We witness how our planet’s climate is increasingly behaving in seemingly erratic patterns impacting countless lives across the globe. Our planet’s biodiversity is rapidly and irreversibly are lost in many parts of the planet. Despite the growing recognition of the unfolding man-made catastrophe before us, global carbon emissions continue to rise, hitting an all-time high in 2021 (iea, 2022).
Social issues are presenting themselves in many forms - ranging from lack of access to resources to unfair labour practices, resulting in social inequities and dissatisfaction, manifesting in numerous protests and strikes as well as movement of refugees in many parts of the globe.
Corporations are increasingly challenged to re-evaluate their social license to operate and to reconsider how they should operate and be governed – from rethinking their purpose, business models, resource allocations to the roles and responsibilities of corporate boards of directors and shareholders, from more accountability and transparency with higher levels of standards for reporting and disclosures to re-imagining what opportunities there are for more sustainable value creation and re-defining corporate performance.
To effectively confront issues of such magnitude, complexity, and intensity, all protagonists of society – nations, governments, civil societies, businesses, and individuals – need, nay, must, play their part. In 2014, the Peoples’ Climate March reminded us that ‘To change everything, we need everyone’.
‘The slow pace and reactive nature of regulation means that society cannot sole rely on governments and policymakers to effectively navigate these challenges. There is a growing public expectation that businesses must step up and take responsibility for delivering positive outcomes for society and the environment (CISL, 2018). Indeed, business communities have a crucial role to play in addressing the above issues as they are engines of growth for thriving and dynamic economies and are composed of communities of people working together to create value from inputs by people and the environment. Businesses thus has a significant influence on, and are, in turn, impacted by social and environmental changes. Indeed, some global corporations wield economic power rivalling that of many nation states.
Of the many protagonists in the business communities, boards of directors who are vested with authority to manage their corporations’ business and affairs, have a special role in this effort. At the most basic level, risk oversight is an important part of boards’ remit, and directors have an important role to oversee how strategy and risk management practices must meet the needs of broader stakeholders to drive shareholder value (Deloitte, 2018). Boards are indeed well placed to steer their companies to think differently about the relationships between their business with the people - including intergenerational perspective - in the environment in which they operate. Boards can shape business decisions to build a more inclusive, equitable and sustainable economy as they sit between the owners – the shareholders – and the executive and the management of companies, and increasingly, between society and the impact of the company on society (Calland, 2022).
Yet the corporate will in Malaysia to deal with the powerful crosscurrents we see around us, had, until recently, been feeble. Many corporate boards viewed the environmental, social and governance (ESG) pathway as distinct and separate from the core strategy of their business or as too inconsequential to require board oversight (Mazars, 2021). When considered, it is often attended to as a box ticking exercise that is performed perfunctorily, more to meet regulatory requirements than to accomplish any meaningful purpose.
The Covid-19 experience has made us acutely aware that most of our current business systems are vulnerable to shocks and disruptions, an inevitable outcome from prioritising efficiency at the expense of resilience. Efficiency comes through optimal adaptation to an existing environment, while resilience requires the capacity to adapt to disruptive changes in the environment (Galston, 2020). The potency of disruptive events to cause deleterious impacts on operations systems is making resilience building a top priority for many business executives (Business Continuity Institute, 2019).
While there are some research that found inconclusive co-relationship of ESG strategies with improved corporate performances (Nikunj Sachin, 2021), other research found that embracing such strategies does enhance the resilience of companies during financial turmoil. That ESG strategies could act as an insurance-like risk mitigation device for banks during periods of financial distress. A possible explanation is that engaging in environmental, social, and corporate governance practices seems to be associated with more prudent banking activities, fostering a more stable relationships with communities and enhancing a bank’s reputation. .. findings confirm that enhancing ESG engagement in the banking sector is not only beneficial in terms of its impact on the environment and the society but is also able to strengthen the resilience of the banking sector when a financial crisis occurs. (Laura Chiaramonte, 2021). Another research found companies significantly outperform their counterparts over the long-term, both in terms of stock market as well as accounting performance (Eccles, Ioannou, & Serafeim, 2014).
So when in 2021, several regulators in Malaysia, including the Bursa and the Bank Negara mandated sustainability measures, the ESG agenda became mainstream, and garnered support and traction especially with public listed companies and financial institutions. With their consciousness on these issues awakened, boards now increasingly realise that their businesses need to address their externalities to maintain their social license to operate and crucially too, to ensure their long-term growth and survival. Conversations in boardrooms are now shifting from ‘why’ to ‘how’.
This is a hopeful development. Happily too, almost on a daily basis, we hear about how human ingenuity is triumphing with new and often undreamed-of digital technologies across many industries - which both enables more level playing fields for many as well as utilises resources more efficiently. We observe too of trends of empathy, cooperation, and engagement in altruistic acts during times of crises, such as during the coronavirus pandemic. With such inherent strengths of our species to thrive, it is certainly within our capacity to hasten the transformational journey that is much needed.
Unlike previous generations, who did not fully understand the consequences of humanity’s excessive actions, we now increasingly have the knowledge to comprehend, and the ideas and technologies to navigate this difficult terrain. Unlike future generations, we still have time to mitigate the worst effects of ecological damage. This generation has the ability, and thus the responsibility, to save the planet as well as restore the economic and social imbalances. Shirking that responsibility only leaves the next generation with an even heavier burden—one they may find impossible to bear. (Shue, 2021)
Bibliography
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