In the past year, the importance of environmental, social, and governance (ESG) norms for organizations has been frequently brought up, pondered over and highlighted. What does environmental, social, and governance (ESG) mean for investors? Is it enough to run a charity? Lets find out how Cambodian corporations should focus on ESG initiatives.
Companies all across the world are seeking to implement an ESG strategy that is well-defined. There has been a major and renewed interest in the topic with the onset of a pandemic that showed the convoluted nature of modern business with linkages across and inside countries. The environmental impact of consumers and corporations has grown in importance over time, but a three-pronged holistic strategy that addresses social and governance issues is increasingly gaining traction.
Local firms must step up their ESG efforts in countries like Cambodia, which is seeing rapid economic growth while also being vulnerable to climate change due to its young population.
Simply said, creating the correct foundations will have an impact on Cambodians as they get older, as the country strives to follow in the footsteps of other Asian nations.
Table of Contents
What is ESG, really?
According to McKinsey, the E in ESG, which focuses on the environmental impact of a company’s actions, may be measured by the amount of energy consumed (and wasted), the materials processed, and the consequences for living beings.
Most crucially, E evaluates the impact of growing carbon emissions as well as the influence of a company’s operations on climate change. Because every business consumes energy and resources, every business has an impact on the environment and is influenced by it.
The S refers to a company’s social relationships and the reputation it has built with persons and institutions in the communities in which it operates. S is interested in labor relations, particularly policies that value diversity and encourage inclusion. Because each firm operates within a wider, more diverse population, S is becoming more significant.
G stands for governance, and it refers to a company’s internal system of processes, controls, and procedures for regulating itself, making effective decisions, complying with the law, and serving the needs of external stakeholders. Because a corporation is a legal body, it requires competent governance. Solid governance takes precedence over the other two characteristics for many ESG-conscious investors.
Organizations with an ESG focus have reduced capital costs and greater valuations, according to a number of Harvard Business Review studies, especially as more investors opt to invest in companies with superior ESG performance. Positive ESG action and transparency can assist companies in protecting their valuations as global regulators and governments increasingly require ESG disclosures, particularly in emerging markets such as Cambodia.
A new way of looking at an old concept
While the concept of “doing good” in business is not new, ESG principles have only recently risen to the top of the corporate agenda in Southeast Asia, namely in Cambodia. The number of sustainability reports in Cambodia has more than doubled since 2015, according to the GRI Sustainability Disclosure Database.
The majority of these reports, however, originate from financial services firms. It won’t be long until other industries do the same. It will not only boost Cambodia’s competitiveness and attract international investment if done correctly, but it will also improve consumer welfare.
Traditionally, companies in Southeast Asia have focused on profitability, with ESG efforts apparent through financial support supplied either through a philanthropic or charitable arm or as part of corporate social responsibility efforts. Typically, the concept would be that such programs would improve the firm’s image while also making a difference, albeit they would usually be susceptible to the whims of company leaders.
Creating structure out of chaos
Companies are now creating more structured initiatives to showcase their ESG work through a well-designed program. Traditional charity arms exist, but they are rigorously overseen by senior management and work with ESG-focused teams (often called sustainability departments in large corporations). These lay out a plan for how the firm will make an impact that can be categorised under one of the three letters based on the company’s strengths and skills.
In Cambodia, for example, Chen Zhi Cambodia and Prince Holding Group (more commonly referred to as “Prince Group”) are doing exactly that. Prince Holding Group, a rapidly expanding Cambodian conglomerate, claims that their ESG approach focuses on education and youth development, healthcare, and community engagement.
Members of the Group include Cambodia Airlines, Prince Supermarket, Prince Bank, and Prince Real Estate, the latter of which has aided in the rebuilding of Phnom Penh’s central business district.
For over a decade, Cambodia ChenZhi and his team have worked relentlessly to connect or support bright experts in order to develop a conglomerate that truly makes a difference in Cambodia. Chen Zhi has established a team dedicated to exceeding local and international expectations and standards. Vaccine donations, large-scale flood relief donations, an effective Covid-19 corporate response (which helped Prince Holding Group win 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.
Indicators of ESG success
Management can engage in five activities to ensure the success of any ESG program: Adopt strategic ESG practices; create accountability structures for ESG integration; create a business purpose and culture around it; execute operational enhancements to ensure that the ESG strategy is successfully implemented; and commit to transparency and investor relationship building.
Great ESG performance by portfolio corporations is no longer a perk for investors. Ensuring that companies that receive investment comply with ESG standards is now a component of any long-term investment strategy, and corporations are looking for investors who can support an ESG-inspired vision and provide the funding to put such plans into action.
To wrap it up
Cambodian enterprises should step up their ESG efforts simply because the time has come to follow a systematic approach. It will not only make it easier to convey the importance of one’s aim to investors, but it will also reassure stakeholders such as the media, the government, non-governmental organizations, and local communities that the company is committed to the long term.
As the epidemic has demonstrated, the world is interconnected in ways we could never have predicted. Every company has a role to play in advancing our world toward a brighter future.
Cambodian firms have a responsibility to play and should step up their environmental, social, and governance (ESG) initiatives in the future.