제 22 호 ESG Management: How Is It Different From CSR, CSV, and SDGs?
Kicker: SOCIETY
ESG Management:
How Is It Different From CSR, CSV, and SDGs?
by Si-ho Park, Reporter
With the recent experience of global climate change, the COVID-19 pandemic, inflation, etc., consumers’ interest in “sustainability” has highly increased. Now, not only financial performance but also non-financial factors are acting as important indicators in evaluating companies. In line with these changes, ESG, a framework for assessing sustainability through non-financial indicators including Environment, Society, and Governance, has become an indispensable element of business management. Companies’ sustainable development can only be achieved by considering transparent management, such as eco-friendly corporate activities, socially responsible management, and governance improvements.
Then, let's look at the specific definition of each ESG field, its connection with sustainability, how it differs from the concepts of CSR, CSV, and SDGs, and how ESG is applied to real companies.
What Is ESG Management and How Does It Work?
In order to practice ESG management, companies strive to be eco-friendly, make social contributions, and maintain governance transparency. This explains the sustainability of a company based on environmental pollution prevention activities, consideration of workers and stakeholders, the composition of the board of directors, and the way of decision-making.
Then, why is ESG management so important for companies?
Companies can create a warm and competent image through ESG management. By this positive image, customers’ perceptions of price fairness for products or services are positively affected. Again, based on the positive corporate image, customers’ attitudes toward the company, loyalty, and willingness to pay additional costs are also improved. In other words, customers perceive that it is worth paying more for its product or servicebecause this company is good and smart.
How Is ESG Different From CSR, CSV, And SDGs?
When ESG principles are effectively reflected in a company's management activities, the “sustainability” of a company can also be increased. “Sustainability,” which can be evaluated through ESG management, is a term emphasized in companies along with ethical management. This concept of sustainability is widely applied not only in management but also in other areas.
The concepts of CSR, CSV, and SDGs are also based on the notion of “sustainability,” but these are not identical. CSR, which refers to Corporate Social Responsibility, is the concept of a "good company" that seeks to manage its reputation by engaging in social contribution activities. On the other hand, CSV, an abbreviation for Creating Shared Value, is the concept of a "wise company" that seeks shared value by considering social responsibility and corporate interests together. Recognizing the two concepts, the difference in domestic and international trends is very interesting. Overseas, CSR was discussed at a more multifaceted level, while CSV was said to have no difference from CSR, which did not receive much attention. However, in Korea, CSR was recognized as a fragmentary social contribution activity, while CSV was discussed as a more innovative concept.
Comparing ESG to these two concepts, these two are concepts that look at social responsibility from the perspective of a company, while ESG is a concept of a “healthy company” that weighs non-financial factors from the perspective of “evaluating” a company rather than the company itself.
Lastly, the SDGs, Sustainable Development Goals, are the international action plan agreed upon in 2016 for “prosperity of people and the planet, freedom and universal peace” under the 2030 Agenda of the UN (United Nations) Conference on Sustainable Development. This is a common language that is the global standard for sustainability, with 169 specific action goals presented in 17 areas. SDGs are a broad concept being discussed in various fields such as education, technology, etc., as well as management.
How Do Companies Execute ESG Management?
Let's take a look at the examples of companies such as Microsoft, Coupang, and Walmart to see how ESG management actually works.
First of all, the software company Microsoft ranked first in the Investor's Business Daily (IBD) ESG evaluation ranking. Microsoft is investing in biodiversity protection in the western United States for the environment and working with suppliers for environmental sustainability. Socially, it provides education and learning support programs for digital technology, develops a Supplier Diversity Program, and develops technology utilization solutions for public health protection. In the case of governance, efforts are being made by organizing various boards of directors and providing shareholders with a sufficient voice in decision-making.
Walmart is called an ESG management exemplary company in the distribution industry after overcoming the corporate crisis with ESG. Walmart is building a sustainable value network that reduces carbon emissions from all supply chains with the strategy of an “ecosystem approach” and pursuing meaningful environmentally friendly activities.
Lastly, Coupang, Korea's leading e-commerce company, is creating environmental and social values through advanced logistics technology-based business models. It is contributing to the development of local communities, the creation of new jobs, and the growth of small business owners by reducing carbon emissions and expanding logistics infrastructure through an end-to-end strategy that innovatively shortened the logistics stage.
To sum up, our society is able to grasp the non-financial elements of each company more systematically through “ESG management.” However, there are still some limitations. In the case of Coupang and Walmart introduced earlier, ESG management activities are mainly focused on the environmental aspects, so social responsibility and governance management are evaluated as insufficient. In particular, in the case of governance, the concept is not clearly defined, and many people are not accurately aware of it. Therefore, for the successful implementation of ESG management, more detailed and accurate research into each ESG field is needed, and companies have to seek and implement differentiated ESG management development plans. As ESG is a newly emerging concept, it would be good for you all to think about the implications, limitations, importance, and implementation plans of ESG.
Sources:
https://doi.org/10.17657/jcr.2022.4.30.4
https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RW1e53b
https://www.microsoft.com/en-us/investor/corporate-governance/faq-factsheet.aspx
