Faced with unprecedented environmental crises and increasingly serious social problems, the role played by enterprises in environmental protection and social development must also undergo corresponding changes, "said Shi Han, Director of the ESG Center at the China Business School of the University of Hong Kong.
On June 5, 2023, World Environment Day, guided by the Forestry and Grassland Bureau and the Ecological Industry Development Planning Center of Alxa League in Inner Mongolia Autonomous Region, the Alxa SEE Ecological Association and the Beijing Entrepreneur Environmental Protection Foundation jointly organized a seminar on the theme of "Enterprise Green Contract". Government and industry experts are paying attention to climate change and corporate green actions, exploring how to work together to build future oriented green competitiveness in the new situation. At the meeting, Shi Han delivered a keynote speech and pointed out that,The development of ESG cannot rely solely on voluntary actions of enterprises. Mandatory regulatory standards are a necessary prerequisite for comprehensively and deeply promoting its widespread implementation and long-term development。
As an important topic of global concern, what is the current status and trends of ESG (Environmental, Social, and Corporate Governance) development? What key content should an excellent ESG report include? What role can public welfare organizations play in promoting the implementation of ESG in Chinese enterprises? After the meeting, Kaiping News interviewed Shi Han and conducted in-depth discussions on related topics.
Regulations will drive the development of ESG
Open screen newsWhat are the changing trends of ESG as a currently hot concept?
Shi HanIn recent years, the attention to ESG concepts has rapidly surpassed that of CSR (Corporate Social Responsibility) concepts, which have been around for over half a century. More and more financial institutions and non-financial enterprises are beginning to accept ESG concepts, and are showing some new trends and characteristics. Firstly, globally, regulatory laws related to ESG have developed rapidly, and the introduction of these laws provides clearer guidance and norms for ESG practices. Secondly, ESG regulation is increasingly focusing on the scope 3 carbon emissions issues corresponding to downstream investment activities of financial institutions. Thirdly, countries have generally begun to strengthen the regulation of ESG funds and reduce their "greenwashing" behavior. Finally, the international community attaches great importance to the development of global standards for ESG assessment, in order to change the current problem of numerous evaluation standards and significant differences in ESG evaluation results among mainstream institutions for the same company. This also provides more objective, scientific, and fair evaluation criteria for ESG investment, promoting the popularization and promotion of ESG concepts worldwide.
Open screen newsWhat progress has China made in promoting ESG information disclosure?
Shi HanIn March 2022, the State owned Assets Supervision and Administration Commission established the Social Responsibility Bureau, which clearly proposed to strengthen the construction of the central enterprise social responsibility system, guide and promote enterprises to actively practice ESG concepts, actively adapt to and lead the formulation of international rules and standards, and better promote sustainable development. According to media reports, the State owned Assets Supervision and Administration Commission (SASAC) is studying ways to promote listed companies controlled by central enterprises to achieve full ESG information disclosure by 2023. In this context, the Shanghai Stock Exchange and Shenzhen Stock Exchange are expected to accelerate the development and release of corresponding ESG information disclosure guidelines for listed companies.
The impact of enterprises on the environment and society
Open screen newsIs it contradictory for companies to engage in ESG construction and create profits?
Shi HanIn 1970, economist Milton Friedman proposed a viewpoint that the greatest social responsibility of a company is to create maximum profits for shareholders. However, with the rapid growth of global population and per capita resource consumption, people have gradually realized that the environmental and social issues arising from the operation and development of enterprises cannot be ignored. In the past, these costs were not borne by enterprises, but more by society. Therefore, the proposal of ESG has become crucial.
ESG requires companies to internalize environmental and social costs in their business development process, rather than relying solely on the government or social organizations to solve the problems brought about by the company's development afterwards. This means that enterprises need to fully consider factors such as environmental protection, social responsibility, and good corporate governance in their business activities, in order to achieve sustainable development and create long-term value.
By actively responding to ESG requirements, companies can achieve better results in reducing environmental risks, enhancing social impact, and strengthening corporate governance capabilities, creating greater value for shareholders, employees, customers, and society. This corporate strategy based on global responsibility helps shape the company's good image, enhance brand value, attract investor attention, and give the company an advantage in the increasingly fierce market competition.
