In global perspective, Environmental, Social, and Governance (ESG) have become the language of capital markets, expanding market value by maintaining value for future generation. Climate change, biodiversity, carbon emission, human right, customer relation, supply chain, board management practices, data, tax transparency, and security are examples fall under ESG heading. The increase in investor attention comes alongside an ideological shift in business sustainability and citizenship are no longer seen as philanthropic activities, but rather, vital for business success (Courtnell, J., 2022).
The Fintech Time states ESG reports disclose data and explain the impact and added value of an organization containing summaries of activities which provides stakeholders and investors with an insight into the goals, achievement, and the impact of those organization. In addition, it shows a number of ESG Link Loans in Europe obtained quadrupled from 27 billion Euro in 2017 to 102 billion Euro in 2019. The ESG report is not being yet mandatory in all counties, an increase amounts of organizations disclose this information voluntary and use it as a proof for gain more investment though since they have recognized the importance of communicating their business strategy and the impact of their business (The Fintech Times, 2022). From 2023 onwards, more organizations will actual be obligated to publish sustainability information and degree of obligations depend on discretion of each country. For instance, the European Commission presented a new proposal for a Corporate Sustainability Reporting Directive (CSRD), which is a regulation for listed and public-interest companies reveals non-financial report (Bureau Veritas, 2023). The CSRD would be an EU sustainability reporting standard improving the existing requirement of the current Non-Financial Reporting Directive (NFRD). Under this new directive, up to 50,000 large public-interest European entities, as well as all listed companies on EU regulated market, will be required to report on ESG related factors (The Fintech Times, 2022).
In Thailand, SET (Stock Exchange of Thailand) initially has concerned about good governance concept like in The Principles of Good Corporate Governance for Listed Company 2012, which including 1) Right of Shareholders 2) Equity Treatment of Shareholders 3) Role of Stakeholders 4) Disclosure and Transparency (SET, 2012). Afterward, the Checklist for sustainable SME Business (Antong, P.and Ekachaiphaiboon, S., 2016), which is a handbook for sustainable development of SME business, was published in 2016 and SEC (The office of the Securities and Exchange Commission) consecutively launched CG Code (Corporate Governance Code) in 2017 that mandates role and responsibility of a board of an organization on behalf of leader through determining targets of business (CG Thailand, 2017). It comprises of 8 categories such as Establish Clear Leadership Role and Responsibility of the Board, Define Objective that Promote Sustainable Value Creation, Strengthen Effective Risk Management and Internal Control etc. Lastly, the Corporate Sustainability Guide for Listed Companies was launched in 2020 by SET (Santhayati, N. et al., 2020).
In terms of risk management, SET adopted COSO-ERM 2017, which is an enterprise risk management guideline from collaboration between COSO (the Committee of Sponsoring Organization of the Treadway Commission), which composed of 5 big professional commissions 1) The American Institute of Certified Public Accountants or AICPA 2) The Institute of Internal Auditor or IIA 3) The Financial Executives Institute or FEI 4) The American Accounting Association or AAA 5) Institute of Management Accountants or IMA) (Kamhaengpol, T, 2016) and WBCSD (World Business Council for Sustainable Development), as ESG Risk for Thai companies (Chayaviwattanawong, C., 2018). It obvious that SET and SEC continuously strive to enhance sustainability issue for a decade and sustainability guideline and regulation gradually strong as global trend.
