ESG – BUZZWORD OR TOWARDS TRUE STEWARDSHIP BY NIRANJAN GIDWANI

 

INDEPENDENT DIRECTOR | BOARD MEMBER SSGMUAE | MEMBER UAE SUPERBRANDS COUNCIL | HBR ADVISORY COUNCIL | CHARTER MEMBER TIE DUBAI

 

With the help of some truly experienced and knowledgeable mentors and teachers, I decided to do an intensive course in ESG, and through their valuable training and experience, to have a better understanding of the situation as things stand now.

In layperson’s terms, ESG stands for – “Environment, Social and Governance”. 

According to some, there has been so much misapplication and misunderstanding of this term "ESG" in recent years that any good intentions have been eclipsed by the term's negative connotations. Needless to say, there will always be detractors on both sides of ESG, including those who are devoted to environmental and social causes and many more who, by nature, are suspicious of this concept.

Just before the turn of the century, risk and return were the two most important aspects, or rather the only two aspects to consider when making investment decisions in the world of business.

At its most fundamental level, ESG is an effort to incorporate ethical considerations into financial and commercial decisions. Once considered a niche concern for ethically-minded investors, ESG has now started permeating boardrooms, influencing decision-making at the highest levels. According to the World Economic Forum, failure to act on climate change could cost the global economy up to $23 trillion by 2050. Companies that ignore environmental sustainability are not just risking regulatory backlash but also jeopardizing their long-term viability. The integration of environmental considerations into business strategy is no longer an option.  It is now a case of business continuity.

The problem of pollution and its effects on human health, plastic substitutes, improved waste management and emission reduction, sustainable food production, biodiversity protection, sustainable building and transportation, water scarcity, extreme weather events, are all frequently visible and crucial components of the solutions the world is desperately trying to find.

The new dictionary term “Green-washing” is a significant concern, creating an extremely bad image for those who are pro-ESG. It has become a distressing reality for ESG investors that not all statements can be trusted and that it is always essential to conduct one's own due diligence. Flaws in the reporting requirements introduced by global market regulators provide a lot of room to make grand and false claims.

The topic of "pragmatism vs perfection" frequently arises among global fund managers committed to various ESG investment strategies. There is a need to invest and to do so in a way that benefits all stakeholders, including the environment and society, over the long term. But, as is always the case, there is not always consensus on how to do this and for how long.

Good governance and stewardship is a hugely valuable asset. It is efficient, honest, and ethical, with an emphasis on addressing operational difficulties in a manner that complements the overall vision. Good governance and stewardship constantly seeks the greatest outcomes for stakeholders and is never satisfied with simply avoiding difficulties. Most effective boards constantly scrutinize their own governance.

One way to comprehend the commercial value of excellent governance is to view it as a means of avoiding substantial future expenses. Good governance is the invisible and frequently undervalued glue that holds an organization together and prevents serious fractures from forming.

Hence, in an increasingly volatile world, risk management is a top priority for businesses. ESG integration is a powerful tool for identifying and mitigating risks that traditional financial metrics often tend to overlook.

As ESG continues to gain momentum, to someone like me, it is clear that it is not just a passing trend but a fundamental transformation in how businesses will need to operate. The future of ESG lies in its integration into every aspect of business strategy, from supply chain management and product development to employee relations and corporate governance.

Based on more increased reading and study that one does, it is becoming apparent that professionally run businesses may be catching up - or even surpassing - expectations in terms of commitment to many critical social issues that universities and research have long considered their own. Evidence suggests more and more that truly good organizations and business leaders are embracing the ESG movement.  ESG represents a move from concern only about profits to concerns about all stakeholders impacted by a company and its business.

Both higher education and business leaders have an obligation to consider the essential issues include ESG in all they do. This is especially important at a time when so many of the critical issues facing our world are global, reflecting our interconnectedness. Not only the corporate world, but also global regulators will need to upskill their teams to better understand, read and evaluate ESG performances.

Fortunately, the intersection of ESG and digital transformation presents new opportunities for businesses to enhance their ESG performance. Technologies such as artificial intelligence, blockchain, and the Internet of Things can be leveraged to improve transparency, track ESG metrics in real-time, and drive sustainable innovation.

For 8 billion people on this planet, our closest relative is this planet. The best way to explain is to view this relative (our planet) being critically ill and in the ICU. 8 billion people cannot be chatting, socializing, making small-talk outside the ICU, trying to casually figure out how to treat the patient while the patient sinks into deeper criticality. Because if this patient expires, no wealth will be left to be distributed among its 8 billion plus relatives.

ESG, therefore, is certainly far more than just a buzzword. It is a transformative framework that reshapes how businesses operate, compete, and thrive in the modern world. Companies that embrace ESG not only mitigate risks and ensure regulatory compliance but also unlock new opportunities for growth, innovation, and value creation.

Finally, we as citizens of this planet need to know that increasing regulation increases compliance, not commitment. Commitment is a deeper, internalized process.