ESG Sustainability: societal and global perspectives

The strategic quest for corporate sustainability

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 environmental, social, and governance (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:

ʎ Environmental-the ecological criteria for corporate performance as a custodian of nature;

ʎ Social-standards by which a company manages its relationships with customers, workers, suppliers and the communities where it operates; and,

ʎ 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.

Firms can promote ESG for society by engaging with the various stakeholder activist groups in a collaborative effort to exert pressure on the state to promote environmental (i.e., ecological), social and governance sustainability for society, and consequently, for its component institutions as well.

There are currently two major sources of instability in Philippine society that pose a potential threat to its sustainability, one political and the other economic.

The recently concluded national elections have a potential impact on the current state of public-sector governance in our country. Many see in the outcome of the elections the resurrection of a political regime that history has shown to have been responsible for the breakdown of most of our social and political institutions. Rightly or wrongly, it was, according to a number of observers, the result of a well-oiled campaign machinery that twisted the truth beyond recognition, and aimed at gullible, impressionable voters. More ominously, it was a political exercise where government agencies that have been captured by pressure groups, profit-seeking social media platforms and self-seeking individuals have been complicit with.

By whatever lens one views the current chaotic political scenario, the emerging system of public sector governance is apparently dysfunctional and patently unsustainable.

Saving an unsustainable economic system: Can business save capitalism?

In the introductory chapter of my recently published book, Strategy in the New Age of Capitalism (UP Press, 2022), I wrote:

“… in the last thirty years, capitalistic societies have witnessed a dramatic increase in economic inequality, lack of economic opportunities and worsening living conditions among large segments of societies. Such large-scale economic disenfranchisement in the face of phenomenal growth is unquestionably among the greatest anomalies of capitalism.”

The ever-widening gap in the economic fortunes of the few, very rich individuals in society and the great majority of the people suffering in abject poverty is unsustainable.

There have been increasing calls from the business community itself for a more inclusive and a more compassionate form of capitalism.

On August 19, 2019, the influential Business Roundtable (BRT) formally abandoned its long-standing advocacy of shareholder wealth maximization as the main purpose of business corporations and formally adopted a new “Statement of Purpose of the Corporation.”

With this proclamation, the BRT committed corporate America to creating value for ALL stakeholders.

Over a year later, 26 of the largest business and professional organizations in the Philippines, collectively known as the Philippine Business Groups, signed a “Covenant for Shared Prosperity,” by which they upheld the universal issues of economic and social inequality and noninclusivity by ensuring “… ethical wealth creation and the sharing of prosperity with all stakeholders.”

At its virtual annual meeting held on Jan. 26, 2021, leaders of the World Economic Forum made an impassioned appeal for stakeholder capitalism, an approach to business and economic policymaking that looks beyond the interests of shareholders and toward the well-being of society.

By all indications, stakeholder capitalism appears to be the new mantra in the corporate world.

All the sound and fury about stakeholder—or inclusive—capitalism is cloaked with the empty promise of corporate social responsibility, or CSR, interpreted by most as a form largess or altruism, and a moral obligation of business to society.

In our view, corporate initiatives that pass for “CSR” have an underlying strategic agenda. The social benefits arising from the commercial activities of business firms are the unintended external effects of their strategic and operational decisions on the material well-being of society, and not, as popularly construed, their intended purpose.

To conclude, business organizations and other forms of social institutions can survive only in sustainable physical and social environments. It is therefore in the strategic interest of business to promote sustainable ecological, political, economic and social environments. INQ

The article reflects the personal opinion of the author and not the official stand of the Management Association of the Philippines or MAP. The author is a retired professor of economics and management, and currently a professorial lecturer at the University of the Philippines-Diliman. Feedback at [email protected] and [email protected].