What ESG means and do most businesses understand how to work with sustainability?
Environmental, Social, and Governance (ESG) is a term used by governments, international bodies, non-government organisations, investors and financiers around the world to describe the qualitative aspects of the environment, social and governance that they might consider when investing, managing operations or conceptualising a city’s urban landscape and features.
Most companies' current responses to ESG are to engage in what is known as Corporate Social Responsibility (CSR). ESG is actually much more than that. Both are concerned with environmental and human rights issues but ESG takes on a much more hands-on and proactive approaches to managing work policies, processes and procedures. It definitely places more emphasis on the governance aspects concerning the environmental challenges surrounding the company’s operations and the human rights issues at workplaces.
For example, when companies consider investing in or lending to a company, they might try to look for tangible financial components associated with the environment, social, and governance that may have an impact on their investments or lending. Do the companies have a framework to ensure that their operations are environmentally-friendly? Do the companies have a framework, programme or roadmap to ensure that their suppliers employ workers in accordance with international human rights standards? Companies that manage ESG risks and opportunities are actually much better prepared, have fewer ESG-related risks, making them more appealing to investors who are concerned with such issues.
What would your sustainability advice be for a company's operations and investments?
Sustainability considerations can always be factored into investment, lending, operations, procurement and construction decisions, regardless of how the company chooses to manage its businesses. Concrete aspects include evaluating business decisions from a sustainability standpoint and determining whether the analysis can be performed in-house or if outside assistance is required.
There are several things that can be done, such as getting the big fishes to put demands on the companies that are located down the value-chain. Setting criteria and conducting on-site audits are some of the ways to confirm that the counterparty has integrated ESG criteria in their operations, investment processes or urban planning.
For example, if your company works with suppliers, you might want to look into developing an ESG-focused supplier management programme. Leverage that supplier management programme to quantify then improve the suppliers’ ESG scores. Some companies have already rated 100% of their suppliers on their ESG performance, choosing to work with the top-tiered ones and helping the rest to improve their ESG scores.
In which part of the world can we see the least and most interest in ESG and sustainability efforts?
Not enough is happening in the developing nations. They must seriously consider long-term sustainability for their future development. Future developments could be ensuring business survivability and/ or mitigating drastic negative changes in living conditions.
People will move to cities to look for jobs and/ or due to environmental changes. Development in technology will create a large social gap when more people come to live together in smaller urbanised areas. Not everyone will work in the technology space. Each will eventually find their roles within the work value chain. There might be some trials and errors as people learn and discover their own strengths and weaknesses along the way.
Social tension and environmental challenges will be inevitable and one way to mitigate these risks would be to integrate ESG values early into companies’ and governments’ policies. ESG principles are not perfect but it is important to take the first step and improve along the way.
However, some of these countries need more funding and awareness, which could be why very little is happening. We can also see that the United States has come a long way since its independence and there is still a lot of room for improvement, whereas some high-export countries have also begun to focus heavily on sustainability and they will have to look for novel ways to achieve new breakthroughs.
What is the long-term investment trend, upward or downward?
I would say the trend is upward out of sheer necessity for the world. Food, energy, water, medicine, transportation, and money are the traditional investment baskets. These are the sectors that make the world go round and should continue to provide investment opportunities because companies in these sectors are actively trying to manage the asymmetrical risks that we face.
For example, drought in the Middle East might lead to more conflicts, which might lead to increased refugee flows, and so on. As a result, climate change is one component of a larger picture that is exacerbating many global problems. Different types of solutions are required in this situation, such as energy supply, water consumption, infrastructures, building new capital cities and so on. And this means that there are going to be a lot of opportunities in these areas.
Finally, what are your personal sustainability objectives?
To disseminate more information about how individuals can affect the climate and environment. Too many people just leave it to the larger companies or the governments. We need more awareness and active participation.
I strongly believe that if we can activate the right segment of people, which I think is about 20% of the world population, we would be able to effect great positive changes. It is not going to be an easy task and moving forward, each of us will need to encourage each other continuously and muster a lot of will to power this through.
For myself, I envision a future world with a lot of social and technological breakthroughs plus many additional goodies but I guess none of that will matter if we cannot even pull through this challenge.
Zeng Han Jun is advisor to several companies around the globe, and puts his efforts in causes, people and organisations to make this world a better place. He can be contacted at his Linkedin profile.