Environmental, Social and Governance (ESG) trends continue despite COVID-19 as the pandemic has increased the importance of ESG in business strategy, KPMG in Thailand says.
The implications of COVID-19 have accelerated corporate strategies that were already in place around digital transformation and innovation. This phenomenon has led many to believe that companies would focus more on responding to immediate threats and that they would deprioritize the sustainability agenda. However, it turned out that ESG is in the spotlight and has been gaining momentum.
According to KPMG 2020 CEO Outlook, the seriousness with which CEOs take the issue of climate change is reflected in the fact that 65 percent say that managing climate-related risks will play a part in whether they keep their jobs or not over the next 5 years. To move forward, they are looking to double-down on the structural shifts that have emerged during the crisis, such as less business travel: 71 percent say they want to lock-in climate change gains made as a result of the pandemic.
In consequence, a renewed focus on sustainability by businesses is not just on climate change but across the broad spectrum of ESG. Business leaders are taking the opportunity to re-evaluate their organization’s sense of purpose as they are feeling the need to take a stance on societal issues and to take action on environmental challenges.
Another recent piece of KPMG research, reveals that many business leaders of leading European companies put ESG as a strategic priority, and they say that the pandemic provides a unique opportunity to place ESG at the center of corporate recovery strategies. COVID-19 appears to be prompting improvements in the governance of ESG at large companies as well as fresh understanding of the importance of the company’s role in, and impact on, society. While environmental issues remain a key focus, social issues like people’s safety, their physical and mental health, and social inclusion have also become new priorities.
“ESG trends continue despite COVID-19, so businesses need to look beyond the pandemic. It is imperative that organizations should find ways to differentiate and compete in the new-normal business environment,” said Charoen Phosamritlert, Chief Executive Officer, KPMG in Thailand, Myanmar and Laos.
In Thailand, The Securities and Exchange Commission (SEC) has required disclosures of policies and activities around corporate social responsibility since 2014. The Stock Exchange of Thailand (SET) has created a Thailand Sustainability Investment (THSI) list since 2015 for investors to use as a guide for investment in higher performing ESG stocks – and to support sustainable Thai companies, defined by SET as companies that embrace risk management, supply chain management, and innovations together with responsibility for environmental, social and governance aspects of their business. In 2018, SET THSI Index (SETTHSI) was launched for the first time in the country’s stock market as an index to show the level and movement of prices of common stocks of listed companies that conduct business according to sustainable development guidelines. Amid environmental, social and governance concerns, businesses have been increasingly emphasizing ESG agendas by integrating sustainability into corporate missions and strategies to build confidence among stakeholders. Currently, many listed companies in Thailand choose to use GRI Sustainability Reporting Standards (GRI Standards) to report on their sustainability impacts, and more of them are becoming members the Dow Jones Sustainability Indices (DJSI).
“ESG reporting benefits companies in many ways. It demonstrates the management’s commitment to improving disclosures to the market and regulators -by reporting credible sustainability performance data thereby gaining stakeholders’ confidence. It also supports scoring models for external benchmarks and sustainability indices such as GRI Standards, THSI Index, and DJSI Indices. In addition, ESG reporting and analysis helps focus a company’s strategies which is an opportunity to identify areas for improvement and growth,” said Paul Flipse, Head of Sustainability Practice, KPMG in Thailand.
Major institutional investors are heading toward a green trend under increasing pressure to integrate ESG into their investment decisions as ESG aspects are among the criteria that help determine business performance in the long-term period. With this rising demand from both issuers and investors, corporates have been increasingly active in issuing ESG and green bonds to fund environmental projects, and so far, issuance of these bonds has been successful.
Awareness of corporate social impact surges because COVID-19 is a people-centered crisis that has tremendously changed the way we live and work. Therefore, the environmental impacts of business are expected to take on even more importance after the pandemic passes as COVID-19 increases public scrutiny on companies’ role in society.
“In a post-COVID world where the public are looking to businesses to fill the void on societal challenges, stakeholders are pushing for increased transparency, and regulators are putting more emphasis on corporate governance of ESG performance, business leaders need to reinforce a long-term view about their organizations’ impact on the society and the community that they work in so that they can translate their good intentions into concrete action – in order to thrive in the new reality,” concluded Charoen.