WHAT IS ESG: ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
Definition:
ESG stands for Environmental, Social, and Governance, and it refers to a set of criteria that investors, stakeholders, and organizations use to assess the sustainability and ethical impact of a company's operations and practices. ESG factors are considered alongside financial metrics to evaluate a company's overall performance and long-term viability.
Components:
Environmental (E):
This facet examines a company's influence on the natural surroundings. It encompasses
factors such as energy efficiency, carbon emissions, methods for handling
waste, preservation of resources, and strategies to address the challenges
posed by climate change.
Social (S): The
societal dimension scrutinizes a company's interactions with its workforce,
clients, local communities, and other stakeholders. This encompasses elements
such as cultivating diversity and inclusivity, labor policies, safeguarding
human rights, promoting health and safety, and engaging with the community.
Governance (G): Governance revolves around a company's leadership, the transparency of its operations, and the processes driving decision-making. This involves facets such as the composition of the board of directors, executive compensation structures, audit methodologies, safeguarding shareholder rights, and upholding ethical conduct.
Importance:
ESG has garnered attention because of the realization that a company's prosperity encompasses more than just financial profits. Investors and interested parties are progressively focused on how a company influences society, the natural world, and its skill in handling risks adeptly. The incorporation of ESG considerations into corporate strategies has the potential to bolster reputation, diminish risks, elevate long-term financial outcomes, and fortify the capacity to tackle upcoming hurdles.
Drivers:
Investor Demand: Many institutional investors are incorporating
ESG considerations into their investment decisions to align with values and
manage risks.
Regulatory Environment:
Governments and regulatory bodies are implementing policies that require
greater ESG transparency and accountability.
Consumer Preferences: Conscious consumers are more likely to support
companies that demonstrate ethical and sustainable practices.
Talent Attraction: Companies with strong ESG profiles are better
positioned to attract and retain top talent.
Implementation: Companies adopt various strategies to address ESG
concerns, such as setting sustainability goals, improving supply chain transparency,
developing diverse and inclusive workplaces, adopting clean technologies, and
enhancing board independence.
Reporting: ESG reporting involves disclosing relevant data and information about a company's ESG performance. This can be done through sustainability reports, integrated financial reports, and standardized reporting frameworks such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).
Conclusion:
ESG is a holistic approach to evaluating a company's impact on society, the environment, and governance practices. It reflects a growing recognition that responsible business practices are crucial for long-term success, fostering positive outcomes for not only investors but also employees, communities, and the planet.
ESG REPORTING FOR INDUSTRIES
ESG reporting refers to the practice of disclosing a company's performance and impact across environmental, social, and governance (ESG) criteria. This practice is particularly important for industries as it allows stakeholders, including investors, customers, employees, and regulators, to assess a company's sustainability efforts and its broader societal impact. ESG reporting helps to create transparency, accountability, and can drive positive changes within industries. Here's how ESG reporting typically applies to various industries:
Energy and Utilities:
Environmental: Report on energy efficiency, carbon emissions,
water usage, waste management, and renewable energy investments.
Social: Address safety measures for employees and
communities, engagement with local stakeholders, and efforts to provide
reliable and affordable energy.
Governance: Disclose board structure, executive compensation, anti-corruption policies, and regulatory compliance.
Finance and Banking:
Environmental: Disclose environmental risks related to
investments, green finance initiatives, and efforts to reduce the carbon
footprint of operations.
Social: Report on
fair lending practices, financial inclusion efforts, and support for local
communities.
Governance: Highlight diversity on boards, risk management strategies, and ethical decision-making frameworks.
Technology:
Environmental:
Detail energy-efficient product design, data center sustainability, and efforts
to reduce electronic waste.
Social: Address user data privacy, cybersecurity measures, and contributions to digital inclusion.
Governance: Report on data governance, handling of controversial technologies, and board oversight of privacy issues.
Manufacturing:
Environmental:
Report on emissions reduction, resource efficiency, waste management, and
supply chain sustainability efforts.
Social: Detail
labor practices, worker safety, community engagement, and supply chain working
conditions.
Governance: Address corporate ethics, supply chain management, and efforts to prevent corruption.
Healthcare and Pharmaceuticals:
Environmental:
Highlight efforts to minimize waste from packaging, research energy-efficient
facilities, and reduce environmental impacts of manufacturing.
Social: Report on
access to affordable healthcare, patient safety, clinical trial transparency,
and contributions to public health.
Governance: Detail pricing ethics, data protection, and efforts to ensure the integrity of medical research.
Retail and Consumer Goods:
Environmental:
Address sustainable sourcing, packaging waste reduction, and efforts to promote
responsible consumption.
