Old King Coal Perspective on Sustainability

Old King Coal was a merry old soul,

Yet not content was he;

And he said, “I’ve found what I’ve desired,

Though ’tis but one of three.”

And he call’d for water, he call’d for fire,

For smiths and workmen true:

“Come, build me engines great and strong;

We’ll have,” quoth he, “a change ere long;

We’ll try what Steam can do.”

 

Charles Mackey

Old King Coal, 1846

 

The last post on April 22^nd entitled “Earth Day Choices in a World of Sustainability Reports” highlighted the publication of the first sustainability report published by Evoqua Water Technologies (AQUA:  NYSE).  Evoqua is one of the targets in the Crystal Equity Research coverage group.  Subsequent to publishing the article it became apparent that Earth Day had inspired a number of companies to memorialize their environmental goals, aspirations and other happy talk. 

Accordingly, we stepped back to look at the entire group.  Which of our recommendations have published formal environmental sustainability policy reports?  Such a report is not necessarily selection criteria for a buy recommendation.  Instead, the focus is on profitability and operating cash flow generation.  If there is a such a report available, when was it last updated?  One and done is really not enough in the current circumstances of environmental and climatic stress the world over.  Does the company have clear, credible goals?  We found in the case of Evoqua Water Technologies that the company had accorded itself considerable latitude in setting deadline dates.  No house on fire for Evoqua even if the rest of the world is burning up.

Below is a table listing each of the companies in the Crystal Equity Research CR Reports series.  The availability of an ‘environmental, social and governance’ or ESG report was determined through a review of each corporate website.  Thus, it is possible that those companies with a No entry could have engaged in sustainability planning and memorialized it in a publication.  However, the company just chose not to post it on their web site, at least not in an easily accessible location. 

Truthfully, the number of No entries was surprisingly significant  - 9 out of 22.  Some might argue that a software developer or a business consultant has minimal impact on the environment since they do not use significant power or raw materials to produce their products.  Yet their customers may very well be prodigious users of all sorts of natural resources:  water, electricity, fossil fuel, wood or chemicals.  Is the software product designed to minimize server time and therefore reduce power consumption?  Is resource consumption a factor in the consulting firm’s strategy recommendations for business clients? 

In fact, resources are finite.  Waste is no longer easily disguised in a world of mushrooming human population and shifting climate conditions.  The unproven aspirations of Putin and his Russian compatriots aside, geographic expansion is no longer an option in the 21^st Century.  Yet most companies are still being operated as if we remain in some sort of ‘perpetual industrial revolution’, singing along with Old King Coal or shouting out ‘go West young man, go West’.    

Thus, it is a largely an unsupportable argument that a company operates in an environmental vacuum.  This column has been somewhat critical of the ‘environmental, social and governance’ or ESG reports that have become so popular.  Our jaundiced view is based on the proliferation of boiler plate reports.  Yet it is also true that when decision makers are well engaged, the process of putting such a policy document together elevates the level of informed awareness.  As such conscious thinking filters through the economy, it is bound to lead to more astute economic decisions.   

  

Since the Crystal Equity Research investment thesis typically leans to ‘glass half full’ thinking, the recalcitrant companies will be ignored for now.  Beginning with the next post, the focus will be instead those companies that have bothered to enter into at least some sort of sustainability discussion. 

CRYSTAL EQUITY RESEARCH COVERAGE GROUP
COMPANY	SYM	INDUSTRY	OPERATIONS	ESG REPORT	DATE
ABM Industries	ABM	Business services	Janitorial, engineering, parking and landscaping services	Yes	2019
American Woodmark	AMWD	Furnishings, fixtures	Home improvement products	No	na
Evoqua Water Technologies	AQUA	Pollution treatment	Water and waste water treatment systems	Yes	2022
AdvanSix	ASIX	Specialty chemicals	Nylon, polymer resins and other synthetic fibers	Yes	2020
Air Transport Group	ATSG	Shipping and logistics	Air transport, shipping and logistics services	Yes	2021
AZZ, Inc.	AZZ	Industrial services	Metal coating and welding solutions; engineering services	Yes	2021
Blucora	BCOR	Financial services	Tax preparation and wealth management services	No	Na
Bioceres Crop Solutions	BIOX	Agriculture	Crop productivity solutions, seeds, crop nutrition products	Limited	2021
Chase Corporation	CCF	Specialty chemicals	Adhesives, sealants and industrial tape products	Yes	2021
Comfort Systems USA, Inc.	FIX	Engineering	Building maintenance and construction services	Yes	2021
FMC Corporation	FMC	Agriculture	Crop protection, plant health, pest control and turf products	Yes	2020
Fastly, Inc.	FSLY	Software	Edge cloud infrastructure and technology solutions	Yes	2020
Federal Signal Corporation	FSS	Environment solutions	Street sweepers, safe-digging trucks, sewer cleaners and road maintenance vehicles	Yes	2020
Forward Air	FWRD	Shipping and logistics	Final mile freight, shipping and logistics services	Yes	2021
The Hackett Group	HCKT	Business services	Strategic business advisory and technology consulting	No	na
KVH Industries	KVHI	Communications	Satellite broadband services for maritime applications	No	na
Limelight Networks	LLNW	Software	Content delivery and network services	No	Na
Luxfer Holdings	LXFR	Specialty Machinery	High performance materials, hydrogen containers	Yes	2020
Mercury Holdings	MRCY	Aerospace & defense	High performance electronics components and equipment	Yes	2020
Manitowoc Company	MTW	Heavy equipment	Engineered lifting solutions for construction; cranes	Yes	2020
Napco Security Technologies	NSSC	Business services	Security and protection products; fire alarms, door locks	No	na
Ontrak, Inc.	OTRK	Healthcare	Telehealth-enabled chronic disease management and care	No	na
LiveRamp, Inc.	RAMP	Software	Data connectivity platform solutions	Yes	2021
Repay Holdings	RPAY	Business services	Payment network software and infrastructure	Yes	2021
SciPlay Corporation	SCPL	Consumer services	Electronic gaming and multimedia products	No	na
Schweitzer-Mauduit Internatl	SWM	Basic materials	Highly engineered papers and materials	Yes	2021
Tronox, Inc.	TROX	Chemicals	Titanium dioxide and zircon materials	Yes	2020
Lightening eMotors	ZEV	Vehicles	Commercial fleet electric vehicles	No	na

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.