Sustainability and ESG are considered as a similar concept, the one main difference sustainability is inexplicit whereas, ESG is precise and quantifiable. In recent period, sustainability is considered identical to “going green” or “reduced carbon footprint”. Sustainability comprehends the company’s efforts to lessen its impact on the world. Nevertheless, it might be a massive step ahead for the companies to take into consideration such an extensive concept. For that reason, sustainability has never been incorporated into most organizations. But companies that actively manage ESG sustainability have the beneﬁts in accomplishing shared value for both the business and society.
Sustainable performance in corporate sector includes the concept of the “Triple Bottom Line,” which companies incorporate in their business scheme with the focus to attain sustainable society and protecting the environment for the upcoming generations. In particular, if an organization needs to be sustainable, the impact based on their product and activities on the environment must be scaled down, ensure financial safety, must adopt strategies to develop reasonable benefits in harmonious with the outlook in society.
A 15-year long-term plan was projected by United Nations for sustainable development. “The 2030 Agenda for Sustainable Development” has made public health and other non-traditional safety encounters as a priority for the United Nations, paying more attention to promote and protect the right to survival and development, and set 17Sustainability Development Goals (SDGs) or also known by the Global goals. The investors and the company consider SGDs as a blueprint for performing their action.
The ISO 9000 series has undergone various amendments and upgradation, and has progressed from sustainable operation and management to the integration for a stable development. This sustainable development system is based on the three major features of economy, ecology and society. These features are expected to be harmonious with the sustainable development system and also balance amid professional and industrial necessities. In the future, the integration of management systems of enterprise needs to be taken into account, which can be called the “ESG – Integrated Management Systems. The integration of ESG strategies in management enables ﬁrms to develop a competitive advantage, increased operating efficiency and reputation, and waste reduction, thus improving the shared value and EES performance.
ESG management system mainly devoted to the regular and structured improvement of ESG performance, aimed to discover and manage the risks of ESG, planning activities, accountability, processes, and procedures which meets the ESG requirements and investors satisfaction. Environmental social management system (ESMS) is a vibrant and continuous process, commenced and supported by the company management which entails commitment among the customer, labors, communities and stakeholders. An ESMS comprises the following key elements such as policy, method to assess E&S risks and impacts, institutional capability, attentiveness during crisis, stakeholder commitment, and examining review. The companies which failed to execute the ESMS would lead to various risks. Ex. Fines and penalties, loss of operation license, decrease in production and quality of product, share market loss, market depreciation and reputational damage. The finest ESMS report is not a multifaceted but a comprehensive one which permits the client to detect the E & S risks and its improvisation over time (www.fintoolkit.cdcgroup.com).
This ESG Management System (ESGMS) delivers a step-by-step process to assimilate ESG criteria into its investment process. The ESGMS includes:
- An extensive ESG policy.
- ESG criteria in the current project investment process.
- Tools for ESG should be clearly defined, ESG risk assessment, stakeholder commitment, observing and summarizing requirements, and performance standard.
- Incorporation of the International standards (environmental and social).
- E & S risks assessment
- The company’s/project corporate governance criteria.
Advantages of ESG system
- The entire process has been considered in ESG, starting from data gathering to final reporting and presenting the data.
- Extensive view of various risks encourages to remove data silos and decrease the time to collect data.
- To enhance organizational flexibility, transparency, and accountability, the centralized management system would assist.
- A consistent company-wide system helps to estimate the organization progress and score.
- Flexibility in reporting made easier to update changes in the ESG standards.
- Centralized data storing have positive impacts on security.
Shortcomings of ESG management system
- Excessive focus on ratings.
- Companies rely on communications than laying some concrete efforts on managing ESG issues.
- Some organizations handover ESG responsibilities to an individual within the firm, which lead lack of involvement of board and senior management in viewing the ESG strategy.
- Some companies appear hesitant to go above and beyond minimum requirements for implementing ESG program.
- Due to lack of company-wide strategy, some companies may end up involving various standards in different department without clear analysis for inconsistency in business practice.
- Lack of assessment and successful monitoring of ESG performance hinder the company’s capability on its progress and obtain full credit for its current initiatives during the reporting.