 300 retail locations. As you'll hear, GreenPoint's ESG motivation is focused squarely on their client, the grower.
Jeff Blair: I talked to a lot of farmers. For so many farmers it's about generation. They are trying to preserve that gift from previous generations of the land and be stewards of the land and preserve it, but so much of that is around, how do I get through the economic challenges of the day? How do I feed my family? How do I sustain my farm? How do I do this today so that I can keep doing this for generations? That pressure on them is enormous.
It is relentless. If you're asking people to either not be able to do what they need to do today, or you're asking farmers to put their business at risk and their house at risk and their family and their past and their future at risk to do something that's not sustainable from their perspective. Land O'Lakes is doing this thanking farmers, talking about the 1% that feed the 99%. I love the campaign because we have to remember that if we're not sustainable and our farmers can't continue to farm, then the 99% that rely on the 1% are in trouble.
Teri Viswanath: Our guests were terrific at pointing out the incentives for developing an ESG strategy. These strategies simply make good business sense and their consumers require it, but how do you start your company's ESG strategy? Where should you begin?
Tamra Reynolds: Sonja, Daren, and Dan gave us a few pointers. We will start with Sonja, and listen to Daren and Dan.
Sonja Cox: I did a lot of research online. A lot of the investor-owned utilities have ESG reports and they're on their websites. What I've found interesting about a lot of them is that if you go on their website and the report can be pretty interactive-- If there's a certain part of the report that you want to review, you can just click there and it'll take you directly to that part of the report. I just think that there's a lot of really good reports out there, so I didn't have to recreate the wheel, so to speak, and was able to take what I saw as helpful information from others and craft ours in that manner.
As we were putting together our inaugural ESG report, we thought it was important to align with two of the internationally recognized frameworks for reporting out our ESG data. It's okay. You can have an ESG report, but if you're not holding yourself accountable to some of the standards, then really what good is it? What are you saying? You're reporting it, but how are you holding yourself accountable? We looked at the different frameworks that were available and we chose the Sustainability Accounting Standards Board and the Global Report Index. We used those frameworks to organize our reporting and disclosure process.
Tamra Reynolds: When we spoke to Daren, I mentioned that his organization's ESG strategy felt like it had been developed organically, as an extension of the co-op's normal business. This was his response.
Daren Schauer: I think that's exactly right. For many years environmental policies and here at GVC, as far as renewable type energies, we were not real actively involved except for our members who wanted to purchase solar directly. We've been doing that for quite some time. We really were hesitant to enter into power supply transactions that were renewable energy types of contracts because one, the pricing was, at that time, higher and we had not seen a lot of interest from our members. Now pricing's in line and we're getting more and more feedback from our customers, primarily the industrial customer base that is encouraging us to look at the portfolio, our power supply portfolio, and ensuring that we have renewable components to that portfolio that we can then pass on to them. This certainly has been driven by the members.
Tamra Reynolds: Blue Diamond’s ESG program followed on the heels of their participation in a larger statewide initiative, as Dan explains.
Dan Sonke: For over 10 years, the almond industry in California through the almond board has had the California Almond Stewardship platform. This is a sustainable agriculture program tailor-made to California almonds with multi-stakeholder input, it's been benchmarked against some internationally recognized standards. It's a robust program and Blue Diamond has been participating in that program from the beginning. Over 10 years of encouraging growers to engage on sustainable agriculture, and then benefit the entire industry by sharing data and educating them on practices across the gamut on almond farming and sustainability.
Then Blue Diamond utilizes the program to talk about what we're doing on the farm on sustainability. A long ways down the road in that regard. A few years ago, the co-op decided it really wanted to accelerate and create a more Blue Diamond specific sustainability message and program that was not just on the agriculture side. I was brought in last year to continue standing up a program where we put together teams across the company to look at manufacturing, and transportation, and procurement, and human resource issues with the workplace culture and community giving and just a wide array of programs including the sustainable agriculture work.
Tamra Reynolds: I think most of our listeners will be familiar with the Blue Diamond brand. I joked with Dan that I'm a big fan of their smoked almonds, and he is too. This organization was founded in 1910, and today can boast of being a large cooperative of approximately 3,000 almond farmers, all in the Central Valley of California. Their ESG journey was rather involved.
Teri Viswanath: I would agree with you there. Blue Diamond has been tracking ESG progress comprehensively across the company, and like Southern Maryland Electric Cooperative, it's starting to share the message. I wanted to get into the specifics of some of our conversations on ESG. Both of the electric co-ops we interviewed discussed their efficiency and sustainability programs. There was a common focus of materially reducing demand, especially during peak hours, which of course lowers the environmental impact, but also by making renewable power supply decisions. Sonja mentioned a novel approach that SMECO is taking here.
