BULETIN TEKSTIL.COM/ Jakarta
Environmental, Social and Governance (ESG) was initially initiated by James Grifford, a PhD student, Economics and Ecologist from the University of Sydney in 2003.
Then, Kofi Annan, the Secretary General of the United Nations – UN in 2004, formulated and define ESG terms. In practice, the United Nations collaborates with International Financial Institutions to integrate environmental, social and governance issues as a reference for investment in the capital market.
The first use of the term ESG was in 2005 through Who Cares Wins research.
Since 2013, ESG is an initiative of Social and Environmentally Responsible Investment. By using ESG parameters, the Company will perform better and realize sustainable financial results.
Currently, people around the world have accepted the term ESG as a future concept. ESG has become part of the company’s overall strategy. This is the time to implement ESG.
ESG compliance is becoming increasingly important due to the impact of the climate and Environment crises. The Global Sustainable Investment Alliance reports that ESG commitments have increased by 41% during 2014 – 2016, with a value of US$ 8.4 trillion.
Definition of ESG – Environmental, Social and Governance
ESG is a company standard in its investment practices which consists of three concepts, i.e. Environment, Social, and Governance.
With the ESG principles, the company will integrate and implement these principles in company policies so that they are aligned with the sustainability of these three elements.
Environmental criteria are the company’s main considerations to achieve high and sustainable financial and operational performance without damaging the environment. Companies are also obliged to support the realization of Green Society – helping to create a society that cares about the environment.
Social Criteria: the company seeks to explore good relations between communities affected by the company’s operations and third parties such as workers, product suppliers – raw materials, auxiliary materials and the community, community groups around the company’s operations – (and participate in realizing the Pancasila Industrial relationship Law No. 025 /1997)
Governance Criteria: the company discusses the capacity and legitimacy of a company, internal relations, internal controls, investors’ rights and various policies in relation to the rights of Shareholders and Investor(s) and other related third parties eg. Regulators etc; Support the realization of ethical practice in business.
Environmental Criteria: Environmental impact(s) and Risk Management practices. The ESG also discusses energy use (direct and indirect greenhouse gas emissions, management’s stewardship over natural resources and the firm’s overall resilience against physical climate).
Or, related to other important issues such as energy saving, renewable energy, green energy, waste generated, conservation of natural resources, behavior towards endemic flora and fauna, etc.
By placing these environmental criteria, the company makes policies and/or revises regulations, for example those related to the use of renewable energy, efficiency of natural resources (use of groundwater, waste management and disposal).
This is a real implication of the company’s operations, in addition to compliance with applicable laws and regulations, namely Law No. 32 of 2009 concerning Environmental Protection and Management and Government Regulation No. 22 of 2021 concerning the Implementation of Environmental Protection and Management.
Commitment to good environmental conditions will have a positive impact on the company and the environment and of course have a sustainable impact on its business operations. Through risk management related to a good environment, the company’s financial performance will be more easily achieved.
Social Criteria: in the ESG, social criteria look at the company’s relationship externally “stakeholders” with the community around the company’s operations, existing communities, the “Supply Chain” of suppliers, buyers, and other entities.
An example in this case is the media, which has both direct and indirect relationships which must be considered through social criteria.
Social criteria will also have an impact on the company’s financial performance. The company in adapting its position to social problems will affect its image. Thus companies need to explore social issues as one of the management risks that must be taken into account.
As an example of this case is the issue of Workers’ Rights. Here there must be awareness of the rights of workers who must be addressed properly.
This is important because it will be able to help reduce social turmoil that affects the company’s operations. Thus, if these Social Criteria are managed properly, it will support the company’s financial performance and guarantee sustainability.
Governance Criteria: the company focuses on how internally it has a good and sustainable management process. If the social criteria focus on external relations, the governance criteria focus on company management.
This criterion discusses “Shareholder rights” including company policies, company standards, culture, disclosure of information, audit process and compliance with laws and regulations, including taxation, etc., either mandatory or self-initiated.
The implementation of good governance will provide added value to the company and can be converted into trust for investors to invest in the company.
