What is ESG?
Environmental Care（E, Environment）
Environmental protection refers to implementing pollution prevention and effectively controlling and treating environmental issues such as greenhouse gas emissions, water and sewage management, and biodiversity. The operation model of an enterprise is highly related to environmental problems. For example, the operation process of the manufacturing industry needs to consume energy, which may generate air, rivers, waste, and even chemical waste, etc., which eventually will pollute the environment, causing the need to input effort and money to handle it properly.
Social Responsibility（S, Social）
Social responsibility refers to the orientation of interested parties related to the industry's impact. Internally and externally, it includes partner-employee relations, incentive systems, customer benefits, diversification and inclusiveness, etc. It can be divided into four main areas: employees, consumers, human rights, and communities.
Area 1: Employees Employees working together internally is the essential wealth in the business operation process. Therefore, issues in this area include employee salaries and benefits, human resource development training, health status, and how to attract outstanding talents. In addition, as the external environment changes to cope with various challenges, improving skills such as emotional leadership, communication, etc., and having sustainable awareness and driving force is a critical issue.
Area 2: Consumers
Issues related to the interests of consumers include product safety, the legality of food additives, clear labeling of ingredients, side effects, and other hazards. Whether software services provided by the financial/digital technology industry protect the consumers' personal data/privacy rights, etc., all aspects need to be highly valued.
Area 3: Human Rights
The keyword that must be addressed in ESG is risk management. Human rights issues are extensive and diverse, such as forced labor, equal pay for equal work, collective bargaining in the labor aspect, and even the use of child labor and slave labor, which seriously violate human ethics, and health hazards in the social part. Ethnic groups employment, residency rights, etc. Enterprises should be forward-looking, use human rights due diligence, and actively manage risk. This can also be used to examine potential hazards in other aspects of operations, such as production efficiency, environmental safety and health, etc.
Area 4: Feedback to the Community
The enterprise's raw materials, land, and human resources are obtained from society, and the objects of service also come from society. Enterprises have changed from continuously asking for help from the public in the past to giving back resources to the local community, creating a positive cycle and allowing society to be sustainable, continuing to be better and better because of the existence of enterprises, and improving human life. Examples of feedback to the community include: helping the community through charitable donations, organising educational activities in the community, and hosting meals for the elderly, which are the most commonly used methods by traditional enterprises.
Corporate Governance（G, governance）
Business ethics, competitive behavior, supply chain management, and other fields related to company stability and reputation are classified as the scope of corporate governance.
"G" talks about issues related to governance. In addition to the financial disclosure of traditional corporate governance and the avoidance of the interests of directors and supervisors, today's management must also extend to climate change, supply chain human rights inspection management, and personal data protection. The environmental damage caused by the chain during the production process shall be appropriately managed and compensated.
The current responsibilities of the board of directors must be expanded from traditional areas to environmental and social aspects. Whether it is from risk management or extending to the entire business process design, it needs to be readjusted in response to trends.
ESG has become an important criterion for evaluating companies
As for why ESG became a thing, you can imagine that many business owners claim that they care about the environment, pay attention to social responsibility, and abide by ethical norms, but there is no objective indicator to evaluate how much the company has done.... etc. A press release of an event will inevitably make the public doubt the authenticity of the matter, and it is also impossible to measure the real value that each sustainable event brings to society. ESG is used as a measurement standard. How much impact a company has on the environment and how to improve it, the results and figures are directly presented to the public, which increases credibility and better evaluates a company's sustainable performance.
In the past, the only thing we cared about in business operations was the performance of financial data. However, due to changes in trends in recent years, making profits for investors is no longer the only consideration for business operators. More and more investment indicators have begun to take the process of business operations seriously.
Environmental protection, social responsibility, corporate governance, other aspects of mutual benefit management, and issues such as ESG are included in the evaluation and the company's medium and long-term development. It has become a stable indicator for evaluating the company's sustainable performance. This new investment concept, as a business operator or a member of the management class, you should not underestimate it.
What is CSR?
CSR refers to Corporate Social Responsibility, according to the definition of the World Business Council for Sustainable Development: While contributing to economic development, a company promises to abide by ethics and improve the quality of life of employees and their families, the local community as a whole, and society. The business model of an enterprise must have a sustainable idea. In addition to maintaining the operation of the enterprise and needing to make a profit, society and the natural environment must also be taken into consideration when making decisions, which means taking from society and giving back to society.
Do you know the difference between a CSR report and a Sustainability Report?
CSR report is the standard used by Taiwanese companies to disclose their sustainability performance in the early days.
Around 2010, the Financial Regulatory Commission guided listed OTC companies to follow the Code of Practice for Corporate Social Responsibility of Listed OTC Companies and added corporate social responsibility evaluation indicators to corporate governance evaluation, requiring companies to follow the government's norms. The report compiled by the company's voluntary behavior is commonly known as the CSR report.
In Taiwan's 2020 Corporate Governance Standards, the corporate social responsibility report CSR report is officially renamed the Sustainability Report/ESG Report. Companies are encouraged to release the English version to strengthen the disclosure of information on ESG issues by listed companies and deepen corporate sustainability—governance culture.
Which companies need to make sustainability reports?
Since 2015, the Taiwan Financial Supervisory Commission has required listed companies in the food industry, financial industry, chemical industry, and companies with a paid-in capital of NT$10 billion or more to prepare corporate social responsibility reports following the GRI guidelines.
In 2017, the Financial Regulatory Commission lowered the capital threshold again, and companies with more than NT$5 billion were also included in the regulations.