Understanding the importance of ESG reporting requires a mindset shift, one that does not consider ESG regulation as a burden, but perceives reporting as a means of transparency. This transparency entails capital and create solutions for the major global challenges such as climate change, equity, and security, which correlate with Sustainable Development Goals (SDGs) of the United Nation. The transparent, moreover, also encourages essential accountability for collaboration with other stakeholder and developing actionable solutions. Especially, investors and lenders will increasingly use the transparence given by a ESG report to evaluate a company’s risk exposure and determine its possible future financial performance. Despite of investors, customers are also demanding products and/or services from responsible brands (Courtnell, J., 2022). The First Insight (2023) shows customers, particularly Gen Z, are more willing to support brand with effective ESG strategy with 62% of Gen Z prefer to buy from a sustainable brand, and 73% of them are willing to spend up to 10% more for a more sustainable product/service. On the other hand, 79% of Millennial employees consider the sustainability agenda of an employer before making their career choices. This means reporting ESG will boost an organization’s chances of attracting new talent (Cone, C., 2022). While MSCI (2021) argues sustainable investment goes beyond Gen z and millennials, but becoming requirements for key industry participants, such as institutional investors and listed company. In order to use ESG reporting to plot an effective ESG strategy, Organizations need to set clear targets to reduce environmental, social, and governance risk, then evidently measure their progress and annually report in a transparent manner. Moreover, organizations had better set actionable initiatives that will support ESG compliance and their ESG strategy (Courtnell, J., 2022). Korn Ferry, which is a global organizational consulting firm, also defines ESG as a sustainable strategy that you have to change rather than inevitable. An organization requires to define a purpose, then develop the skills, talent, leaders and culture that it needs to achieve. For the purpose, one should start with “Set the tone of the top” by setting commitments, then bringing them to everyday life and behavior of leaders across the organization. After the leaders can perform the change, it is the starting point for infuse purpose and ESG objectives into organization culture, and empower employees to devote in purpose, and be active part of change, for good. However, A Set of targets should be established and regularly measured outcomes of ESG Driven strategy and actions by qualitative or quantitative metrics (Korn Ferry, 2023). In more detail, each organization should get an overview of all ESG-related information that is available across different departments and stakeholders and decide which ones are most relevant for you. This is the so-called materiality assessment. In addition, technology and software can already simplify the data collection process immensely today and give you guidance in the jungle of reporting requirements. Then, decide on the reporting framework you want to use and ensure reliability and transparency in your reporting – that is the key. Lastly, communication is a highlight that shows how your ESG report aligns with your business strategy for both to the public and the stakeholders (The Fintech Times, 2022).
All of these evidences exhibit endeavors from capital sector around the world for enhancing sustainability concept together with other industrial sectors. Initially, it seems hit-and-miss according to wideness and deepness of sustainability realm and its contrary idea from Industrialization. However, the sustainability and climate change are unavoidable issues and effect to human life directly. These concepts have been seriously developed over two decades in many ways either scientific or social since the Kyoto Protocol in 1997 until the United Nations Framework Convention on Climate Change Conference of the Parties: UNFCCC (COP) 27 in 2022. Those developments conduce significant transformation in our world in many ways of life, especially in economic system. Therefore, ESG will play an important role for mandating business operating activities of such organizations either government sector or private sector, even though it is only voluntary requirement from stock exchange in some countries at the moment. Mandatory ESG reporting soon becoming a necessary measure, companies need to familiarize themselves with the latest ESG criteria and obligations. There is a forecast from Deloitte Center for Financial Services (DCFS) that client demands to drive ESG-mandated assets to consist half of all professionally managed investments in the United States by 2025. Technologies enable better-quality ESG data and the regulatory landscape becomes clearer. Institutional, and retail investors are expected to more demand that ESG factor be applied to greater percentage of their portfolio. ESG assets should constantly grow at a 16% Compound Annual Growth Rate (CARG) in 2025 (Collins, Sean, 2020). However, mandatory ESG reporting regulations are more likely to be adopted by countries with common law origins and higher per capita carbon emissions rather than other intangible identifications such as social perception or well-being. According to this trend, the simplest solution is to dedicate staff and resources to checking ESG requirements and recommended frameworks in any country where a company wishes to conduct business as soon as possible because some change in an organization may require a period of time. Moreover, this can be a complicated, costly, and error-ridden process (Abigali Y., 2022).
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