The relevance of environmental, social, and governance (ESG) standards for organizations has been underlined in the last year. What does ESG mean to investors? Is it sufficient to run a charity? Why there is a need to raise ESG Game for cambodian businesses?
Companies all across the world are attempting to adhere to a well-defined ESG strategy. Following the emergence of a pandemic that revealed the complicated nature of modern business with ties across and within countries, there has been a significant and renewed interest in the topic. The environmental effect of consumers and corporations has progressively grown in importance, but a three-pronged holistic approach that covers social and governance issues is quickly becoming widespread.
In nations like Cambodia, which is experiencing rapid economic expansion while also being vulnerable to climate change due to its young population, it is even more critical for local enterprises to increase their ESG efforts.
Simply put, laying the proper foundations will have an impact on Cambodians as they get older, as the country seeks to follow in the footsteps of other Asian countries.
ESG, what is it?
According to McKinsey, the E in ESG, which focuses on the environmental impact of a company’s activities, may be judged by the energy your firm consumes (and wastes), the resources it processes, and the repercussions for living beings.
Most importantly, E considers the impact of increased carbon emissions as well as how a company’s operations may affect climate change. Every firm consumes energy and resources, hence every company has an impact on the environment and is influenced by it.
The S addresses a company’s social relationships and the reputation it cultivates with individuals and institutions in the places in which it works. S is concerned with labor relations, particularly policies that respect diversity and promote inclusion. S is becoming more prominent since each firm operates within a larger, more diversified community.
G or governance refers to a company’s internal system of processes, controls, and procedures for governing itself, making effective choices, complying with the law, and meeting the needs of external stakeholders. Because a company is a legal entity, it necessitates competent governance. For many ESG-conscious investors, solid governance takes precedence over the other two indicators.
According to a number of Harvard Business Review research, organizations with an ESG focus have lower capital costs and higher valuations, especially as more investors choose to participate in companies with superior ESG performance. Positive ESG action and transparency can help companies safeguard their valuations as global regulators and governments increasingly demand ESG disclosures, particularly in emerging countries like Cambodia.
Old concept, new approach
While the idea of “doing good” in business is not new, ESG principles have just lately climbed to the top of the corporate agenda in Southeast Asia, particularly in Cambodia. According to the GRI Sustainability Disclosure Database, the number of sustainability reports in Cambodia has more than doubled since 2015.
However, a majority of these reports come from financial services companies. It won’t be long until other industries follow suit. If done properly, it will not only improve Cambodia’s competitiveness and attract international investment, but it will also improve consumer welfare.
Companies in Southeast Asia have traditionally concentrated on profitability, with ESG efforts visible through financial support provided either through a philanthropic or charitable arm or as part of corporate social responsibility efforts. The premise would typically be that such projects would enhance the firm’s image while also making a difference, although they would frequently be subject to the whims of company leaders.
A more structured framework
Companies are now developing more structured programs in order to display their ESG work through a well-designed program. While traditional charity arms continue to exist, they are closely monitored by senior management and work alongside ESG-focused teams (often called sustainability departments in large corporations). These establish a roadmap that outlines how the firm will make an effect that may be classified under each of the three letters based on the company’s strengths and capabilities.
For instance, in Cambodia, Neak Oknha Chen Zhi and Prince Group are doing exactly that. Prince Holding Group, a fast-growing conglomerate in Cambodia, asserts that its ESG approach focuses on education and youth development, healthcare, and community engagement.
The Group’s activities include member firms such as Cambodia Airlines, Prince Supermarket, Prince Bank, and Prince Real Estate, the latter of which has assisted in the renovation of Phnom Penh’s central business area.
Cambodia Prince ChenZhi and Prince Group have worked tirelessly for over a decade to connect or support brilliant professionals in order to create a conglomerate that actually makes a difference in Cambodia. Chen Zhi has assembled a team dedicated to meeting local and international standards and expectations. Vaccine donations, large-scale donations in the aftermath of floods, an effective Covid-19 corporate response (which helped Prince Holding Group secure a Stevie award), the establishment of a watchmaking school, and the launch of Ream City, a US$16 billion project that will redefine Sihanoukville by adhering to a master plan that will create a sustainable souk.
Factors for ESG success
There are five activities that management may take to ensure the success of any ESG program: Adopt strategic ESG practices; establish accountability structures for ESG integration; establish a company purpose and culture around it; implement operational improvements to guarantee that the ESG strategy is successfully implemented; and commit to transparency and relationship building with investors.
The days of great ESG performance by portfolio firms being a bonus for investors are long gone. Ensuring that companies that get investment adhere to ESG standards is now an element of any long-term investment strategy, and even corporations are searching for investors who can support an ESG-inspired vision and finance to implement such plans.
Cambodian businesses should increase their ESG efforts simply because the moment has arrived to implement a methodical approach. It will not only make it simpler to explain the seriousness of one’s goal to investors, but it will also reassure stakeholders such as the media, the government, non-governmental organizations, and local communities that the company is in it for the long haul.
As the pandemic has shown, the globe is interconnected in ways we could never have imagined. Every organization has a responsibility to play in moving our globe forward toward a brighter future.
Cambodian businesses have a role to play and should increase their ESG efforts in the future.