In 2020, it was announced that companies with a capital of NT$2 to 5 billion or more must prepare and submit a sustainability report in 2023. The company is required to complete the preparation of the CSR report by June of that year. Therefore, compiling a sustainability report is necessary for companies to invest in ESG.
What is SDG?
Over the past 30 years, globalization has spawned many serious issues, including climate change, loss of biodiversity, degradation of natural resources, inequality of wealth infectious diseases, etc. Therefore, enterprises must also think about how to help the world build a more stable and progressive world while using a large amount of natural and social resources.
The predecessor was the Millennium Development Goals published by the United Nations in 2000 to help countries with slow development get rid of poverty. It is hoped that through the initiative, governments will be called on to invest resources to solve major global environmental and social issues, with a 15-year plan to alleviate poverty, food scarcity, hunger, and more. But 15 years later, while some issues have improved, others continue to fester. Therefore, on September 25th, 2015, the United Nations made a final decision, announcing that the Sustainable Development Goals (SDGs) officially succeeded the Millennium Development Goals and took 2016 as the first year of sustainable development, and adopted 17 goals, including No Poverty, Zero Hunger, Gender Equality, Responsible Consumption and Production, etc., as well as 169 targets, as the direction of the world's efforts to promote sustainable development by 2030, it also officially puts enterprises listed as an important partner.
Therefore, companies that pay attention to sustainable development issues can solve problems by connecting products and services or using model innovation capabilities to help solve many global problems from the root problem.
Do you know the difference between ESG, CSR, and SDG?
ESG is a practical principle extended from CSR
We can think of CSR and ESG as CSR is a broad concept of sustainability, while ESG is how to practice the principles of CSR, and it is also an indicator for evaluating a company's sustainable development from the environment, society, and company management. Therefore, sustainable management is the general direction that enterprises should pursue. CSR is the main concept of sustainable management. ESG is the practice of CSR spirit and a measurement index used to evaluate the sustainable development of enterprises. SDGs are detailed goals for sustainable development and are implemented together.
Why do enterprises need to implement ESG？
United Nations proposed the concept of ESG as early as 2005, but it was only during the outbreak of the financial crisis in 2008 that ESG issues received public attention. The reason is that companies have a long-term common interest in all aspects of the operation. In addition to gaining investors' trust in financial benefits, these points can drive the company's performance to maintain a certain level. Therefore, when faced with a market crisis, whether personnel or consumers, the operation of the supplier side, etc., will be delicate with large fluctuations.
Judging from the trend of pursuing corporate sustainable development in the general environment, ESG is actually related to every aspect of corporate operation, not just the personnel in the sustainability department, whether it is business, marketing, human resources, R&D, accounting, legal affairs, logistics, etc. Each department's function will involve the supply chain, consumer awareness, employee recruitment, product design, financing and investment, laws and policies, etc. Knowing how to incorporate the core principles of sustainability in the scope of thinking and decision-making is very important for enterprises. The need to have the concept is also the biggest key to victory.
PwC’s 2021 Global Consumer Insight Report also pointed out that sustainable brands have become one of the important factors for consumers to buy, and 70% of consumers agree that trust is an essential factor for purchasing products. Brands are willing to strengthen information disclosure, choose green supply chain partners, support local production to reduce carbon emissions, etc., all of which can promote consumers' confidence in the brand; brands' investment in social or environmental issues will also link consumer loyalty And the critical move of sticky consumption. ESG affects not only the aspects that companies need to consider in their own operations but also major changes in consumption patterns and consumption decisions.
Requirements and specifications for ESG in the overall environment
When it comes to the overall ESG business environment, the issues of climate change and energy transition are getting more and more attention in various countries. Under the global trend of pursuing net zero carbon emissions and fairness and justice, more regulatory measures will be introduced. Export companies will definitely face more pressure and challenges. Only enterprises that meet the regulatory standards, are qualified, and are moving towards sustainable operation can obtain international orders and maintain international cooperation.
For some companies, if they do not meet international ESG standards or are engaged in high-polluting industries, banks may tell you, "No ESG, No Money", such as the Corporate Governance 3.0-Sustainable Development Blueprint, which expressly requires Taiwanese companies to disclose more completely in ESG reports, and also to make progress with stakeholders, because a good company must take into account both sustainable performance and corporate profit.
The challenge of the wave of business operation
From the perspective of business operations, international policy development, global supply chain, or capital supply, the government's financial authority, the Financial Supervisory Commission, companies are required to make sustainable achievements, and the voices of carbon neutrality in 2050 are also responding everywhere. Many enterprises are facing more and more operating pressures.
What employees value is no longer just whether the salary and benefits are competitive, but whether the company's operation is fair and just; whether their efforts and efforts generate social value and can become a force for change, whether the company has stood up to support the creation of a more inclusive and diverse society on the issue of gender equality and other major social issues and so on. Corporate sustainability is not limited to the responsibilities of internal employees and managers, external participants are also a part of business sustainability. The sustainable actions of external participants will also be considered a partnership indicator by companies, creating pressure on net zero carbon emissions faced by suppliers. When the upstream and downstream sustainable concepts of enterprises are connected in series to drive the environmental awareness of the entire society, a positive cycle can indeed be achieved.
Therefore, enterprises in Taiwan must recognize the existence of this wave, and the operation of the future business environment must be driven by sustainable development as the central axis. Externally, through core corporate competitiveness to exert social influence, we will work together to enable Taiwan to make a difference on these issues, be respected and trusted in the international market, and become responsible participants.
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