Demystifying ESG In Terms of Environmental, Social, and Corporate Governance

Corporate ESG concerns the extent to which companies step over the profit line, to pursue environmental, social and governance ideals. When considering ESG, it is first important to realise that we are all part of a greater family. This extends from the global community all the way down to our circle of friends. We depend on each other for social support. We hope for a peaceful life away from war, pestilence and famine.

Other people are less fortunate. They may never reach the first plateau of meeting their basic needs. This could be because of the situation into which they were born, because of a social upheaval that followed, or indeed because of something they did, or omitted to do.

(PS: If you haven’t already, make sure to read up on our latest article about 2022 CSR Trends in Malaysia.)

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The Nations of This World Have Mixed Fortunes Too

We live in an unevenly resourced, divided, fractious and often dysfunctional world. Material resources are unevenly distributed within and between nations. This is the subject of tension and resentment.

The World Bank was founded in July 1944 to provide loans and grants to low- and middle- income countries to fund capital projects. It has three main departments, namely the International Bank for Reconstruction and Development, the International Finance Corporation, and the International Development Association.

World Bank Vision for Global Environmental, Social and Corporate Governance

The World Bank’s mission is to end extreme poverty. It seeks to achieve this by:

• Reducing the share of the global population that lives in extreme poverty to 3% by 2030.
• Increasing the incomes of the poorest 40 % of people in every country to lift them out of poverty
• Promoting sustainable development by tackling climate change, and preserving our forests and oceans.

However, The World Bank is only an umbrella organization with a fine vision, and a bank balance primarily funded by the world’s richest nations. For this system to flourish, those values must flow down through the global community,

How The World Bank Monitors ESG in Member Nations

The World Bank monitors environmental, social and corporate governance in terms of three legs at national level. Here are some of their priorities:

Environmental Indicators

• CO2 emissions (metric tons per capita)
• The rate of net natural forest depletion (%)
• Renewable energy output (% of total)

Social Indicators

• Unemployment (% of total labour force)
• Access to electricity (% of population)
• Literacy rate (% people over 15)

Governance Indicators

• Ratio male to female in labour force (%)
• Individuals using internet (% of population)
• Government effectiveness (an estimate)

Individual governments can only aspire to these benchmarks, and create enabling environments. The real work begins at the corporate level, buoyed up and inspired by upward pressure from stakeholders.

However, if this process falters at company level, then The World Bank vision stumbles. Billions of people in countries that score poorly on those indicators could slide further into poverty. Indeed it might be said the entire world order could weaken.

Where then should responsible corporates begin with this task, which is both noble and fundamental to their success, even their survival perhaps?

What Are the Key Guidelines Corporates Should Follow?

Corporate ESG concerns the extent to which companies step over the profit line, to pursue environmental, social and governance ideals. We could summarise this as follows although this is not a universal definition:

• Pursuing a set of environmental goals
• Supporting selected social movements
• Self-governance in terms of social values

Setting these fine ideals aside for the moment, the environmental, social and governance model chosen must also create value for the company and its stakeholders. There are a number of aspects to consider when deciding how best to do this. Your company does not have to address them all. It’s a matter of homing in on what harmonises with your own situation.

Possible Ways to Implement Your ESG Strategy in the Community

• Environment includes energy. Energy is more than gas and electricity. It also includes the potential for recycling lost in your company’s throwaway waste. Responsible management can reduce emissions and mitigate against climate change. Your efforts may seem puny. However, if we all pull together we could achieve more.
• Social criteria are broad. McKinsey & Company believes they embrace relationships your company has with institutions and people in the communities you trade. We all operate within a diversely broad society in which our reputations flourish or wither.
• Governance lies at the heart. Governance is the system our company uses to control itself and operate. The extent to which we hold our people to account can be good, bad, or indifferent. We need to manage the way we go about our business, and that includes our ESG policy too.

