EDITORS DESK

With climate change getting a lot of our attention these days, all fronts are trying to understand the new buzzwords: Environmental, Social, Governance (ESG), and sustainable finance. Big words, really. And it can be confusing, too, because, sustainable finance revolves around bigger words under the acronym ESG. Definitions abound, but it boils down to this: Sustainable Finance refers to the process of taking ESG considerations into account when making investment decisions in the financial sector. By doing so, sustainable finance will lead to more long-term investments in sustainable economic activities and projects. The idea is that for an investment to become sustainable, it has to consider its long-term impact to the ESG. Environmental factors include mitigation of the climate crisis or use of sustainable resources. Social factors include protection of human and animal rights, as well as consumers and diverse hiring practices. Governance factors refer to the management, employee relations, and compensation practices of both public and private organizations. Given these parameters, banks, financial institutions and investors should grant loans or invest only in projects that are sustainable for our planet and society. To me, sustainable finance is all about responsible investing. Factoring the ESG in sustainable finance can be mind boggling because it is so encompassing, but come to think of it, it is nothing new. ESG, to me, is as old as fighting corruption, greed and power, discrimination, poverty, injustice or just striving to stay a good person or company. It could be the good old GMRC that we learned in kindergarten. The Rotarians have it as “The 4-Way Test.” Our elders repeatedly told us not to waste a single rice grain. We are told to get only enough food and to consume all the food in our plate. The government has anti-corruption bodies, so many, in fact, those should have made corruption go away. We have the 10 Commandments, the Golden Rule and the rule of karma. Don’t use plastics. Reuse things and avoid the throw-away mentality. So many ESGs in different forms. Indeed, the ESG principles have always been there, not really dormant, but embedded in different terminologies and lost in its subtlety. It was not popular until the climate change bolted in and the world shifted its model on how humanity impacts the globe, prescribing the ESG as the way humans and corporate citizens should behave. And just like the old ESG, it appeals to our idealism, a dream for a better world, but it is just up there, not really moving well enough to make an impact. I can be a cynic, but I realized that the only difference this time around is that the ESG initiatives are getting real. There is a palpable pressure for sustainable finance to impact ESG. There are metrics that will reveal your ESG score, which will be the basis for investors to give you loans or reject your application, gain patronage or get boycott. Already, funders are moving away from projects that will damage the environment, but generous to ventures that eliminate carbon emission, promote inclusiveness and practice good governance. As pressures build up, giant companies, especially those huge contributors to carbon emissions, are scrambling to meet their ESG initiatives. Regulators are also increasing their rules on company’s ESG standards and reporting. Indeed, the world is “waking up.” In addition, consumer goods producers and industrial manufacturers are also shifting to sustainable sourcing and moving towards inclusiveness of its stakeholders. According to a recent report by the Global Sustainable Investment Alliance, sustainable investments totaled $35.3 trillion in 2020, up 15 percent from 2018. Investors are increasingly looking for companies that demonstrate strong ESG performance and are integrating ESG factors into their investment decisions. But you don’t have to be a big business to be aware of ESG, in the same manner that you cannot use your being a micro enterprise as an excuse for not doing your part in helping reduce your carbon footprint. A rice farmer can help reduce his carbon footprint by producing organic fertilizer, like in the olden times, using carabao manure. As consumers, we can also use ESG as a measure for product patronage or otherwise. For instance, consumers can choose chocolates that are produced by a company that respects and protects labor rights. We choose companies that promote diversity in the workplace and inclusiveness in society and stakeholders. Sustainable finance can have a range of benefits for your business. This eventually translates to company reputation. And yes, there are companies we love because of their best practices and there are companies we abhor because of how they treat their employees or those with history of engaging in bribery or whose practices are not environment friendly. There are also sustainable styles. We can avoid fast fashion, promote plant-based diet or use public transport or drive electric vehicles.  This means cost savings and more efficiencies, leading to better bottom lines. Sustainable financing makes sense and adhering to the ESG metrics makes good business, but I bet it will take longer to really drill these down and achieve the real intent and not just greenwashing. *(The author is the assistant Business Editor of Manila Bulletin.)*