What is ESG and why? ABeam Consulting support acceptable solution for ESG (Environmental, Social and Governance) Management

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The Earth is screaming. Pollution (e.g. emission gas, CO₂, dust, etc.) emitted by human beings in their daily lives destroys natural habitats and raises Earth temperature, triggering abnormal weather throughout the world. A constant lack of snow in ski areas, heavy rainfalls, which causes flood damage, garbage thrown in the mountains or scattered around beaches. Pollution destroys the ecosystem, collapsing beautiful corals, causing insects and sea creatures diminishing from their surroundings.

Deforestation and burning forests, triggering temperature raise across the world, without realizing effecting our children born with allergies and respiratory disorders.

As many commercial companies continue to prioritize profit-earning, industries are uninformed to the fact their own factories releases CO₂ smoke, destroying the ozone layer, and massively producing wastewater containing chemicals. Industrialization plays a major part in global warming and depletion of our environment.

In spite of these issues, more and more people are aware that if we do not take action to protect the Earth, it will become difficult to live a normal life, and many are beginning to take measures to save the environment.

ESG is a concept that emphasizes three factors for a company to achieve long-term growth. The three elements are “Environment”, “Social”, and “Governance”, forming “ESG”, which is the acronym of each word.

Environment: Consideration for protecting the natural environment.

e.g. Efforts to save energy and reduce CO₂ emissions by considering environmental pollution and biodiversity

Social:  Consideration of current social issues.

e.g. Consideration for Labor Environment and Human Rights issues, as well as contributing to local societ

Governance: Consideration for various corporate management systems in political correctness and high transparency

e.g. Equality between men and women, numbers of outside board directors, proactive dividend allocation
and profit sharing to stakeholders

ESG concept started from “PRI (Principles for Responsible Investment)” initiatives, which include the “ESG” requirement to the commercial company. The concept was announced by the Secretary General of the United Nations, Mr. Kofi Annan, in 2006 mainly focusing on the Finance Industry. This principle does not have any legally binding effect on the companies but is widely adopted in many organizations, starting from the publicly held companies traded in New York Stock Market, Europe and slowly gaining hearing around the world

Key points for companies to enable ESG:

• Various external factors such as natural environment and local societies that have direct influenced to the growth of companies.
• Due to aggressive business expansion, scandals such as environmental pollution and labor problems became prominent.
• Negative aspects of capitalism, such as disparity in economic power and destruction of nature, have come to be regarded as problems

Once again, the increasing profit seek by companies worldwide has led to various environmental and social problems. In order to prevent such result, a new concept called ESG was proposed and widely spread around the world.

“ESG management” is when company incorporate ESG concept. The number of companies working with ESG management is steadily increasing. So why is ESG management so important?

The scaling of investments on a global level may have contributed to the increasing number of ESG vested models. Investors are looking into companies that incorporate this model as part of their social responsibility activity. This number will increase as ESG spreads throughout the world, meaning that many investors' money will focus on companies working with ESG activities.

Then what should companies do? The following points are the major categories of ESG activities.

• Product
  Appeal to consumers who purchase products with a focus on mental value, such as green consumption and local production for local consumption.
   
• Employee
  Reviewing the working environment will increase productivity, and as a result, will be evaluated in terms of governance.
   
• Customer/Value Chain
  By reviewing the production system and commercial distribution channels up to now and re-develop various customers across regions and industries.
   
• Investor Relation
  Disclose and explain the ESG effort and activities

Investors who are interested in ESG are not the only target that can be appealed through this concept. It can also be a means to grow a company in a short period of time because it can lead to the development of new customers and business partners.

Recently, in Europe, legal development has already been strengthened, and global guidelines and standards are being set. In other words, we are steadily preparing for global penetration, hence it is a necessity to understand ESG. In addition, ESG is closely related to sustainable development goals in which can surge investors’ interest.

ABeam Consulting has started an advisory service on ESG management, assisting companies with information and ways to achieve a balance and sustainable management.

July 2020

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