When facing increasingly strict environmental regulatory requirements, companies often complain that this will increase their operating costs. However, they overlooked that this is actually just reducing the environmental pollution caused by the company's own operations, and therefore, it is also the obligation that the company should fulfill. In the long run, implementing ESG principles can help companies reduce production costs, improve operational efficiency, and avoid pollution from the source.
Taking a chemical enterprise located in an economic and technological development zone in Jiangsu as an example, when expanding production capacity, the enterprise was required not to increase the total amount of pollutant emissions. In order to meet the demand for expanding production capacity, the company can only ensure that the total discharge of new and old production facilities does not exceed the prescribed standards by reducing the wastewater discharge of existing production facilities. Therefore, the company has implemented a systematic clean production plan. Although it is expected that the expansion of production will significantly increase the cost of pollution control in the early stages of the project, with the improvement of pollution prevention and efficiency, the overall pollution control cost of the company remains basically unchanged or even slightly reduced. This case illustrates that in response to environmental regulatory requirements, companies can not only comply with regulations, but also achieve a win-win situation between environmental protection and economic benefits through innovation and improving production efficiency.
Government and non-governmental organizations can help companies implement ESG principles by providing technical support and promoting corporate innovation. At the same time, they can summarize successful experiences and provide them for other enterprises to learn from, thereby achieving a win-win situation for both the economy and the environment.
Open screen newsHow to evaluate ESG reports released by domestic enterprises?
Shi HanOverall, there are not many excellent ESG reports released by domestic companies. In contrast, most domestic enterprises still release corporate social responsibility reports. The audience for such reports is mainly the government or the public, so they tend to emphasize the positive image and achievements of companies, lack balance, and cannot fully showcase the strengths and weaknesses of companies in ESG practices. These reports often provide less quantitative data and focus more on telling qualitative stories. However, ESG reports are more similar to corporate financial reports, and their primary readers should be investors.
We believe that in the future, more Chinese listed companies will release ESG reports instead of traditional corporate social responsibility reports. However, in practical terms, we can see that some companies have not undergone significant changes in substance and focus after renaming their reports to ESG reports, and most companies still have a lot of room for improvement in this area.
At present, the development of ESG in China will also usher in new changes. It is expected that the Shanghai Stock Exchange or Shenzhen Stock Exchange will issue new guidelines in the near future, requiring listed companies to release ESG reports or sustainability reports. This measure will promote more standardized information disclosure, help improve the performance of enterprises in environmental, social, and corporate governance aspects, and thus promote sustainable development.
Open screen newsHow do you think companies can form a good ESG report?
Shi HanESG reports should focus on providing quantitative data, supplemented by qualitative narratives, in order to help readers better understand the actual performance of companies in ESG and the reasons behind it. When quickly reviewing an ESG report, we can pay attention to whether the following aspects have been fully reflected:
1. The correlation between business models and ESG impacts: Does the report clarify the positive or negative impacts of a company's business model on society and the environment, and how the company can optimize these impacts through ESG management. A company that relies on environmental destruction or negative social impact cannot achieve good ESG performance solely through carrying out charitable projects. On the other hand, for a company with a profit model centered on protecting the environment or promoting social development, the ESG concept has been embedded in its DNA from the beginning, and achieving good ESG performance is a natural outcome. If a company can clearly answer the above questions in its ESG report, then the company can demonstrate its positive impact and contribution to society and the environment while creating economic value.
2. Corporate governance structure: Does the report provide a detailed introduction to the company's ESG governance structure, including the participation of the board of directors and management, allocation of responsibilities, and the establishment of relevant committees. The implementation of ESG by enterprises is a comprehensive process, and its success or failure depends on corporate governance. Therefore, we need to carefully examine its ESG governance structure from its ESG report. For example, whether the company has established an ESG or Sustainable Development Committee under the board of directors, and whether a corresponding ESG working group has been established under the ESG/Sustainable Development Committee to achieve effective communication and coordination between corporate governance and management, as well as between different business departments. In addition, we also need to pay attention to whether the company has clearly designated the ultimate ESG responsible person and whether their compensation is directly linked to the company's ESG key performance indicators. Such details can help us better understand the actual investment and execution capabilities of enterprises in the ESG field.
3. Substantive evaluation of corporate ESG issues: For enterprises, it is necessary to pay attention to and manage a series of ESG issues, including corporate governance, climate change, circular economy, employee development and protection, occupational health, etc. Through substantive evaluation, it can be revealed which issues are the most important and financially substantial for this company, that is to say, which ESG issues need to be managed and disclosed as a key focus for this company.
