Environment, Social and Governance, the three words now in most of the Board of directors mind.
Whether they know what these three words entail and cover and what need to be done is another matter.
So What is Environment, Social and Governance or commonly known as ESG?
The whole business world is talking about ESG and every company jumps onto the bandwagon.
Whether they really care or not is another matter, as long as the public see they produce long reports at the end of the year in their annual report especially those public listed companies, that mean compliance with the listing requirement.
In Singapore case, that means they comply with SGX listing requirement in terms of reporting.
Does the authority really check whether the companies comply with the requirement?
Or is it another publicity stunt done for the sake of showing compliance.
Businessmen will tell you ESG will increase their cost of operation, therefore, to comply with it, they need additional fund to do so.
Now on Environment.
Nowadays every one cares about the earth and trying to make sure climate change impact is at the minimum.
The big question is – is every one serious about this issue? environment?
Nowadays public listed companies are required to produce in its annual report on sustainability and diversity disclosure in the annual report,
So, does it help in improving the climate changes and save the EARTH?
For those who like to print the annual reports in hard copy, that mean more pages on the annual reports.
More pages in the annual report mean more papers being used to produce the annual report.
With the increase in pages in the annual report, the paper manufacturer needs to produce more papers, then they have to cut more trees in order to produce more papers.
So much for sustainability of environment.
The next question is whether the board members know what they are supposed to do on ESG?
It will be interesting to know as we can notice most of the independent directors on boards are not that equipped in the subject matter.
Every good learning issue start from home.
If we want to do good, we have to start somewhere.
Therefore, to really deal with ESG, every one needs to put in his share of the work.
People nowadays have the habit and mentality of this is no my problem, it is the responsibility of the authorities and the government of the day to take care of the environment issue, and in the broader sense, ESG.
Carbon emission is one issue which affect the climate.
So can the directors go to meeting without taking a motor vehicle?
walk up the stair instead of taking the lift, since lift use power to get it moving.
And the power is from power station which is using coal, fuel, diesel to generate, and the emission of carbon is an issue.
Now on the Social issue.
Most of the time, if you ask a company to shoulder social responsibility, they will just tell you the bottom line is more important.
The motto of we must achieve a positive bottom line at all cost is more important than anything else.
So now companies need to take care of the Social factor in the ESG.
What do the companies need to do in term of Social factor in ESG?
the Social factor is about how the company manage its relationship with its employees as well as the community in which it is operating.
The relationship between the employer and employees are evolving, especially in the last few years at the height of the COVID 19 pandemic.
How a company treats its employees, inspire the employees, up skill and engage the employees go a long way to decide whether the employers are able to retain the employees.
Nowadays employees will look at how the employers take care of the staffs to decide whether it is worth to continue working in that environment.
People are more aware of the surrounding and working environment especially after going through the pandemic.
Employees now more likely choose to work with an employer who has social responsibility and showing more humane touch.
Those whose main objective is to make as much as possible at the exploitation of the staffs will find difficulty in keeping good employees.
Therefore, to drive ESG forward, human capital is the main contributing factor, and driving force to determine whether your effort in achieving ESG target is reachable or not.
now let talk about governance.
Most people have an impression that governance is just making sure every thing is done according to the rules and regulations.
Actually governance entail larger area than this.
Having a strong governance structure allow a company to ensure its business ethics and transparency are more visible and can reinforce trust in its leadership.
If a company is able to put in place a good governance policies, this will make the Board executing its fiduciary responsibility easier and at the same time, this can also help to manage the cost of operation.
Most people do not realize a good governance can help to reduce cost of operation.
When facing hard time, most businessmen like to take the easy way by cutting the staff force, instead of finding ways to reduce cost other than the human cost.
Cutting human capital must be the last resort for a company facing hard time.
Unfortunately, cutting human capital is the first step most businesses do when facing hard time.
By doing so, they seem to have forgotten the ESG factors.
This is what I said earlier, a lot of ESG measures are just for show, merely to satisfy the government requirement, how it is implemented, does not matter at all.
After all, is there any penalties for not compliance with ESG?
How importance is human capital for an organization?
Businesses need to look at the followings if they really care about human capital:
- staff turnover.
- Staff development.
- Occupational health and safety.
- Gender diversity
- age based diversity
- staff welfare and benefit.
If an organization fails to give the staffs a sense of belonging, it will not be able to hold on the staffs, especially those good staffs.
Sadly most bosses do not seem to understand the importance of human capital,
human capital as intangible assets have value shown in the financial report, if the bosses can understand the importance of it, then the ESG will be implemented properly and effectively.
In conclusion, ESG is here to stay and companies need to pay more attention to it.