Sonja Cox: In Maryland, just to give you a little bit of background, we are a retail choice state, which just means that retail providers can come in and provide the commodity portion of the electric service. We still distribute it. The utility is considered a provider of last resort. Although we haven't had a lot of customers switch, we have had a few. Most of those were switching to green portfolios or green commodity. What I did was approach the public service commission and said, "SMECO wants to provide a green commodity product. Can we do that?"
'Cause we had to have permission. We're actually providing this green- we call it a green rider. If a member wants to have all green power they can sign up for this rider. It costs a little bit more and they know that, but it's their choice and we're able to offer that to them. Then we go out and purchase renewable energy credits to cover that. That's another way we're addressing environmental issues.
Tamra Reynolds: I wanted to understand how the environmental aspects might translate for our ag guests. Here's my conversation with Jeff. Let's talk a little bit about the sustainable ag piece and what Greenpoint is really trying to do. Talk a little bit about some of the programs and some of the things that you guys are working on, with folks to look at and evaluate how to improve different aspects of the business in a way that makes sense for those types of producers that you work with.
Jeff Blair: Sure. I'll talk about two different main aspects of it. I'm going to start with efficiency, and I think the best thing from my perspective that we can do for the planet is to help our growers grow food more efficiently, sustaining a growing population with the same amount of land, right? We can either cut down more forests and plant- get more farms, right? Or we can grow more food on the same acre. There was a study that was done here a couple of years ago, and I can't remember the name of the study, but they sort of said, if we grew food at the same efficiency that we grew it in 1960 to feed today's population, we would've had to cut down a forest the size of Europe plus Mexico.
When we think about, at GreenPoint, how do we help our growers be more efficient in their resources? I go back to that definition, sustainability in terms of people and profit and planet at fertilizer prices of today, the less they can use to grow the same crops, the better off they are, the make more money. The planet wins because we're not either volatilizing nitrogen into the atmosphere that's contributing to global warming, or we're flushing it down the rivers and the lakes, contributing to the dead zones that are so prevalent around the world. How do we help them be more efficient? There's a win for the farmer, there's a win for the planet, and I think there's a win for the greater agriculture industry through that, and our job is really to help them understand that.
Teri Viswanath: Addressing carbon was also part of your conversation with both Jeff and Dan, right?
Tamra Reynolds: That's right. I asked Dan to explain how the USDA grant would be used for carbon sequestration. Here's what he had to say.
Dan Sonke: The USDA announced that we will be awarded $45 million over the next five years to advance climate smart activities on our member farms. It's very exciting. We told the USDA that the practices that are known to sequester carbon that we will be focusing on are planting cover crops, conservation plantings, which are like cover crops outside the orchard, and then hedgerows, which are lines of shrubs and trees that provide habitat for pollinators while sequestering carbon.
Then a fourth practice, which has a lot of climate benefits called whole orchard recycling, where you take the trees at the end of the life of the orchard, chip them up into little wood chips, put that into the soil before planting the subsequent orchard, and capturing all the carbon that that tree turned into wood through photosynthesis for its entire life, putting that into the soil, locking it as soil organic matter carbon in the soil.
Teri Viswanath: Looking beyond the environmental work that these organizations are doing, all of our guests really connected the dots for us on the unique perspective that co-ops share on social and governance best practices, but I like the way that Sonja emphasizes the importance of these two aspects.
Sonja Cox: The leadership team were like, "Okay, what do we think is most important? Is it the E, the S, or the G?" I said, "In my mind, you don't have the E and the S without the G," so people have different philosophies around that, but I think you have to have good governance to put the other programs in place. The board and the executive leadership beliefs strongly in the cooperative principles and in good governance. Our board meets monthly to receive reports on the operations of the organization and to set policy. We have 15 board members, and 5 of them are up for reelection each year, and then they serve a three-year term.
We encourage all of our members to participate in the election of our board, and also to vote for changes or additions to our bylaws. A member can vote by online or by ballot in the mail. That increased tremendously, the number of people that we have involved in that process. We went from having about 1,500 when we did it all in-person, to having close to 10,000 ballots cast this past year, so we really want our members to be involved in the governance of the cooperative, and that's one way that we see that we can do that.
Tamra Reynolds: Social and governance issues are really where I think co-ops shine, and I'm not alone in this assessment. Dan makes a terrific point here.
Dan Sonke: I am passionate about the idea that a co-op structure inherently brings strength to the S and the G aspects of ESG, S being social, G being governance. In fact, during my job interviews in 2021, I brought it up multiple times. Like, "Hey, co-op story, we have to talk about the co-op story." If you think about Blue Diamond, we incentivize our leadership on bringing a higher return compared to the industry average to our members. The co-op structure by cutting out the middle man, by adding value to their almonds, our members are receiving financial benefits.
