You may have heard of the term ESG being bandied about frequently these days, but what is it all about?
Well, the term stands for Environmental, Social and Governance, which has become an important business strategy in recent times, and not just for big corporations.
ESG relates to the measurement of the sustainability and societal impact of an organisation, shared Ian Hong, 49, an ESG partner at KPMG Singapore, a professional services firm.
To break it down, the ‘environmental’ aspect covers issues such as waste and pollution, greenhouse gas emissions, deforestation, and climate change to name a few.
The ‘social’ aspect includes employee relations and diversity, working conditions, local communities, conflict, health and safety.
The ‘governance’ aspect involves a company’s leadership, executive pay, audits and internal controls, shareholder rights, and transparency.
Rising importance of ESG
Keith Woo, 34, who works in the Project and Export Finance team at an international bank with a scope on Renewables and Infrastructure, told Mothership: “Stakeholders are increasingly more informed and concerned about environmental and social sustainability.”
These stakeholders can include financial institutions, governments, or even the everyday investor.
Both Woo and Hong are not surprised by the increased importance of ESG over the years.
Hong added that organisations that prioritise ESG “are often seen as better long-term bets due to their proactive approach to mitigating risks”.
Not only so, Hong also shares that “consumers are increasingly basing their purchasing decisions on a company’s ESG performance.”
To add to its growing importance, regulatory bodies worldwide are also implementing stricter ESG-related regulations, said Hong.
That said, the concept of ESG was admittedly “very new” to Woo when he first stepped into the finance industry many years ago.
“There had not been a heavy emphasis on ESG when I first started work. Typically, the primary focus at the time was on financials with a secondary focus on ESG.”
No longer just about profit-making
Though most companies viewed ESG matters in silos previously, Hong shared that the current trends call for companies to consider sustainability alongside financials.
The “need to integrate ESG issues across all business areas as part of decision making” also depicts how the concept of ESG had evolved over time, Hong said.
Woo’s current work involves advising and funding sectors such as renewable energy through project financing, where projects “would have to be structured to ensure that financial risks are mitigated, whilst ensuring that ESG aspects are adhered to”.
Sharing further, Woo said: “These can be through site visits, environment and social (E&S) reports, an E&S action plan with milestone timelines, etc., so that companies can be accountable to stakeholders’ ESG requirements.”
He added that companies are diversifying their portfolio to include renewable energy investments or obtain a certain percentage of their electricity consumption from sustainable sources.
“It is quite fascinating when you see a large-scale solar plant where the number of solar panels go beyond the horizon.”
He also noted how sustainability issues have been widely published in various spheres, particularly in social media, which has led to the layperson being now more aware of its importance.
Added Hong: “We are moving into an era where there is greater demand for businesses to deliver real, positive impact on the environment and society. It is no longer just about financial performance and how much profit a company can make.”
In simpler terms, this means that companies have to show that their profits abide by their sustainability principles, and that their operations are not exploitative of their communities in order to attract talents and build customer loyalty.
Increased demand, more opportunities
The growing emphasis on ESG-compliant frameworks also means that it is an area for growth and opportunity for those looking for a career in the relevant sectors.
For one, accountancy and finance professionals play a key role in ensuring that ESG information is accurately reported and disclosed.
Woo stressed that ESG knowledge is not something that is difficult to pick up and is a skillset new job seekers in the field should be equipped with.
“Professionals are upskilling themselves by taking short courses on ESG – just have a look at your Linkedin updates and you will see people posting ESG or sustainability certificates,” he shared.
“Having this skill in your pocket would make you a stronger asset and definitely more marketable. At the very least, the everyday working adult should try to get some awareness of ESG.”
Added Hong, whose job involves working with companies to accurately report and disclose ESG information: “With ESG now a growing focus among companies, we are observing a greater demand for quality advisors and consultants who can help business leaders navigate ESG-related regulations and requirements.”
He added that many companies are also looking to develop a long-term ESG strategy, by “relooking their business structure and reporting on their ESG progress through voluntary or mandatory sustainability reports”.
ESG and the changing workforce
Hong pointed out the changing mindsets of the younger workforce and how it’s not enough for employees these days to work for just any company.
“Employees today want to be part of a purpose-driven firm that positively impacts the issues they care about, such as climate change and sustainability,” Hong stated.
As a result, it has become important for companies to convey a compelling employee value proposition, through their ESG strategies and direction, in order to attract and retain top talent, said Hong.
Despite an uncertain business landscape, both Hong and Woo, who are members of CPA Australia – a professional global accounting body that provides ESG-related courses among others – believe ESG considerations are here to stay.
“Much of the charge [for ESG compliance] has been Government-led, where sustainability ranks high in their agenda,” said Woo.
With business expected to play a larger role in addressing societal challenges such as climate change, inequality, and social justice, it “requires a deep understanding of ESG principles to navigate these complex issues effectively,” said Hong.
“Being well-versed in ESG will be necessary in staying relevant, regardless of which industry we are from.”
Aligned with personal values
As a father of four kids, Hong is invested in ESG-related work as it aligns with his personal values.
“I believe strongly in creating a sustainable and equitable world for future generations and this has influenced the choices I have made in my career. This is a strong motivator for many of us in my team because it is about coming together to solve problems in an uncertain world.”
Hong elaborated that it goes beyond just preserving physical resources, and it encapsulates the values of responsibility, transparency and care that his team hope to pass on to their children.
Besides being an advocate of ESG at work, Woo shared that these practices also apply to his personal life. These include buying second-hand goods, taking more public transport, and simply being more socially aware of people in need around him.
“Another example is catering food from local hawkers whom I know are struggling. Having these values are a good moral compass for families.”
Talk about being inspired.
This sponsored article by CPA Australia made this writer look into online ESG courses.
Photos courtesy of Ian Hong and Keith Woo