Social: Report on
labor practices in the supply chain, diversity and inclusion efforts, and
community engagement.
Governance: Highlight corporate governance practices, fair business dealings, and efforts to prevent human rights abuses.
Transportation:
Environmental:
Detail efforts to reduce emissions through fuel efficiency, electric vehicle
adoption, and sustainable logistics.
Social: Report on
safety measures, accessibility, and contributions to local transportation
infrastructure.
Governance:
Address transparency in emissions reporting, regulatory compliance, and board
oversight of safety protocols.
Remember that ESG reporting is not a
one-size-fits-all approach. Different industries may have unique ESG issues and
reporting metrics based on their operations, impacts, and stakeholder
expectations. It's important for companies to tailor their ESG reporting to
their specific industry context and continuously improve their sustainability
performance.
LAWS, RULES, REGULATION
& LEGISLATION
Bangladesh PERSPECTIVE
As of my last update in September 2021, Bangladesh had been
focusing on various sustainability initiatives, including environmental,
social, and governance (ESG) considerations. However, please note that the situation
may have evolved since then. Here are some key points related to ESG in
Bangladesh:
Sustainable Development Goals (SDGs):
Bangladesh has aligned its development efforts with the
United Nations Sustainable Development Goals (SDGs), which encompass a wide
range of social, environmental, and economic objectives.
Climate Change and Environmental Regulations:
Given Bangladesh's vulnerability to climate change and
rising sea levels, the country has been proactive in addressing climate-related
challenges. The Bangladesh Climate Change Strategy and Action Plan (BCCSAP)
outlines the country's strategies to adapt to climate change impacts.
CSR Initiatives:
Corporate Social Responsibility (CSR) activities are
encouraged in Bangladesh, and companies often engage in various social and
environmental initiatives. However, as of my last update, there were no
specific mandatory requirements for CSR spending as seen in some other
countries.
Sustainable Finance:
The Bangladesh Bank, the country's central bank, has shown
interest in promoting sustainable finance practices. While specific regulations
may not have been widely established, there has been a growing awareness of the
importance of incorporating ESG considerations in financial decision-making.
NGOs and Social Initiatives:
Non-governmental organizations (NGOs) play a significant
role in Bangladesh's social development. Many NGOs in the country are engaged
in projects related to education, healthcare, poverty alleviation, and other
social issues.
Labor and Social Welfare:
Labor laws and regulations in Bangladesh govern issues such
as wages, working conditions, and worker safety. Given the country's
significant garment industry, there has been increased attention on labor
rights and workplace safety in recent years.
Corporate Governance and Reporting:
While corporate governance practices are relevant to ESG
considerations, as of my last update, Bangladesh may not have had comprehensive
regulations specifically focused on ESG reporting and disclosures.
Given the evolving nature of ESG considerations worldwide, I recommend checking with official government sources, regulatory bodies, and relevant industry associations in Bangladesh to obtain the most up-to-date information on ESG-related rules, laws, and initiatives in the country
Indian Perspective
As of my last update in September 2021, India had been taking steps to incorporate ESG (Environmental, Social, and Governance) considerations into its corporate and financial practices. Here are some key ESG-related rules, laws, and initiatives in India:
Section 135 of the Companies Act, 2013 mandates that certain qualifying companies spend a portion of their profits on corporate social responsibility (CSR) activities. These activities can encompass a wide range of social and environmental initiatives.
The Securities and Exchange Board of India (SEBI) updated the Listing Regulations in 2015 to require the top 500 listed companies (by market capitalization) to disclose their Business Responsibility Reports (BRRs), which include information about their ESG policies, initiatives, and performance.
In 2020, SEBI introduced the Stewardship Code, which encourages institutional investors to engage with companies on matters related to ESG practices and to exercise their voting rights responsibly.
The Securities and Exchange Board of India (SEBI) has indicated that it is considering mandating climate-related disclosures by listed companies. This would align with global trends in ESG reporting, particularly in relation to climate risks and opportunities.
Green Bonds and Sustainable Finance:
India has been promoting the issuance of green bonds to fund environmentally friendly projects. The Reserve Bank of India (RBI) and SEBI have introduced guidelines and frameworks to encourage sustainable finance and green bond issuance.
National Voluntary Guidelines on Social,
Environmental, and Economic Responsibilities of Business:
These guidelines provide recommendations for Indian businesses to integrate responsible and sustainable business practices, including ESG considerations, into their operations.
National Clean Energy Fund (NCEF):
While not exclusively focused on ESG, the NCEF was established to fund clean energy initiatives and projects that contribute to environmental sustainability.
