Corporate Governance

ESG: Good for boards, good for business

Environmental, social and governance (ESG) policies are becoming ever-more important for boards and businesses across the Asia-Pacific region. As consumers demand accountability for social and sustainability outcomes, they are striving to meet their legal obligations, to generate shareholder returns and plan for the future.

Across the Asia-Pacific, we see great diversity in approaches to ESG, mostly due to the region’s great cultural, political and economic diversity. Factors such as institutional development, market efficiencies, geography, demographics and the distribution of natural resources all play important roles.

Yet, regardless of differences, ESG is considered to be a key indicator of a company’s long-term prospects as it situates itself in a broader context – giving it ‘roots’ that wants to help with crises and adapt to new conditions.

Thesis go beyond a company’s ‘social license’ to operate and include search factors as brand reputation, compliance with legal requirements (for example, eliminating loss, reducing emissions and protecting private data) and a board’s perceived effectiveness and reliability.

Different countries, different systems

Developed regional economies, for example, Australia and Singapore, benefit from high governance standards, well-established legal frameworks, accountable political institutions and empowered civil institutions.

Other economies may have different characteristics and ownership structures, which impact on governance and ESG effectiveness – both positively and negatively.

State-owned enterprises may be responsible for questions about management accountability, efficient capital allocation and employee incentives.

Family-owned enterprises may be subject to questions about governance, relationship-party transactions and relationships with government.

In both cases, however, there are benefits as well as concerns. For example, organisations are likely to be less interested in making immediate cash returns (more likely to engage in high-risk behavior) a greater sense of social responsibility (which can translate into good governance and more effective ESG outcomes).

Similarly, it would be unwise to make assumptions about governance and ESG without having detailed knowledge of the company in question. As equity specialists Martin Currie note, for many companies “not disclosure” does not always mean ‘not doing’. Progressive policies on shareholder rights, remuneration, board independence and tenure may be in place, but hidden by lower levels of transparency “.

Across the region, ESG and corporate governance, to promote and improve our reputation and market position.

ESG and finance

Significantly, ESG is an indicator of overall company performance. A recent report from the Hong Kong Green Finance Association (HKGFA) and CECEP Environmental Consulting Group Ltd. (CECEP) found that “70% of respondents believe that they have greater comparative advantages and are more competitive in the marketplace with their peers,” while more than 90% said they had already incorporated ESG into their corporate governance or considered incorporating ESG into their corporate governance practices over the next three years “.

Environmental sustainability is a significant concern for many countries in the Asia-Pacific. Hong Kong’s emerging green bond market. The HKGFA aims at becoming a global finance market, facilitating and creating opportunities for investment projects across the region. In May this year (2019) Hong Kong’s government issued a USD $ 1 billion green bond, which will finance sustainable development and public works in the city-state.

ESG and good governance. But how to unlock them?

Modern Governance is the key

How, then, can you take advantage of ESG’s emergence as a success factor and performance indicator? The key read in governance – specifically, in modern governance . Modern Governance is an approach based on deploying a unified technology platform to enable secure and comprehensive corporate governance.

By making board papers, voting, vetting, document sharing, messaging, collaboration and other aspects of management board available through a simple, secure, cloud-based, mobile- platform, boards will be better able to monitor important initiatives around environmental sustainability, business management, company culture, financial performance, strategic objectives and more.

Better yet, a Comprehensive Modern Governance Platform should include analytics and other data-gathering and data-handling capabilities. These enable companies to take a proactive approach to governance, discovering connections and revealing business opportunities.

Regardless of your organisation’s ESG maturity, Modern Governance can help you unlock its benefits. Contact Diligent today to find out more.

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