Teri Viswanath: Jeff made similar comments.
Jeff Blair: I think if you think about the history of co-ops, why did they form? Because farmers were sort of feeling isolated. They weren't getting the service they needed, they couldn't get the supply they needed. They said, "If we get people together and we formed this co-op and we put our money together, we can get supplied and if there's any leftover, we'll divide it up at the end." And that was how it started for us in 1935, is how far back it all dates, and it's just continued to grow, but it only grows if people understand that value and continually talk about it.
I think there's a messaging there and just to continually reinforce it, don't hide from this cooperative thing. I think we want to embrace it. It's a phenomenal model that frankly if I were looking around at other pieces, other industries probably ought be looking to the cooperative model going forward, versus the other way around.
Teri Viswanath: There were a couple of good examples that Sonja provided that helped me understand how they consider the social aspects of their policies.
Sonja Cox: We, from a social perspective, are placing a lot of focus on equity and inclusion and diversity. Those are all really important things. We have about 35% of our workforce that are female and 24% that are part of a minority community. My philosophy is that our workforce should look like- the makeup of our members, we have this philosophy where we say we want to attract, inspire and retain an inclusive, diverse, wellness-minded and engaged workforce. We want to be an organization where everybody wants to come to work here and everybody feels welcome and valued.
Then from the other side of the social component, as far as making our power as reliable and low cost as we can to our members- because we do have a lot of members that really can't afford their electric or heating and we offer a members helping members program. We ask our members to contribute to the members helping members program. They can do $1 a month, $5 a month or $10 a month and then whatever the members donate then SMECO matches that and we have a local agency that distributes those funds for us to people who can't afford to pay their electric bill.
Teri Viswanath: Tamra, how do you measure success for these programs?
Tamra Reynolds: From our conversations, the members and consumers are actively weighing in on what success looks like for them. There is an important aspect of bringing along the entire membership on the ESG journey. Dan and Blue Diamond have achieved success here.
Dan Sonke: The board of directors decided to create a financial incentive for growers to go through that California Almond Stewardship platform, and that has been a game changer. Just amazing results. Today, 40% of all Blue Diamond acres are now assessed within the California Almond Stewardship platform, which makes Blue Diamond the home of the largest number of acres engaged in almond sustainability in the world. To get the highest tier you have to go through the entirety of the California Almond Stewardship platform, plus do a carbon assessment of your orchards through the Cool Farm Tool and get Bee Friendly Farming certified.
This is a certification that requires you to provide habitat to pollinators on your farm. At least 3% of your acres equivalency either in or near the orchard. You have to provide fresh water for bees. You have to provide some permanent habitat for native pollinators. You have to use integrated pest management to reduce pesticide risk to pollinators. It's quite a comprehensive certification and a lot of effort and investment that growers have to do, but if you do all that plus the other two things, you get a higher price per pound of almonds and a higher base payment.
It's a combination of financial incentives and different investment that the grower has to do to achieve that. This year, in the second year of the financial incentive to growers, we paid out $1.74 million to the growers involved in that program through the combination of financial incentives I mentioned. Really excited to be able to share that with the world. That's a significant investment in sustainability on par with what other food companies are investing in sustainable agriculture. Really excited about that.
Teri Viswanath: Tamra, these programs are not easy to pull off, and a number of our guests we interviewed talked about pushback on their programs. Right?
Tamra Reynolds: Absolutely, but I would close on a really important point that Sonja makes. I mentioned to her that I think there are certainly a few co-ops that might be hesitant or even a little afraid of the concept of ESG. I asked her what she would say to those that felt that way.
Sonja Cox: I think I would just direct them back to the seven cooperative principles because like I said in the beginning, I think we've been doing ESG as long as we've been in existence. It's just not been called that. I think the cooperatives have a good story to tell and I think that you can look at each one of those principles and you can almost fit them all into an E, an S, or a G, so that's how I would put it.
Teri Viswanath: I think I agree. I hope that all of you've enjoyed our program on co-op ESG initiatives, and hope you'll tune in next month when we discuss rising natural gas prices and the impact the war in Europe is having on domestic energy prices.
Tamra Reynolds: See you later.
Disclaimer: The information provided in this podcast is not intended to be investment, tax, or legal advice and should not be relied upon by listeners for such purposes. The information contained in this podcast has been compiled from what CoBank regards as reliable sources. However, CoBank does not make any representation or warranty regarding the content, and disclaims any responsibility for the information, materials, third-party opinions, and data included in this podcast. In no event will CoBank be liable for any decision made or actions taken by any person or persons relying on the information contained in this podcast.