Task Force on Climate-Related Financial
Disclosures (TCFD):
While not a regulation, the TCFD framework has gained global
prominence, including in India, as a way for companies and financial
institutions to assess and disclose their climate-related risks and
opportunities.
It's important to stay updated with the latest regulatory developments, as the ESG landscape is evolving rapidly. Since my information is current only up until September 2021, I recommend consulting official government sources, SEBI's website, and other relevant authorities for the most recent information on ESG-related rules, laws, and initiatives in India.
World Wide
It's important to note that my knowledge is up to date only until September 2021, and the landscape of ESG-related rules, laws, and legislation can change rapidly. As of my last update, here are some examples of ESG-related regulations in different countries:
The EU Sustainable Finance Disclosure Regulation (SFDR) came into effect in March 2021. It requires financial market participants to disclose information about how they integrate environmental, social, and governance (ESG) factors into their investment processes.
While the U.S. does not have comprehensive federal ESG regulations, the Securities and Exchange Commission (SEC) has been increasing its focus on ESG disclosure. The SEC issued guidelines for ESG-related disclosure considerations in 2020.
The UK has introduced various regulations related to ESG, including requirements for large companies to report on their greenhouse gas emissions and energy consumption under the Streamlined Energy and Carbon Reporting (SECR) regulations.
Japan has implemented the Stewardship Code and the Corporate Governance Code, which promote better governance practices and encourage institutional investors to engage with companies on ESG issues.
Australia has seen a growing focus on ESG reporting, with the Australian Securities Exchange (ASX) encouraging listed companies to provide ESG disclosures and the Task Force on Climate-related Financial Disclosures (TCFD) gaining traction.
The Canadian government has been working on developing a sustainable finance action plan and exploring ways to integrate ESG factors into the financial system.
South Africa has had a long-standing requirement for companies to report on their social and environmental performance through the King IV Report on Corporate Governance.
France introduced regulations requiring institutional investors to disclose how they consider ESG factors in their investment decisions and how they engage with companies on ESG issues.
The Dutch government has been working on various initiatives to promote sustainable finance, including guidelines for pension funds to integrate ESG factors into their investment policies .
Singapore introduced a stewardship code encouraging
institutional investors to engage with companies on ESG matters and the
Monetary Authority of Singapore (MAS) has been exploring ways to promote
sustainable finance.
Please note that this list is not exhaustive, and the specifics of regulations may have evolved since my last update. Always refer to the latest sources and official government websites for the most current and accurate information on ESG-related regulations in different countries.
WHY ESG IN
NEEDED IN BANGLADESH FOR SUSTAINABLE GROWTH
ESG (Environmental, Social, and Governance) considerations
are crucial for sustainable growth in Bangladesh due to a combination of
environmental, social, economic, and ethical reasons. Here's why ESG is needed
in Bangladesh for sustainable growth:
Climate Vulnerability: Bangladesh is one of the most climate-vulnerable
countries in the world, facing challenges such as rising sea levels, floods,
cyclones, and droughts. Integrating ESG practices can help businesses and
industries adapt to and mitigate the impacts of climate change.
Resource Scarcity: With a growing population and limited resources,
Bangladesh faces challenges related to water scarcity, land degradation, and
energy demands. ESG practices can promote resource efficiency, reducing waste
and enhancing long-term resource availability.
Social Equity: Bangladesh is characterized by socio-economic
disparities. ESG principles emphasize social inclusivity and equity,
encouraging businesses to address issues like fair labor practices, employee
well-being, and community development.
Health and Safety:
ESG practices can lead to better health and safety standards in workplaces,
reducing accidents and health-related issues for workers and surrounding
communities.
Human Rights:
Businesses focusing on ESG are more likely to uphold human rights, ensuring
fair treatment of employees, ethical sourcing of materials, and responsible
business practices.
Investor Confidence:
International investors are increasingly integrating ESG factors into their
investment decisions. By embracing ESG practices, Bangladeshi businesses can
attract responsible investment and improve access to capital.
Regulatory Compliance:
As global regulations evolve to emphasize sustainability, businesses that
adhere to ESG standards are better positioned to comply with future regulatory
changes.
Reputation and Brand Value:
ESG practices can enhance a company's reputation and brand value by showcasing
a commitment to ethical and responsible business practices. This can attract
socially conscious consumers and partners.
Innovation and Competitive
Advantage: ESG considerations can
drive innovation, leading to the development of new products, services, and
business models that address sustainability challenges. This innovation can
translate into a competitive advantage in the market.
