In recent years, there has been growing awareness of the need for businesses to go beyond mere profit-making and take a more holistic approach to their impact on society and the environment. This has led to the development of the ESG (Environmental, Social, Governance) framework, a set of criteria used to evaluate companies on their sustainability and societal impact.
The ESG framework is gaining increasing prominence in the business world, with investors and stakeholders seeking greater transparency and accountability from companies. While ESG was initially seen as a way to mitigate risks, it has now become an essential part of business strategy, sharing companies’ impact on society and the environment.
In this article, let’s explore:
- What the ESG framework is about
- Why is it important for businesses
- The difference between CSR and ESG
- Who should put efforts into applying the framework
- The importance of this framework for our planet’s sustainability and resources
- The role that communications can play in driving the ESG strategy and impact measurement
So, what is the ESG framework?
The ESG framework is a set of standards that companies can use to measure and report on their environmental, social, and governance performance. The framework is designed to help companies consider the impact of their operations on the environment, society, and stakeholders. The ESG framework goes beyond traditional financial reporting *metrics?* to include non-financial factors, such as carbon emissions, diversity and inclusion, employee health and safety, and ethical business practices.
Why is the ESG framework important for businesses?
Aside from helping them build sustainable and responsible practices into their business model, companies can improve their impact on society and the environment, attract capital, and enhance their reputation. In addition, investors and other stakeholders are increasingly looking for companies that demonstrate strong ESG performance, which can lead to increased customer loyalty and improved financial performance.
CSR and ESG: What’s the difference?
Corporate Social Responsibility (CSR) is a term used to describe a company’s voluntary actions to improve its impact on society and the environment. It is often seen as a philanthropic activity, such as donating to charities. In contrast, the ESG framework is a more structured approach to measuring and reporting on a company’s impact on the environment, society, and stakeholders. While CSR is a part of ESG, the ESG framework is more comprehensive and can drive real change within an organisation.
Who SHOULD put efforts into applying this framework?
Needless to say, every organisation, regardless of size or sector, should put all their efforts into applying the ESG framework. Companies that embrace the ESG framework can build sustainable and responsible practices into their business model, which can benefit them in the long run.
Additionally, investors are also increasingly looking for companies that demonstrate strong ESG performance, so this helps businesses attract capital and improve their valuation.
Here are some examples of business and organisations that have developed effective communications and ESG strategies:
Unilever is a multinational consumer goods company that has made significant progress in its ESG commitments. The company has a clear sustainability strategy, which includes targets for reducing its environmental impact and improving the social and economic well-being of its employees and the communities it operates in. The company has also developed a comprehensive ESG report that communicates its progress towards these goals in a transparent and accessible manner. This has helped the company build trust with its stakeholders and attract socially-responsible investors.
Patagonia is an outdoor clothing and gear company that has been a pioneer in sustainability and responsible business practices. The company has a strong ESG strategy that includes targets for reducing its carbon footprint, promoting fair labour practices, and protecting natural resources. The company has also developed effective communications around its ESG commitments, using storytelling and visual media to engage customers and build a sense of shared purpose. In 2018, their purpose was changed to “We’re in business to save our home planet.” Recently, it has also established two new groups i.e. the Patagonia Purpose Trust and the Holdfast Collective, and will put any profit that is not re-invested into the business to combat climate change.
Nestlé is a multinational food and beverage company that has faced a lot of criticism in the past for its environmental and social practices. However, in recent years, the company has made significant progress in its ESG commitments, including a commitment to achieve net-zero greenhouse gas emissions by 2050. Nestlé has also developed a comprehensive ESG report that communicates its progress towards these goals in a transparent and accessible way. This has helped the company regain trust with its stakeholders and improve its reputation as a responsible business.
Our country, Malaysia, has also hopped on the ESG bandwagon with some of the well-known companies developing their own communications and ESG strategies. Here are some examples:
- YTL Corporation
YTL is a conglomerate that operates in various sectors, including construction, power generation, and hospitality. The company has a strong commitment to sustainability and has developed a comprehensive ESG strategy that includes targets for reducing its carbon footprint, promoting diversity and inclusion, and supporting the communities it operates in. YTL has also developed effective communications around its ESG commitments, using its website and social media channels to engage stakeholders and communicate its progress; thus, improving its reputation as a responsible business.
- Tenaga Nasional Berhad (TNB)
TNB is a Malaysian electricity utility company that has made significant progress in its ESG commitments. Initiatives under its sustainability strategy include reducing its carbon footprint and promoting renewable energy sources. TNB has also developed a comprehensive ESG report that communicates its progress towards these goals in a transparent way. The company is also organising an Energy Transition Conference in August 2023 to prompt solutions and inspire collaborations across different economic sectors.
- Sunway Group
Sunway is another Malaysian conglomerate that operates in various sectors including construction, real estate, and healthcare. The company is committed to sustainability and has often drawn inspiration from the 17 United Nations Sustainable Goals (SDGs). Some of the measures taken to comply with ESG standards consist of installations of water treatment facilities and solar panels across its township, and 30,000 trees have been planted in the township’s vicinity that can potentially offset 550 tonnes of carbon dioxide per year. Sunway also has plans to form more strategic partnerships and to learn from ESG experts in order to continue growing the company without causing more environmental damage.
Understandably, large corporations are more likely to have the resources to undertake such commitments and initiatives. But that doesn’t mean that small and medium-sized enterprises (SMEs) can’t join the long game too. The first step in the right direction is often overlooked but by following some key steps, it is no longer an overwhelming endeavour for many.
Some key steps:
- Identify relevant ESG issues
- Develop an ESG strategy
- Integrate ESG into operations
- Communicate authentically and effectively
And to use communications effectively in the ESG strategy, SMEs can consider the following:
- Develop a clear and concise message that is aligned with the company’s overall brand and values
- Use appropriate channels to communicate their ESG message to their stakeholders (E.g. annual reports, press releases, social media channels)
- Engage and seek input from stakeholders on company’s ESG strategy
- Provide transparency reporting on ESG commitments and progress to build trust, accountability and credibility
Less talk, more action
ESG is not and should not be seen as a trend or an afterthought that companies can choose to consider only when it suits them. It is a necessary shift in business practices that organisations must embrace to contribute to a more sustainable future. We should have prioritised ESG long before it became a buzzword, and the time to act is now. After all, without a healthy environment, there won’t be any business left for any of us to run.
While communications play a vital role in ESG, authenticity is key. Companies must align themselves with the cases they support and become advocates for change. It is not enough to pay lip service to ESG; it must be backed up with genuine actions. By prioritising ESG and taking a stand for what we believe in, we can contribute to a better future for our planet and society.