How to Adopt ESG Principles
Sustainability is a much-needed practice but some think it’s not yet vital to adapt to its principles. Rizky Wisnoentoro, PhD and scholar in the field of sustainable development, deliberates on benefits and how businesses can shift to, and practice, ESG ethics. This article was first published in In Focus issue 11 magazine.
The metaphor of ‘boiling frog syndrome’ – when the frog realised its impending death too late – woke me up to prepare one fundamental aspect: gradually but surely, nature is changing and so is the socio-economic life at large. We will face the same fate if we fail to adapt. Interestingly, some would say that sustainability may be important, but it’s hardly an emergency. Should we wait until it’s an emergency to make a change and will we still exist when the state of emergency turns into recovery?
Deep down at the root of philosophical thought, ESG is a balance between looking back to what was and looking forward to can could be. It’s good to learn from the past, but at the same time we have to mitigate and project the future. With that said, it’s important to alter the volatility, uncertainty, complexity and anxiety at present for a better future.
Indeed, humans are facing imminent problems with natural as well as socioeconomic and geopolitical wellbeing. As released by ourworldindata.com in early 2022, 31 per cent of global energy depends on oil. At the same time, it emits 720 tonnes of CO2-equivalent emission per gigawatt-hour of electricity and inflicts 18.4 deaths per terawatt-hour of energy production. Meanwhile, 58 million primary school-aged children worldwide don’t have access to proper education. It includes 12.8 million in South Asia, 2.7 million in MENA, 6.2 million in East Asia and the Pacific and 33.8 million in sub-Saharan Africa. Also, two per cent of children in Europe and Central Asia, as well as three per cent of children in Latin America and the Caribbean.
So, not only does our waning Mother Earth faces the imminent environmental problem, the vortex of poverty may appear to become a roadblock in advancing human development at large. A 2021 ILO report stated 255 million jobs lost during COVID-19 pandemic and 85 per cent of the world population lives in poverty at below USD30 of income per day. In satire addition, nine per cent of the world’s population live in extreme poverty, which is below USD 1.90 of daily income. Adding salt to the wound, the situation is worsened by the pandemic, war and inflation. Food insecurity and energy crisis are among the most critical problems.
In other words, we live under the same sky and breathe the same air. With the imminent problems happening, change is inextricable. Currently, businesses are obliged to contribute in any efforts to solve problems of the ecosystem.
How and What to Change?
First and foremost, it begins with the mindset. A decade ago, ESG was known as CSR and it was merely perceived as charity. It was also regarded as a responsibility of the company after taking advantage of the environment to gain profit. In peripheral area, practising CSR enhanced the corporate image in a positive way. However, the impact of hit-and-run charitable activities is highly questionable. Internally, it brought severe consequences, most especially the cost in lieu of productivity of the company itself. This brought the subsequent problem of resiliency. Externally, impact of the program on the society and environment was also questionable.
Now, it’s simply logical to ask: with a single-hit donation, how could we measure its positive impact to society and environment? Therefore, we need a holistic transformation internally and externally. It begins with the mindset among shareholders and hence derived into strong commitment for action among the board members. ESG is not only to be placed at the peripheral area (hit-and-run donation), but also to the core business portfolios as well as governance, risk management and compliance.
In this instance, it’s important to clinically examine that the programmes bolster the company’s need for resiliency in facing impending challenges, as well as contribute to the ecosystem at large. In this regard, visionary leadership matters. Subsequently, it needs to be cascaded down into specific human capital development programme. Nonetheless, it’s important to immerse ESG programmes into key performance indicator system. Therefore, leaders’ commitment as well as vision will be executed thoroughly and evaluated comprehensively. At the same time, corporates have more chances to secure short-term growth and provide long-term impact in the future.
Exploiting Tech for Greater Good
Riding the wave of digitalisation might be a potential move to secure efficiency. Automation, in this instance, may help companies enhance productivity and reduce unnecessary cost. Apart from the risks of data security and digital waste, the era of digitalisation brings along new opportunities.
As digested from Venkatraman (2017), as well as Porter and Heppelmann (2017), the digitalised business may strategically help enhance the company in many ways. The implementation of big data, analytics and AI, for example, will strategically affect key decisions among leaders. Enhancement of social web will help company handle their customers better and mitigate potential crisis. It’s not to mention the use of IoT, robotics, drones or 3D printing that may help enhance smart factories or services. Added by cognitive computing and immersive realities of both AR and VR, these options will help companies to be more resilient, govern and open for new business opportunities.
That said, the virtual social capital and ‘virtualpreneurs’ will gain momentum in the next two decades. New virtual groups or communities will rise, along with the trend of empathy and humanity. Thus, tech advancement will enhance industries such as health, telco, gaming or tech-based travel and tourism. It may also shed a new light for home-related industries such as interior design or home appliances.
Moreover, in post-pandemic context, the presence of technology will enhance the creation of environment-friendly businesses. At the same time, it will also have a spinal role to eradicate poverty. In this matter, technology is important to bolster productive social finance. In the context of Islamic finance, technology will significantly help bolster the maximisation of zakat and waqf to be distributed for more productive orientation. Hence, it may lead to the form of smart cities and strong communities.
Kickstarting a New Era
Digitalisation may also expedite the effort to help create new jobs among the poor. Some unemployed people, for example, may have better lives by becoming a food vlogger building their own solid teams and attracting sponsors. Meanwhile, SMEs may be able to enter the new market and interact with potential new buyers once they tap into the digital market. The digitalisation era is no longer about company-centric mindset. At this point, customer-centric paradigm might also be obsolete. As it may lead companies to the unnecessary conflict that will only inflict inefficiency of energy and resources.
It’s now time for collaborations. The future belongs to those who are able to carefully select what kind of problem in the ecosystem that they want to contribute their solutions to. Therefore, selecting partners in the business model would be a strategic decision. A partner should be the one to complement the company in providing solutions for the ecosystem. Hence, achieving the same goals that contribute to the society at large. Be it in the context of socio-economic wellbeing, or environmental conservation. From here, businesses and their partners may have more chances to sustain growth in an ever-changing world.
Last Words
The future belongs to companies that are able to demonstrate their corporate shared values, instead of merely highlighting their competitive advantage. It’s currently time for companies to feature how good they are in balancing ‘what we get’ and ‘what we contribute’. More importantly, companies who are able to orchestrate, lead and serve the ecosystem will thrive. While others, who are still too busy with the short-term indicators, may potentially suffer into cataclysmic deterioration.
Lastly, all of these converge into one fundamental aspect: consistency or istiqamah. In this instance, the consistency in the execution matters, as it leads to better governance, sustainable growth as well as reporting. Subsequently, this reflects the immense need to invest in human and humanity. I believe, in any program that we implement, developing people is an immense advantage. Preparing Gen Z to lead, for example, will eventually be advantageous for the company to mitigate digitalisation challenges. The future lies in our adaptability, agility and the process of networking in order to provide solutions for the degenerating ecosystem.