We should also be mindful that those three strategies are interlinked. Social and environmental outreaches inevitably twine. That said, it’s not just what we do, it’s also how we do it and that’s where governance comes into play.

This in turn cycles back to reputation and how stakeholders evaluate us. We could lose credibility fast, if people realise we benefit directly from our ESG programs. Good governance means being accountable for everything we do in business.

Therefore the Value We Gain Should be Coincidental

U.S. Business Roundtable gathered the thoughts of 181 chief executives. They were all committed to leading their companies in the interests of customers, employees, suppliers, community and shareholders. In a nutshell this is what some of them said:

• Major employers are investing in their workers and communities, because they know it is the only way to be successful over the long term.
• Corporations can play an essential role in our society when CEOs are truly committed to meeting the needs of all stakeholders.
• By taking a broader, more complete view of corporate purpose, boards can focus on creating long-term value, better serving everyone.
• CEO’s generate profits but the best-run companies do more. They put the customer first and invest in their employees and communities.
• It is more critical than ever that businesses focus on generating long-term value for all stakeholders, and addressing the challenges we face.

Every nation deserves an economy within which every person can succeed through hard work and creativity. An economy within which the free market creates jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.

That said, this should also coincidentally create more demand for the product we offer in our market. Two hands wash each other. This benefit should be the indirect reward corporates reap from their environmental social and corporate governance programs.

A Strong ESG Presence Makes Financial Sense

McKinsey & Company lists 5 ways, with examples, in which a strong ESG strategy links to cash flow:

1. Offering more sustainable products increases top line growth, by attracting more business clients and direct customers. But a weak approach to this critical factor will gradually shrink our customer base as it shifts to greener suppliers.
2. We can lower our direct costs and / or overheads by reducing water and energy consumption. However the opposite will apply if we generate unnecessary waste.
3. Meeting government environmental social and corporate governance targets could earn us subsidies. Ignoring them could incur fines and lost business.
4. Maintaining a strong public ESG profile could increase employee pride and productivity. But we could lose top talent to competition if we do not.
5. Investing in socially responsible equipment assures us a positive future. However, if we do not, government could force us to shut it down before its time.

Responsible ESG Offers a Brighter Future for Our Kids

If we do not proactively contribute to a better society, then experience suggests our communities will take the easy way out. We could cite examples of moral, social and environmental decay, but these are common knowledge.

It’s time to think seriously of the society we are creating for our kids. Our parents, the baby boomers neglected this, but at least they have the alibi they did not understand. We have poverty, starvation, over-population, and global warming to thank for that. But this time we understand why this is happening.

The Facts Are Clear. What Can We Do to Change Reality?

It is no longer acceptable to look the other way. It is time to think more carefully about the health of our planet, and the future of the society we are shaping. This is not something our governments could fix through regulation. This something only their citizens can achieve by altering their behaviour.

Business exerts considerable influence over the concerns we discuss in this article. Until quite recently business has mostly allowed these to happen. We are coming closer to a point where global warming, poverty and disorder could become self-fulfilling. Is it time for business to answer with fresh resolution? We believe it is.

Environmental Social and Corporate Governance Are Good for Business Too!

The things we manage steadily improve. That’s the justification for managers and their salaries. That agreed, we ought to look beyond core production issues into the sustainability of our business. And that in turn depends on the society in which we operate.

We therefore ought not to overlook the realities of environmental deterioration, social inequality, and business practises that are morally corrupt. For if we target improvements wisely we should grow our reputation, the calibre of our people, and our bottom line too.

But this calling does not have to become a time-consuming management drudge. That’s because, when we look we will find talent in our organization longing for the opportunity to participate. Let your ESG become a team effort.  It’s a matter of doing what we can do right now, without allowing further delay.

But let us not overlook our duty to support charities pursuing worthwhile goals. This is not a cop-out from our ESG imperatives. Charitable giving exists in parallel. It is an opportunity to support people giving their time freely, so our children shall inherit a better world.

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