By John Kiser
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31 Jan, 2022
We continue here in our series of articles about “ESG”, which stands for Environmental, Social and Governance. ESG is a term used broadly to describe ethical, measurable principles and best practices for companies that seek to improve on socially conscious business behaviors. While Five States has emphasized ESG-type practices over our 36-year history, we are now reporting on specific ESG initiatives and measurable outcomes. Environmental To recap what has been mentioned in earlier editions of The Producer, the “E” in ESG stands for Environmental , which focuses on the performance of a business within the broader, shared natural environment. Criteria include behaviors such as the use of renewable energy, corporate policies around waste management and pollution, compliance with environmental regulations, minimizing environmental liabilities, and investing in (or working with) companies pursuing sustainable technologies. Last year, we identified an opportunity that we deemed worthy of being the basis for a Five States fund and we subsequently launched our Five States Renewable Energy Fund last fall. This fund will develop a diversified portfolio of wind royalty interests underlying commercial-scale wind projects. The target for this $36.5 million fund will be the acquisition of royalties from ~300 wind turbines. Social In the last edition of The Producer, we focused on the “S” in ESG. This stands for Social , which focuses on a company’s relationships with vendors and suppliers, the community, employees and investors. It emphasizes diversity, fairness, conflict discovery and resolution, and other social issues. The following two “Social” initiatives are currently being implemented: We are offering a new employee benefit with Cariloop, a support provider for individual caregivers of the elderly, school children, and even family pets! We will soon “go live” with a new Customer Relationship Management (“CRM”) platform to better respond to investor inquiries, add enhanced information and education capabilities to our investor relations department, and further improve our personal interactions that Five States investors have come to expect. Governance In this edition of The Producer, we focus on the “G” in ESG. This stands for Governance , which refers to the rules, roles and processes through which a company and its Board of Directors is run. The purpose of the company, the role and makeup of the Board, the level of transparency, and oversight of top executives have emerged as core issues in companies’ governance structures. Throughout our history, Five States has been a small company run by reputable Managers who have relied on a qualified and engaged Advisory Board, external auditors, published principles of compliance, and frequent use of legal counsel to manage the company honestly, fairly, and profitably. The long tenure of many Five States employees means that there is a tangible link between their actions and the company’s performance; in short, we can’t shirk accountability for our decisions, behavior and actions. But there is a downside to having a long-tenured, stable culture - it can leave us susceptible to blind spots. Five States management acknowledges the risk of relying only on familiar voices, and it believes that the views of younger generations are important to the long-term success of the company, our investors and our funds. After all, members of the younger generation will be running Five States some day! To address this, Five States has begun working with the Maguire Energy Institute in the Cox School of Business at Southern Methodist University to design a program that will create a “Shadow Board” of mid-to-senior level executive MBA students. The board will include young professionals with perspectives formed outside our company, beyond our sphere of personal/business relationships, and even from other industries. The board will be directed to work on specific Five States business challenges with the intent of identifying actionable steps that we can infuse into our business today, steps that will also shape our direction in the future. It is early in the life of our Shadow Board initiative, but we look forward to reporting on the deliverables generated in the months ahead. Closing Remarks We will continue to report periodically on our efforts with regard to ESG. We are curious about your thoughts and ideas. What do you want us to do in this area? We would welcome your comments and suggestions about ESG. Please let us know what is on your mind by contacting us at: InvestorRelations@fivestates.com (214) 560-2572