Over the last year, the importance of environmental, social, and governance (ESG) principles for organizations has been emphasised. How are investors defining ESG? Is it enough to run a nonprofit?
Companies all across the world seek to follow a clear ESG plan. There has been a significant and rekindled interest in the topic following the pandemic outbreak that highlighted the linked and complex structure of modern international trade. The significance of consumer and corporate impact on the environment has grown over time, but a three-pronged holistic view that takes social and governance concerns into account is becoming more and more popular.
It is even more critical for local enterprises to step up their ESG efforts in countries like Cambodia, which is going through a rapid economic boom, is vulnerable to climate change, and has a youthful population.
As Cambodia ages and strives to emulate other Asian countries, laying the right foundations will have an impact on its citizens.
According to McKinsey, the E in ESG may be assessed based on the energy your organisation uses (and the waste it emits), the resources it processes, and the impacts on living things. The E in ESG focuses largely on the environmental impact of a business’s activities. E primarily focuses on the impact of rising carbon emissions and how business practices may influence climate change. Every company uses resources and energy, hence every company affects and is affected by the environment.
The S focuses on a company’s social connections and the reputation it builds within the communities in which it operates. S focuses on workplace practices that support inclusion and diversity. S is becoming more significant since each company operates within a bigger, more diverse population.
An organization’s internal system of policies, regulations, and procedures that it uses to manage itself, make wise decisions, abide by the law, and meet the needs of external stakeholders is referred to as its governance. Every business needs competent governance since it is a legal structure. Many ESG-focused investors give strong governance a higher priority than the other two criteria.
According to several Harvard Business Review studies, businesses that prioritise ESG will have better valuations and lower capital costs since more investors want to invest in businesses that do well in this area. Proactive action and openness on ESG concerns may aid businesses in maintaining their valuations as international regulators and governments increasingly enforce ESG disclosures, particularly in emerging economies like Cambodia.
An idea that’s gathering support
Although the idea of “doing good” in business is not new, ESG principles have just recently become a major priority for corporations in Southeast Asia, particularly in Cambodia. The GRI Sustainability Disclosure Database shows a more than doubling in the number of sustainability reports in Cambodia since 2015.
However, the financial services sector is where the majority of these claims come from. But it wouldn’t be long until other sectors did the same. If done properly, it would not only boost Cambodia’s competitiveness and draw international investment, but it will also enhance consumer welfare.
Historically, businesses in Southeast Asia have prioritised profitability above all else, with ESG efforts manifesting as financial support given through philanthropic or charitable arms or as part of CSR programmes. While they are usually susceptible to the whims of business leaders, the typical concept behind such initiatives is that they would improve the company’s reputation while also making a difference.
A more organised approach
Companies are now creating more structured programmes with the goal of showcasing their ESG efforts through well-designed programmes. Traditional charity arms are still in operation, but they are constantly being watched over by senior management and working with ESG-focused teams (often called sustainability departments in large corporations). Each of the three letters refers to a road map that shows how the organisation will have an effect, depending on the company’s strengths and talents.
A noticeable example is the business group of Cambodian entrepreneur Chen Zhi Cambodia, Prince Holding Group.
A fast-growing and rapidly expanding conglomerate in Cambodia, Prince Group has its ESG strategy placing a strong emphasis on community involvement, healthcare, as well as youth and educational development.
Other business units within the Group include Cambodia Airlines, Prince Supermarket, Prince Bank, and Prince Real Estate, the latter of which helped in the restoration of Phnom Penh’s central business district.
Chen Zhi and Prince Group have put in countless hours to promote or unite great people in order to create a conglomerate that actually serves Cambodia. Zhi Chen A team that aspires to meet and exceed regional and global expectations has been created in Cambodia.
This has included the launch of Ream City, a US$16 billion project that will reshape Sihanoukville by adhering to a master plan that will create a sustainable living solution for the benefit of Cambodia, the donation of vaccines, significant donations in response to floods, an effective Covid-19 corporate response, which helped Prince Holding Group win a Stevie Award.
Vital to the success of ESG
The following five steps can be taken by management to ensure the success of any ESG programme: Develop accountability frameworks for ESG integration, adopt strategic ESG practices, decide on a company purpose and create a culture around it, and implement operational enhancements to ensure the ESG strategy is effectively carried out, and pledge to transparency and investor relationship development.
Investors no longer benefit from portfolio companies’ strong ESG performance. Any long-term investment strategy today includes ensuring that enterprises receiving investment comply with ESG norms, and businesses are actively looking for investors who can support an ESG-inspired vision and provide the funding to realise such plans.
To conclude, firms in Cambodia should step up their ESG efforts now that the time has come to take a deliberate approach. Additionally, it will reassure interested parties—including the media, the government, non-governmental organisations, and locals—that the business is dedicated to being in business for the long haul.
The outbreak has shown how intricately intertwined the world is in ways that were previously unthinkable. Every company can help move the world in the direction of a brighter future.
Businesses in Cambodia have a duty to take action, and hopefully, they will do so in the future.