ESG is ethical and profitable for business

Ethics, in it is most basic definition, refers to doing the right and moral thing, usually in terms of human rights, obligations, benefits to society, fairness, or specific virtues. This applies to an individual, group or organization. In business, being ethical goes hand-in-hand with championing and embedding environment, social and governance (ESG) standards in the way a company conducts its operations. By upholding ESG, organizations signal that they are well aware of the ways they impact and are impacted by society and are committed to being a positive force for good in their communities.

To be clear, ESG is not the same as corporate social responsibility (CSR). CSR speaks more to an individual company’s culture of positively impacting society and is more activities-based and qualitative. ESG goes a step beyond that by asking organizations to put forth commitments that are measurable and can be assessed and evaluated by third parties, such as investors, customers, and regulators.

To elaborate on this, in a recent KPMG thought leadership publication, we outlined a strategic framework to help businesses think through their ESG goals by breaking it down in terms of creating value for the planet, people, prosperity and principle (governance).

• Delivering value for the planet aims to:

Reduce energy consumption and transition to renewables

• Increase the circular use of resources and eliminate waste

• Reduce ecological and biodiversity impact on land, water use, waste, and pollution

Creating value for people aims to:

• Build workforce skills to meet the needs of the future

• Create a diverse, inclusive, and equitable environment

• Create a safe and healthy work environment for employees and suppliers

Promoting the value of prosperity aims to:

• Measure expected social and economic benefits beyond business performance to demonstrate value to society

• Develop innovative approaches to address societal issues

• Take care of the prosperity of communities where the business operates

Striving to ensure the value of good governance principles that support how the business is governed and operates aims to:

• Identify and mitigate the impact of material risks

• Link remuneration and incentives with ESG progress

• Identify a clear purpose to create long-term value, governed by diverse and equitable representation

Adopting ESG principles may be daunting at first, but it is the right and ethical thing to do. It is also a good business strategy that yields long-term reputational and financial benefits. It boosts company morale and positions the business as a purpose-led organization helping with talent retention and attraction as well as reputation. ESG also opens opportunities for businesses to create new revenue streams to address the increasing demand from consumers for more ethically sustainable products and services.  It also attracts socially responsible investors who want to ensure their investment positively impacts the world.

Operating in a socially responsible way does not mean sacrificing profits for ethics. Ethics dictates that companies be profitable so that they can generate value for their investors, create jobs, and contribute to community prosperity.  ESG ensures sustainable business growth that is critical in helping develop and uplift communities.

The excerpt was taken from the 2nd Volume of the Financial Executives Institute of the Philippines (FINEX) Ethics Book entitled, “Enduring or Evolving.”

Sharon G. Dayoan is the chairman and CEO, and head of people, performance and culture (PPC) of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in transfer pricing practice and in general corporate tax practice by the International Tax Review. For more information, you may reach out to Sharon G. Dayoan through [email protected], social media or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.