The increasing volatility and unpredictability of the global economy arising from Black Swan events, such as the Covid-19 pandemic and the Ukraine war, is prompting corporate managers the world over to initiate measures to enhance their chances of survival. Many are adopting the ESG framework.
This strategy focuses on the ESG factors that are essential for the survival of the business enterprise over the long haul.
The three measures of ESG sustainability are the following:
> Environmental: the ecological criteria for corporate performance as a custodian of nature;
> Social: standards by which a company manages its relationships with customers, workers, suppliers and the communities where it operates; and
> Governance: factors relating to a company’s style of leadership, compensation policy, corporate accountability and shareholder rights.
High standards of performance along these three ESG dimensions reflect a firm’s concern for its stakeholders and ensures it of a continued flow of economic resources from them.
By contrast, poor ESG performance is generally scorned by government regulators and militant stakeholder groups, such as activist investors and consumers who may threaten to withhold resources from the firm, thereby posing a potential threat to its continued existence. In response to pressure from activist stakeholders, many corporations are investing in ESG-compliant projects in order to burnish their public image.
Key risks in PH
The ESG framework may also be applied to social policies aimed at the sustainability of nations and of the planet. This broader application of the ESG framework is traditionally a function of the state. However, the state has become remiss in performing this function, and business should therefore assume this responsibility.
