Do ESG Policies and Water Districts Mix?

While ESG is often used in the context of corporate investing, it has evolved into an important framework for public agency stakeholders (e.g., rate payers, community members, employees, municipal bond investors, rating agencies) as well. For Diablo Water District, the “why bother?” with ESG was simple. Being uniquely located in the heart of the Sacramento/San Joaquin Delta, the District is on the leading edge of climate change effects. Impacts to the District, its customers, and water supply include changes in salinity, increased flood risk, and increased drought impacts. These impacts have led the District to shift from solely focusing on single and multi-year droughts to addressing the larger issue of climate change.

Although widely recognized as important factors to consider, ESG initiatives can be difficult to implement and measure, and can therefore result in disingenuous efforts. In the era of greenwashing projects to appease political interest, Diablo Water District has taken a refreshing approach regarding ESG policies: to create actionable regulations that will be implemented and have measurable results. Regulations and actions that were adopted to support the District’s ESG priorities include but are not limited to:

• Diversity, Equity, and Inclusion Policy
• Carbon Neutrality by 2027
• Installment Sale Agreement to fund solar projects
• ESG Investment Policy

In 2021, recognizing that having a diverse team working in an inclusive and equity-driven environment will help employees succeed and result in excellent customer service, the District adopted a Diversity, Equity, and Inclusion Policy. The same year, the District also adopted a Carbon Neutrality target of December 2027. To reach this audacious target, the District entered into an Installment Sale Agreement to fund solar projects in 2022. These projects are expected to offset nearly all the District’s carbon emission from pumping water throughout its distribution system. Then starting in 2024, the District anticipates replacing its entire fleet with light to medium duty electric trucks.

Many agencies stop with the above initiatives and commitments, but Diablo Water District continues to push its ESG actions even further. On October 26, 2022, the District adopted its ESG Investment Policy that guides the actions on how the District invests its reserve funds. The ESG philosophy commits the District to invest in funds that contribute to a sustainable future for the environment, enrich the human experience, while minimizing risks and maximizing transparency of the company. Through the use of readily available ESG screening investment tools, the District established investment criteria and has been shifting all investments to satisfy the new ESG criteria. Based on the results of investing in two separate transactions with the ESG policy in place, the District did note a short-term loss of 5 basis points; however, the District’s Board and management believe that if all agencies do their part to support ESG policies, the long-term savings will significantly outweigh the short-term costs.

Back to the title of this article, “Do ESG Policies and Water Districts Mix?” Certainly, but it takes commitment by the organization from top to bottom as well as a concerted effort and education of all staff. It has to become part of the organizational culture and not just a statement on paper.