Businesses in South East Asia are on the precipice of a new roadmap to sustainability as the environmental, social and governance (ESG) agenda gains traction in the region. Last year, the Association of Southeast Asian Nations (ASEAN) released the first version of the ASEAN Taxonomy for Sustainable Finance, a map to help guide relevant stakeholders towards activities that can promote the transition of activities in the real economy onto a more sustainable footing, as well as provide a framework for discussions.
ESG has become the new buzzword in today's corporate world, emerging as an imperative that businesses cannot ignore. This stems from the reality that today, businesses are being held more accountable for their corporate practices surrounding environmental policy, societal practices, and board governance.
In fact, regulators in Malaysia have already introduced the Climate Change and Principle-based Taxonomy (CCPT). Singapore is also on a similar trajectory with the Green Finance Industry Taskforce (GFIT) consultation having ended recently. Increasing regulatory changes are putting into perspective the sheer growth of ESG in the region.
Let’s set the stage – not only has ESG become well-known within the risk management industry, but it’s evolved to become one of the major considerations for investors and stakeholders, including employees, partners, and potential customers.
Most organisations also realise that good governance -- as it relates to one’s environmental and social impact -- fosters trust and transparency. Because of this, investors and asset managers alike are looking for businesses with sound ESG management programs that result in clear metrics. For example, the CEO of Goldman Sachs says the bank will only take a company public if it has at least one diverse board member.
Organisations that have implemented an ESG-enabled GRC platform have already taken a major step forward in being able to measure and report their ESG scores. The good news is that the data gathering framework is already there. It is just a matter of aggregating the ESG data into insights and intelligence from an existing GRC platform and measuring it against industry standards.
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Here are three things to consider to get started with developing and implementing an effective ESG strategy.
Impact of your employees
GRESB -- an organisation that provides financial markets with actionable insights, ESG data, and benchmarks -- points out that in the wake of the COVID-19 pandemic, certain social factors became more important than ever. These include “evolving societal expectations associated with the growing inequality between wealth and poverty, access to affordable housing, connection to nature, the gender and diversity gap, and an increase in mental illness.”
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These social factors correlate directly to enhanced employee satisfaction and in turn, evoke better relations between board members and those that work at the company. The 2021 Consumer Intelligence Series survey on ESG by PwC revealed that employees want organisations to do more, as 86% of respondents prefer to work for companies that care about the same issues they do.
Rewarding shared ESG values
Although corporations have long been interested in how culture drives measurable change, the ESG wave is now starting to take over boardroom discussions. The 2022 ASEAN Board Trends report developed by the Institute of Corporate Directors Malaysia (ICDM) together with six other Institutes of Directors (IoDs) across ASEAN, revealed that 63% of boards in the region think board development and capacity building are required to effectively internalise ESG principles.
While organisations have become more intrigued by ESG, climate and social responsibility regulations have come to the forefront as well, after being mostly unaddressed until the 21st century. According to the Deloitte 2022 CxO Sustainability Report -- which polled respondents from 21 countries (with 24% from the Asia Pacific region) -- 79% of executives see the world at a tipping point in response to the climate change issue, with 88% agreeing that immediate action can limit the worst impacts of climate change.
As the data shows, ESG is moving from simply an option to an imperative for businesses. ESG is increasingly making its presence felt in the boardroom, with some corporations starting to tie executive compensation to their organisations' ESG metrics. In fact, executives tasked with ESG-related targets are rewarded for achieving or exceeding the organisation's ESG goals.
Utilisation of pre-existing data points
Leaders should look for solutions that allow them to utilise pre-existing ESG data and align structured and unstructured data across multiple parts of their organisations. A great example of this is within the “environmental” category, which encompasses company energy use, carbon emissions, and electric-saving practices, amongst other metrics.
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While measuring an organisation’s carbon footprint may seem relatively straightforward, it requires examining various areas where carbon is used. This can include energy consumption in buildings, manufacturing costs and methods, as well as the costs and methods of travel and commuting.
Furthermore, leaders must also keep their ear to the ground and be mindful of regulatory changes within the dynamic ESG environment, as well as ensure shared ESG values leave every employee feeling heard. With the ASEAN Taxonomy in place, organisations need to align with the sustainable finance agenda or risk exposure to diminished brand equity that’s difficult to recover from.
The numbers are there, and the data tells a story that has become far too compelling to ignore: ESG is here to stay. Now, it’s up to businesses to take these raw numbers and translate them into an effective strategy as they embark on their ESG journey.
ESG is the next big frontier in governance, risk and compliance. Organisations that have implemented an ESG-enabled GRC platform have already taken a major step forward in being able to measure and report their ESG scores. Organisations that are still debating the importance of establishing an ESG strategy should be feeling the pressure to move quickly so that they can respond to this new market dynamic.
Michel Feijen is the managing director for APAC at MetricStream