The cornerstone of the Criteria for good governance is Ethics. Ethics is an ethical attitude that must be upheld and practiced in the management of the company.
Conversely, companies that do not have ethics are generally not transparent in financial management, violate laws and ethical rights, and have a negative value on their business and investment practices. They also often commit data falsification, corruption, internal scandals, and conflicts of interest.
Everything is an internal risk that must be considered, taken into account in the preparation and design of the company’s internal regulations. (Read: Building an Integrated GRC Culture)
If the three ESG criteria above (Environmental, Social, are implemented properly), the company is expected to operate profitably and grow sustainably.
Many countries and companies have adopted ESG. It has developed rapidly in recent years, especially in the last five years due to society’s demand for environmentally friendly companies.
In addition, companies also need to pay attention to and respond properly to related social issues and companies that are well managed, transparent and accountable based on ethical attitudes. In addition, comply with all applicable laws and regulations.
One framework that is similar to the ESG is what is called the “Triple Bottom Line: 3P” Profit: economic sustainability, People: Social and Planet: environment.
Companies that grow sustainably are able to create profits as well as build a community of stakeholders: Shareholders, Investors, Suppliers, Employees and Communities.
ESG is an investment not a charge. The whole idea of ESG is to make a sustainable company run its business ethically and responsibly.
ESG is an investment approach adopted in various types of activities and entities. The ESG criteria as a management model are used not only by investors but also by stakeholders, community activists, and policy makers.
One of the outcomes of the G-20 meeting in Bali on November 12 2022, the Indonesian Minister of Finance, Sri Mulyani Idrawati, launched Environment, Social and Governance (ESG) for government support and facilities in infrastructure financing.
The ESG launch was attended by the United Nation Development Program (UNDP), Government of Canada, a State-owned Company as a Special Mission Vihicle (SMV) under the Ministry of Finance, Multi-National Institutions, and the private sector.
The ESG Framework and Manual Launching Event was organized by the Ministry of Finance with the support of PT. Indonesia Infrastructure Finance (IIF). This was done as proof of commitment to the 2030 SDGs (Sustainability Development Goals); where one of the most important parts of SGDs is “sustainable infrastructure”.
Now is the time for Companies or Corporations engaged in the Textile Industry sector to start initiating and adopting the ESG Framework in their business practices, especially in relation to Sustainability and its relationships with Investor(s) and other stakeholders.
ESG is an important characteristic of the textile industry which is closely related to environmental, social and good governance practices. Especially Corporations that wish to be Listed on the Stock Exchange, or are looking for investors in the money market.
ESG is a frame work that help stakeholders understand how the organizations managing risk and opportunity related to the environment social and governance criteria sometime is called ESG factors.
ESG has evolve from other historical movement that focus on health and safety issues, pollution reduction, and corporate philanthropy
ESG has changed how capital allocation are made by many of the largest financial service firms anasset manager in the world An emerging class of ESG specialist is stepping into industry and supporting both net zero and carbon neutrality goals.
Picture 4 ESG Frame Works
- Peluncuran Kerangka Kerja dan Manual ESG; Wujud komitmen Indonesia Terhadap Investasi Hijau dan Berkelanjutan ; publikasi Kemenkeu RI dan tulisan dalam laman fb, Ibu Sri Mulyani Indrawati Menteri Keuangan RI, tanggal 12 November 2022, pertemuan G-29 di Bali.
- Mas Achmad Daniri : ES-GRC : Bahan Pembekalan untuk Dewan Juri TOP GRC & CSR ; Mantan Ketua KNKG Komite Nasional Kebijakan Governansi RI dan Mantan Direktur Utama Bursa Efek Jakarta.
- Iqbar Luqyana – ESG Definisi, Contoh dan Hubungannya dengan Perusahaan. ESG Intelligence.
- Beberapa publikasi lain tentang : ESG, GRC; SDG’s dan CSV. Oleh Asosiasi dn atau Lembaga terkait.
- ISO 37.000 : Governance of Organizations Guideline – Tata Kelola: ISO 31.000 – 2018 Risk Management dan ISO 26.000 Standar Global dalam Pelaksanaan CSR.
(Red B-Teks/Ben De Haan)