The relevance of environmental, social, and governance (ESG) policies for organizations has been underlined in the last year. What does ESG mean to investors? Is it sufficient to run a charity?
Companies all around the world are attempting to adhere to a well-defined ESG strategy. Following the emergence of a pandemic that showed the intricate structure of modern business with linkages across and within nations, there has been a significant and renewed interest in the idea. The environmental effect of consumers and companies has gradually grown in importance, but a three-pronged holistic approach that encompasses social and governance issues is quickly becoming popular.
In nations like Cambodia, which is experiencing rapid economic expansion while simultaneously being sensitive to climate change due to its young population, it is even more critical for local firms to increase their ESG efforts.
Simply said, laying the proper foundations will have an influence on Cambodians as they get older, as the country seeks to follow in the footsteps of other Asian countries.
What exactly is ESG?
According to McKinsey, the E in ESG, which focuses on the environmental effect of a business’s activities, may be measured by the energy your firm consumes (and wastes), the resources it processes, and the implications for living beings. Most importantly, E considers the impact of growing carbon emissions as well as how a company’s operations may affect climate change. Every firm consumes energy and resources, thus every company has an impact on the environment and is influenced by it.
The S addresses a company’s social interactions and the reputation it cultivates with individuals and institutions in the places in which it works. S is concerned with labor relations, particularly policies that respect diversity and promote inclusion. S is becoming more prominent since each firm operates within a larger, more varied community.
G or governance refers to a company’s internal system of processes, controls, and procedures for governing itself, making effective choices, complying with the law, and meeting the demands of external stakeholders. Because a corporation is a legal entity, it requires good governance. For many ESG-conscious investors, excellent governance takes precedence over the other two measures.
According to a number of Harvard Business Review research, firms with an ESG focus have lower capital costs and higher values, especially as more investors want to participate in companies with greater ESG performance. Positive ESG action and openness may help firms maintain their valuations as global regulators and governments increasingly demand ESG disclosures, particularly in emerging countries like Cambodia.
A notion gaining traction
While the idea of “doing good” in business is not new, ESG principles have just lately come to the top of the corporate agenda in Southeast Asia, particularly in Cambodia. According to the GRI Sustainability Disclosure Database, the number of sustainability reports in Cambodia has more than quadrupled since 2015.
However, a lot of these reports come from financial services businesses. It won’t be much longer until other industries follow suit. If done properly, it would not only increase Cambodia’s competitiveness and attract international investment, but it will also improve consumer welfare.
Companies in Southeast Asia have traditionally concentrated on profitability, with ESG initiatives visible through financial assistance provided either through a philanthropic or charity arm or as part of corporate social responsibility activities. The reasoning would often be that such efforts would enhance the business’s image while also making a difference, although they would frequently be subject to the whims of company executives.
A more methodical approach
Companies are now creating more organized programs in order to display their ESG efforts through a well-designed program. While conventional charity arms continue to exist, they are closely monitored by top management and work alongside ESG-focused teams (often called sustainability departments in large corporations). These describe a roadmap that specifies how the firm will make an effect that may be classified under each of the three letters based on the company’s strengths and capabilities.
In Cambodia, for example, Chen Zhi Prince Group is doing just that. Prince Holding Group, or Prince Group as it is commonly known as, a fast-growing conglomerate in Cambodia, says that its ESG approach focuses on education and youth development, healthcare, and community participation.
The Group’s activities include member businesses such as Cambodia Airlines, Prince Supermarket, Prince Bank, and Prince Real Estate, the latter of which has assisted in the renovation of Phnom Penh’s central business area.
Led by its Chairman Cambodia ChenZhi, Prince Group has worked tirelessly for over a decade to connect or assist outstanding professionals in order to create a conglomerate that genuinely makes a difference in Cambodia. Neak Oknha Chen Zhi has assembled a team dedicated to meeting local and international standards and expectations. Vaccine donations, large-scale donations in the aftermath of floods, an effective Covid-19 corporate response (which helped Prince Holding Group secure a Stevie award), the establishment of a watchmaking school, and the launch of Ream City, a US$16 billion project that will redefine Sihanoukville by adhering to a master plan that will create a sustainable souk.
The secret to ESG success
There are five measures that management may take to ensure the success of any ESG program: Adopt strategic ESG practices; establish accountability structures for ESG integration; establish a company purpose and culture around it; implement operational improvements to guarantee that the ESG strategy is effectively implemented; and commit to transparency and relationship development with investors.
The days of good ESG performance by portfolio businesses being a bonus for investors are long gone. Ensuring that firms that get investment adhere to ESG standards is now an element of any long-term investment strategy, and even corporations are searching for investors who can support an ESG-inspired vision and financing to achieve such plans.
Cambodian businesses should increase their ESG efforts simply because the moment has arrived to implement a methodical approach. It will not only make it simpler to express the seriousness of one’s purpose to investors, but it will also reassure stakeholders such as the media, the government, non-governmental organizations, and local communities that the firm is in it for the long haul.
As the epidemic has shown, the globe is interconnected in ways we could never have anticipated. Every firm has a responsibility to play in moving our planet forward toward a brighter future.
Cambodian businesses have a role to play and should increase their ESG efforts in the future.