4. Goals and Progress: Does the report clearly outline the company's ESG goals and implementation plans, and report on actual progress to help readers understand the company's achievements and challenges in achieving these goals. Setting goals is crucial for ESG management and should include clear, specific short-term, medium-term, and long-term objectives. For example, in terms of climate change, companies should set goals to reduce emissions, or in terms of sustainable development, set goals to achieve a circular economy for products. We also need to pay attention to whether there is a summary table of ESG key performance in the ESG report, and examine the implementation of goals related to ESG issues.
5. ESG Risk and Opportunity Analysis: Does the report analyze ESG related risks and opportunities, and explain how the company responds to and seizes these risks and opportunities to achieve sustainable development. Evaluating a company's ESG risks and opportunities can help understand its ability and strategy to address challenges and seize opportunities.
6. Continuous Improvement and Future Prospects: Does the report reflect the company's awareness of continuous improvement in ESG and provide future prospects for readers to understand the company's long-term planning on the path of sustainable development. An excellent ESG report should showcase the efforts and achievements of a company in continuously optimizing and improving its ESG management level.
7. Third party independent verification: When companies disclose ESG related data and evidence in their reports, they need to obtain independent verification from a third party. Independent third-party verification will be increasingly valued, which can enhance the value, credibility, and reliability of corporate ESG reports.
Focusing on these aspects can help us quickly assess the quality of an ESG report and the actual investment and performance of a company in ESG.
How public welfare organizations can assist in the ESG development of enterprises
Open screen newsHow can public welfare environmental organizations assist in the construction of ESG?
Shi HanPublic welfare environmental organizations can play an important role in promoting ESG construction.
Firstly, as non-profit organizations, they should adhere to the requirements of ESG standards and use ESG frameworks to evaluate their operations, such as incorporating ESG frameworks into their annual reports. This approach can demonstrate the exemplary actions and moral appeal of public welfare organizations. Meanwhile, public welfare organizations can also examine their various activities from an ESG perspective, including reducing the carbon footprint of their activities and adhering to green procurement standards.
Secondly, public welfare organizations play an important supervisory role in promoting the implementation of ESG in enterprises. In addition to supervision, more public welfare organizations can shift their focus to helping companies carry out ESG work. At present, many small and medium-sized enterprises face problems such as insufficient manpower, lack of capacity, and lack of resources when implementing ESG. In empowering small and medium-sized enterprises to implement ESG, public welfare organizations have broad development space, such as using emerging technologies such as big data and cloud platforms to significantly reduce the cost and difficulty of implementing ESG for a large number of small and medium-sized enterprises. The well-known domestic environmental organization "Public Environmental Research Center" used to spend a lot of energy on supervision, but in recent years, it has increasingly focused on serving and assisting enterprises, such as providing information tools for enterprises, helping enterprises with information disclosure, and providing free training for enterprises. These measures have set a good example for other public welfare organizations.
In short, public welfare environmental organizations play an important role in ESG construction. They can demonstrate their determination to follow ESG principles through their actions, and also play an important role in supervising and supporting the implementation of ESG by enterprises, especially providing support and resources for small and medium-sized enterprises, and contributing to the overall sustainable development of society.
Open screen newsIn your report, you mentioned the circular economy. From the perspective of promoting ESG, is the circular economy a development opportunity for Chinese enterprises?
Shi HanUndoubtedly, circular economy has already received attention in China. In fact, the concept of circular economy was proposed in China as early as the late 1990s, and the Circular Economy Promotion Law was enacted as early as 2009. However, the current development of circular economy in China is still largely limited to the resource recycling industry and some circular industry parks.
Therefore, we need to integrate the circular economy into every enterprise in society, including banks and other service-oriented enterprises. This requires enterprises to undergo deep level changes, including innovation in business models. In the future, more and more product sales will shift towards providing services, such as Philips transitioning from selling lighting supplies to becoming a provider of lighting services. This is also part of the innovation of circular economy business models. Therefore, we should pay attention to how to make the circular economy a development opportunity for every enterprise. This transformation is crucial for achieving China's 2060 carbon neutrality goal. If the development model of circular economy is not fully promoted, China's goal of carbon neutrality by 2060 will be difficult to achieve. Making the circular economy a cause that involves the entire society will help better achieve sustainable development and address the challenges of climate change.