As more organisations start to think deeper about sustainability, conversations have begun to pivot towards ESG. But what exactly is ESG? In this article, we’ll attempt to break down this acronym and demystify the questions you may have around it.
ESG stands for Environmental, Social and Governance. Together, ESG forms a set of sustainability standards that organisations adhere to. It is also an area that investors look heavily into when deciding on where and how they want to support organisations. ESG is not to be confused with Corporate Social Responsibility (CSR). Because unlike CSR, which is often a corporate byproduct, ESG lies at the very heart of the business.
More than building a greener tomorrow
When we think about sustainability, it’s common to think about environmental sustainability. From tackling issues around pollution and waste to making greener choices, we are seeing more brands and companies head in the right direction. Global organisations like Google Cloud, for example, have even gone the extra step to develop a web feature where people can track their carbon footprint, following their promise to be a zero-emission company by 2030.
However, sustainability goes beyond just environmental factors. The “S” and “G” pillars of ESG, namely Social and Governance, play an equally important role in building the full picture and should not be overlooked. The Lien Centre for Social Innovation, for example, is an organisation with a strong social focus. This can be seen through the work we do to deliver diversity and inclusivity in Singapore.
Research around the migrant worker community and food insecurity are all part of the “S” (social) aspect of ESG. By doing a deep dive on the ground and understanding the communities that live among us, then sharing it with the wider community, we hope to further educate and equip relevant organisations with the information they need to do their part. This in turn would build an ecosystem of support and in the long run, a more sustainable way to help the people in need.
When we think about social innovation, we inadvertently focus on social sustainability. For example, as an AshokaU campus, the courses within Singapore Management University empowers students, faculty, and partners to innovate alongside each other to address various societal challenges. It focuses on the people, who act as key enablers for certain events to happen.
Then there’s Governance, which refers to a set of rules and processes that a company operates by. From hiring processes that focus on equal opportunities and diversity, to having a good mix of people from different backgrounds on the management level, the “G” pillar takes a more administrative perspective. To keep themselves in check, more organisations today are moving towards hiring Diversity, Equity and Inclusion (DEI) managers. According to an article in Channel News Asia, LinkedIn reveals that there are more than 200 professionals working in Singapore to date, in DEI related roles.
Why is the S important for E and G?
According to a report in the Harvard Business Review, all human beings “have an obligation to behave in prosocial ways.” It gives life meaning and purpose. On a practical level, the S part of ESG is important for E to be successful because it provides secure access to environmental resources. The social aspect addresses relationships within an organisation, and healthy relationships with stakeholders ensure that there’s a healthy pipeline to environmental resources, as well as an ethical supply chain. For example, the work we do at LCSI often involves partnerships or collaborations with other NGOs or social enterprises. Without a healthy working relationship, it can be difficult to realise a lot of the environmental initiatives that we do.
Likewise, S is important for good governance, or the “G” part of ESG. Organisational hierarchy, which is necessary for any organisation to operate independently, falls under Governance. Closely intertwined with that is the Social element that ensures transparency for ethical reporting. Beyond the human relationships that are formed within organisations, the S pillar also supports organisational structures.
To sum it up, it can be said that ESG acts like the DNA of an organisation. One cannot work without the other. And taking this one step further, S&P Global states, “embracing ESG has meant adopting the 17 [United Nations] Sustainable Development Goals (SGDs).” Instead of just looking at business profits, organisations should look at how they can make an environmental and societal impact. The business profits will then follow as a byproduct of ESG.
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