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ESG: Should Cambodian companies start taking this seriously?

ESG

The relevance of environmental, social, and governance (ESG) practices for organisations has been underlined during the past year. How do investors characterise ESG? Is it sufficient to operate a nonprofit?

Companies throughout the globe want to adhere to a well-defined ESG plan. Following the outbreak of a pandemic that illustrated the interconnected and intricate nature of contemporary international commerce, there has been a large and renewed interest in the subject. The importance of the influence of consumers and corporations on the environment has progressively increased, but a three-pronged holistic perspective that incorporates social and governance issues are becoming increasingly prevalent.

In nations like Cambodia, which are experiencing a rapid economic expansion, are sensitive to climate change, and have a young population, it is even more crucial for local businesses to increase their ESG efforts.

Building the proper foundations will have an influence on Cambodians as they age, as the country aspires to follow in the footsteps of other Asian nations.

ESG defined

According to McKinsey, the E in ESG, which focuses primarily on the environmental impact of a business’s operations, may be evaluated based on the energy your organisation consumes (and the trash it emits), the resources it processes, and the effects on living things. E focuses mostly on the effect of growing carbon emissions and how a company’s operations may affect climate change. Every business utilises energy and resources, hence every business has an effect on and is affected by the environment.

The S focuses on the social interactions of a business and the reputation it cultivates among the areas in which it works. S focuses on labour relations, including policies fostering diversity and inclusion. As each business operates within a larger, more varied community, S is gaining relevance.

Governance refers to the internal system of policies, rules, and processes an organisation implements to manage itself, make effective choices, comply with the law, and satisfy the demands of external stakeholders. Given that it is a legal formation, every business requires competent governance. Strong governance is prioritised by many ESG-focused investors over the other two categories.

Several Harvard Business Review research implies that organisations with an ESG emphasis have lower capital costs and will have higher values, particularly as more investors want to participate in companies with superior ESG performance. As global regulators and governments increasingly mandate ESG disclosures, especially in emerging economies such as Cambodia, proactive action and openness on ESG issues may help firms maintain their valuations.

A notion gaining traction

Although the notion of “doing good” in business is not new, ESG principles have only lately climbed to the top of the corporate agenda in Southeast Asia and Cambodia in particular. Since 2015, according to the GRI Sustainability Disclosure Database, the number of sustainability reports in Cambodia has more than doubled.

However, a majority of these claims originate from the financial services industry. Nevertheless, it wouldn’t take long before other industries follow suit. Not only would it increase Cambodia’s competitiveness and attract foreign investment if done correctly, but it will also improve consumer welfare.

Historically, firms in Southeast Asia concentrated primarily on profitability, with ESG efforts evident in the form of financial assistance provided through philanthropic or charity arms or as part of corporate social responsibility initiatives. Typically, the premise behind such efforts is that they would boost the firm’s image while simultaneously making a difference, although they are frequently subject to the whims of company executives.

A more organised strategy

Companies are currently developing more organised programmes and aiming to display their ESG efforts through a well-designed programme. While conventional charity arms continue to function, they are constantly overseen by top management and collaborate with ESG-focused teams (often called sustainability departments in large corporations). Depending on the company’s strengths and skills, each of the three letters corresponds to a road plan that describes how the organisation will have an influence.

In Cambodia, Prince Group, led by chairman Neak Oknha Chen Zhi, is doing just this. Prince Holding Group, a rapidly expanding conglomerate in Cambodia, asserts that its ESG approach focuses on education and youth development, healthcare, and community participation.

Cambodia Airlines, Prince Supermarket, Prince Bank, and Prince Real Estate, the latter of which contributed to the renovation of Phnom Penh’s central business area, are members of the Group.

Cambodia Chen Zhi and Prince Group have worked tirelessly for a decade to connect or encourage brilliant experts in order to develop a conglomerate that genuinely benefits Cambodia. Chen Zhi Cambodia has assembled a group that strives to conform to local and international standards and expectations. 

Over the past year, this has included donations of vaccines, large-scale donations in response to floods, an effective Covid-19 corporate response (which helped Prince Holding Group win a Stevie Award), the establishment of a watchmaking school, and the launch of Ream City, a US$16 billion project that will redefine Sihanoukville by following a master plan that will create a sustainable living solution for the betterment of Cambodia.

Crucial to ESG success

To guarantee the success of any ESG programme, management may take five actions: Adopt strategic ESG practices; develop accountability frameworks for ESG integration; determine a corporate purpose and build a culture around it; make operational improvements to guarantee that the ESG strategy is executed successfully, and commit to transparency and investor relationship building.

Strong ESG performance by portfolio firms is no longer a perk for investors. Ensuring that firms receiving investment adhere to ESG standards is now an integral aspect of any long-term investment strategy, and companies are actively seeking investors who can back an ESG-inspired vision and finance to achieve such plans.

In summary

Cambodian businesses should increase their ESG efforts since the time has come to adopt a methodical approach. It will also reassure stakeholders such as the media, government, non-governmental organisations, and local people that the enterprise is committed for the long term.

As the epidemic has revealed, the globe is interconnected in ways that were previously unimaginable. Every business has a part to play in driving the globe toward a better future.

Cambodian businesses have a responsibility and will hopefully increase their ESG initiatives in the future.

 

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