Long-Term Viability:
ESG practices encourage businesses to consider the long-term impacts of their
decisions, fostering a culture of sustainability that supports economic growth
while safeguarding future generations.
Global Supply Chains:
As supply chains become more interconnected, global partners often expect
companies to adhere to ESG standards. Complying with these standards can
improve trade relationships and market access.
Community Engagement:
ESG practices involve engagement with local communities and stakeholders. This
can lead to better relationships, improved understanding of community needs,
and the identification of collaborative solutions.
Capacity Building: The
adoption of ESG practices requires skill development, research, and data
analysis. This can contribute to capacity building within the country,
promoting expertise in sustainability-related fields.
Natural Resource
Conservation: ESG practices encourage sustainable land use, water
management, and biodiversity conservation, which are critical for maintaining
ecosystem health and supporting industries like agriculture and fisheries.
In summary, embracing ESG practices in Bangladesh is
essential for achieving sustainable growth that balances economic development with
environmental protection, social equity, and good governance. By integrating
ESG considerations into business strategies and operations, Bangladesh can
position itself for a more resilient, responsible, and prosperous future.
POTENTIALITY
OF ESG REPORTING IN BANGLADESH
Environmental, Social, and Governance (ESG) reporting has
gained significant importance globally as businesses and investors recognize
the need to consider sustainability and responsible business practices. In the
context of Bangladesh, ESG reporting holds substantial potential, driven by
various factors:
Sustainable Development Goals
(SDGs): Bangladesh, like many other countries, has committed to
achieving the United Nations' Sustainable Development Goals. ESG reporting can
help track progress towards these goals, fostering accountability and transparency.
Climate Vulnerability:
Bangladesh is highly vulnerable to the impacts of climate change, including
rising sea levels, floods, and extreme weather events. ESG reporting can enable
businesses to assess and communicate their efforts in mitigating and adapting
to these challenges.
Investor Demand:
Globally, investors are increasingly considering ESG factors in their
investment decisions. Access to transparent and comprehensive ESG information
can attract responsible investment in Bangladesh.
Regulatory Environment:
Governments and regulatory bodies are beginning to mandate ESG disclosure.
Bangladesh could develop regulations that require companies to report on their
environmental and social impacts, enhancing corporate responsibility.
Stakeholder Expectations:
Customers, employees, and communities are becoming more conscious of ethical
and sustainable business practices. ESG reporting can demonstrate a company's
commitment to these values, enhancing its reputation.
Competitive Advantage:
Companies that prioritize ESG and report on their efforts can gain a
competitive edge by appealing to environmentally and socially conscious
consumers.
Risk Management:
ESG reporting can help identify and manage risks associated with environmental,
social, and governance issues, reducing potential legal, financial, and
reputational risks.
Resource Efficiency:
Bangladesh can benefit from increased resource efficiency, reduced waste, and
improved operational practices through ESG reporting.
Capacity Building:
ESG reporting requires organizations to gather and analyze data related to
various sustainability metrics. This process can foster skill development and
capacity building within businesses and relevant institutions.
Long-Term Viability:
ESG reporting encourages businesses to take a long-term perspective,
considering their impact on future generations. This approach aligns with the
principles of sustainability.
However, several challenges need to be addressed to fully
realize the potential of ESG reporting in Bangladesh:
Data Availability:
Reliable and standardized data collection can be a challenge in developing
countries. Establishing mechanisms for accurate data gathering and reporting is
crucial.
Awareness and Education: Many businesses, investors, and stakeholders may
not be fully aware of the importance and benefits of ESG reporting. Awareness
campaigns and education are essential.
Regulatory Framework:
Developing an appropriate regulatory framework for ESG reporting, including
clear guidelines and enforcement mechanisms, is essential.
Capacity Building:
Businesses, regulators, and other relevant entities may need support and
training to effectively implement ESG reporting practices.
Cost Implications:
Implementing ESG reporting practices may involve initial costs for businesses,
which could deter some from participation.
Integration with Business
Strategy: ESG reporting should align with a company's overall
business strategy rather than being seen as a mere compliance task.
Measurement Challenges:
Measuring some ESG factors, such as social impact, can be complex and
subjective. Developing standardized measurement methodologies is important.
In conclusion, ESG reporting holds significant potential for
Bangladesh, driven by global trends, stakeholder expectations, and the
country's own sustainability goals. By addressing challenges and creating an
enabling environment, Bangladesh can leverage ESG reporting to foster
sustainable economic growth, attract responsible investment, and contribute to
a more equitable and resilient future.
Share this page via
More from Kazi Farhed Iqubal
