WILMA C. INVENTOR-MIRANDA l June 27, 2023 l Manila Bulletin
Since the start of the global consciousness on taking care of the environment, the possible drastic effect of climate change, waste recycling, and the likes, investors begin -to look beyond the financial figures in making investment decisions and include criteria on ESG strategies in place.
But is ESG or Environment, Social and Governance Regulations mandatory? In the Philippines, those who plan to publicly enlist their companies whether foreign or local enterprises must comply with ESG as set by the Securities and Exchange Commission. It is important since companies must be conscious not only of their bottom line but the impact their business has on society and the world as a whole.
Investors are now looking into the ESG compliance of a company aside from their financial profitability – particularly for listed companies. It is not only to comply with government requirements but a company with good ESG reporting means they are an organization focused on purpose and values. And these companies are more likely to be profitable and more likely to be successful. A McKinsey report shows there is a positive link between ESG and financial performance.
It is not just investors, but also the bank that grants loans to the company, the supplier who will grant a credit line and supplies the needs of the business, the people who believe in the purpose and values of the company and are willing to help and see that the business will attain its ESG goals, are the ones who are also monitoring the implementation of ESG strategies in their companies.
In short, not only listed companies or big businesses should be pursuing ESG but also small businesses. However, in a research by the SME Climate Hub, small and medium-sized enterprises may be a still far distance compared to their “big brothers” or listed companies in embracing and engaging in ESG since only 92 percent of SMEs are yet to implement an ESG strategy. In the same study 1,124 companies surveyed, just 19 percent were aware of what ESG involved and only 12 percent said they had actually integrated it into the Company strategy.
This is a study among UK SMEs but let us see how the SMEs in the Philippines fare since this is not yet popular among the SMEs here and these businesses are not even aware of the benefits that ESG practices will bring to their business. In July 2022 an Asia-wide survey shows that even though 70 percent of consumers prefer to buy from companies with ESG strategies effectively in place – only 29 percent of SMEs have actually adopted these and made them part of the Company’s strategies (source:digitalpilipinas. ph, dated February 27, 2023).
Again, the SMEs might ask – why pursue ESG strategies – when our business is not a listed one that needs investors?
SME Climate Hub nailed it on their website with the question why commit: first, it improves efficiency – if you reduce costs by proper management of resources this will likely result in a more efficient operation. For instance, there is less waste of paper, less printing costs, and more time saved if you use the latest technology of workplace applications where you can collaborate in real-time and your comments relayed in real-time to those who will review it without the need to print it for your superior’s review. It used to be that all of these are done manually and each time the manager, for instance, review the work of her subordinate the report is printed several times and goes back and forth before the final version is completed which means not only a waste of material resources but of manhours.
The second reason why SMEs should commit is to be able to manage risk. When environmental strategies are in place your business will become more resilient and protect itself better against climate-related damage, disruptions, and closures.
Third reason, you will gain a competitive advantage against other businesses since adopting ESG strategies does not only mean better financial performance but will be seen by the public as focused not only on making money but building a more purposeful goal of saving the environment, being socially responsible, and implementing good governance. There may be other reasons why a business needs to commit but for me, the above are the more important for SMEs.
It may be a difficult goal to achieve by now but as they say “success starts with a single step”.
*** (Wilma Miranda is a Managing Partner of Inventor, Miranda & Associates, CPAs, Chair of the Ethics Committee of FINEX, Treasurer of Negros Outsourcing Services, Inc., and member of the Board of Directors of KPS Outsourcing, Inc. The views expressed herein do not necessarily reflect the opinion of these institutions.)