Why You Should Care About ESG

Editorial by Anton Mifsud-Bonnici, ESG advocate at the International Conflict and Security Institute, Malta

Why You Should Care About ESG
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Poland family business conference

ESG is an acronym – let’s start the conversation by unpacking it. E stands for Environmental, S for Social and G for Governance: issues that positively or negatively impact businesses on a fundamental level. Over the past two decades, ESG as a concept has evolved, appearing under several different guises. The terminology varies – ethical, sustainable, green and triple-bottom-line all refer to the same principles, albeit in a narrow way.

This plurality is potentially confusing. From a practical standpoint, the cross-chatter does nothing to communicate their fit for or relevancy to a given organisation.
In essence, they come from the same place: the evolution of our discourse on the role and purpose of business in society. Perspectives on the regulation of business, the protection of private property and the societal value of free enterprise and risk-taking are changing. It’s a revolution in all but name.

ESG is an inclusive concept that speaks to the totality of this transformation instead of its constituent parts, addressing all of them simultaneously. Climate change, pollution, waste management, water, human rights, stakeholder engagement, security, employment, forced labour, discrimination, tax, corruption, political stability and transparency all fall under the ESG umbrella.

In business, ESG knowledge is essential – in practice, it can be the deciding factor between success and failure in the long run. Correspondingly, asset managers and financial investors now expect to find a discipline of ESG indicators in a project or a company seeking investment or project finance.

Do non-listed companies need to consider ESG as well?

Why should only listed businesses manage their non-linear issues and risks? Family-owned businesses, in particular, often have decades or more of managing relationships with stakeholders with respect and prudence, – it’s something they pioneered and excel at. Trust is earned by listening to societal fears, concerns and contradictions. Corporate information does not build or restore trust. Verifiable data that proves positive action leads to trust. The ESG concept holds that data together, offering a framework to run checks for due diligence.

Businesses have a different spread of impact depending on their geography, culture, economic circumstances and governance temperament, but regardless, ESG issues impact all businesses. As such, coverage of the regulatory drivers under the ESG umbrella does not miss family-owned businesses.

Taking action on ESG

Ignored issues tend to disrupt in the form of unplanned change. Simply put, family-owned businesses cannot be successful in the long term if their ESG issues go unmanaged. To manage them, they require a bespoke framework to organise and implement their strategy. The first step is to chart, on the basis of what’s known, a rough plan that fits the purpose of the family enterprise. The second step is to run this basic framework past existing governance structures to check it for fit and to secure a mandate for its implementation. Governance processes are where ESG frameworks come together – they’re how we make decisions and hold ourselves accountable. The third step is to identify one or two ESG areas to focus on with a philosophy of continuous improvement. In this way, without becoming overwhelmed, businesses can gradually build a robust ESG framework to help ensure their endurance and sustainability.

Often, businesses avoid factoring in non-technical considerations like ESG until it’s too late. Then, if they do incorporate ESG, it’s only in a reactive way. Ad hoc ESG strategies lack the resources to manage issues when they appear. Regardless of industry or geography, we need to make sure that what matters does not get ignored, and the evidence is clear: ESG matters. In practical terms, an ESG framework applies discipline and diligence to acknowledge the outweighing positive contributions that family businesses make to any society in terms of economic, environmental and social progress. It recognises activities that can adversely impact workers, human rights, the environment, bribery, consumers and corporate governance.

With ESG frameworks, business owners are better prepared to hold their organisations to the highest ethical standard going forward – making sure they add value to society, not take away from it.

Why You Should Care About ESG
Image courtesy of the author.

Anton Mifsud-Bonnici is a member of a multi-generational family commitment to public service and society in Malta.