From CSR to ESG: Doing well and doing good

Last week, an ASEAN Sustainability E-Summit was held with the theme, Private Sector in Solidarity with Sustainable COVID-19 Recovery and Delivering the Sustainable Development Goals (SDGs). The Global Reporting Initiative (GRI) and the SM Group, one of the region’s largest conglomerates, organized the event.

The main topics discussed were: Next generation leadership: the driving force for sustainability; how financial markets are driving demand for more sustainable business practices; the purpose-driven business: lessons from the pandemic, and starting the journey to credible net-zero target achievements.

In a parallel initiative, the Ayala group held an integrated summit on corporate governance, risk management and sustainability on the theme, pathway to recovery through Environment, Social and Governance (ESG) principles. Subsequently, its President and CEO Fernando Zobel de Ayala announced a “commitment to achieve net zero greenhouse gas emissions by 2050” that aligns with “the global movement for climate action as our way to help secure our country’s future from the threats brought by climate change.”

These auspicious developments reflect the coming of age of leading Philippine corporations — a process of evolution and growth that began more than five decades ago.

In 1970, the year when student activism moved from school campuses to urban communities, public plazas and to the countryside, the Philippine Business for Social Progress (PBSP) was established. Some 50 business leaders pledged to set aside one percent of their companies’ net income before taxes for poverty reduction programs.

After the triumph of EDSA People Power in 1986, the League of Corporate Foundations (LCF), which advocates philanthropy among business corporations in the Philippines was established.

Corporate social responsibility (CSR) became the new currency in projecting a business organization’s affinity with its community and publics. Meantime, Nobel laureate Milton Friedman’s aphorism “The business of business is business” served as a counterpoint. His followers argued that the primary purpose of a business is to earn profits and give a proper return on investment to the stockholders who contributed the corporation’s equity.

In 2000, the United Nations convened a summit that brought forth eight Millennium Development Goals sought to be attained in 2015, which were the following: (1) eradicate extreme poverty and hunger; (2) achieve universal primary education; (3) promote gender equality and empowerment of women; (4) reduce child mortality; (5) improve maternal health; (6) combat HIV/ AIDS, malaria and other diseases; (7) ensure environmental sustainability; and (8) develop global partnerships for development.

In 2016, the agenda was expanded from eight to 17 goals, namely: (1) No poverty, (2) Zero hunger, (3) Good health and well-being, (4) Quality education, (5) Gender equality, (6) Clean water and sanitation, (7) Affordable and clean energy, (8) Decent work and economic growth, (9) Industry, innovation and infrastructure, (10) Reducing inequality, (11) Sustainable cities and communities, (12) Responsible consumption and production,

(13) Climate action, (14) Life below water, (15) Life on land, (16) Peace, justice and strong institutions, and (17) Partnership for goals.

Coterminous with the broad propagation of the MDGs and SDGs, the Environmental, Social and Corporate Governance (ESG) movement has outgrown the CSR initiative. The emergence of ESG was heralded by a path finding study in 2006 of Oxford University’s Michael Barnett and New York University’s Robert Salomon who established that there is a “curvilinear relationship” whereby the practice of social responsibility could enhance financial performance.

ESG reflects a firm’s “collective consciousness for social and environmental factors as its primary guideposts for governance, a form of “corporate social credit score” that indicates the capacity for continuous appreciation of future enterprise value.

Environmental concerns cover sustainability and climate change issues. Industries dependent upon diminishing raw materials are imperiled; product obsolescence threatens their long-term viability. Mitigating climate change by reducing and minimizing carbon emissions is another imperative; hence, the use of electric, solar and alternative fuels has eclipsed preference for pollutant fossil fuels. Waste management and water conservation have also become more important.

Social concerns include diversity, human rights, consumer protection and animal welfare. Corporate governance covers the management structure, executive and employee compensation, business ethics, transparency and accountability, and the entire raft of diversity, equity and inclusion issues.

The Global Reporting Initiative (GRI) published recently its revised universal standards that will go into effect in January 2023. An important feature is the requirement to “report on human rights impacts in consonance with the UN’s guiding principles on business and human rights. From an optional item that would be reported on only if deemed material by a reporting firm, all organizations will be required to account for “how they meet their responsibility to respect human rights.”

The GRI has emerged as the leading standard for ESG performance that has been adopted by almost three-quarters of the 250 largest companies in the world and twothirds of the 100 largest companies in 52 separate countries. That the leading Philippine companies have also adopted the GRI’s standards demonstrates their commitment to report the impacts of their activities on the economy, the environment and on society in a manner that is fully transparent, thereby holding themselves accountable to the government, investors and civil society.