TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
ESG standards: Debate on business norms and ethics
If the ESG standards are implemented exclusively in the scope of business ethics, stakeholders will be able to largely differentiate “good businesses” from “bad businesses”.
Change Size
Forest lovers: Palangka Raya University students plant seedlings on a peatland forest area on Jl. George Obos in Palangka Raya, the capital of Central Kalimantan, on March 22, as they observed World Forest Day. (Antara/Makna Zaezar)
L
ately, the business ecosystem has been facing new set of criteria, namely the fulfillment of environmental, social, and governance (ESG) standards.
ESG standards have been discussed at the international level, such as through a United Nations initiative for 20 years. The idea of ESG standards was initially started during the debate between the “pro-industrialist” and “pro-conservation” sides regarding the future of the world’s economy and environment. The debate was later documented in the Millennium Development Goals (MDGs) and Sustainable Development Goals (SDGs), and cited by legal, economic and environmental experts in establishing the green growth economic theory.
Philp and Cooper (2004) explained that the green growth economic theory was later implemented in business practice through the ESG standards, which are deemed as part of the SDGs. The green growth economy itself is a form of compromise between the “pro-industrialist” and “pro-conservation” folks, also known internationally as sustainable business. Meaning, in this context, ESG is oriented toward sustainable green development.
Historically speaking, the ESG standards were born from the idea of business ethics, in which the industrialists believe that business actors are obliged to bring about benefits to society and must not cause negative impacts. From the perspective of business ethics, ESG standards are seen as a mechanism to avoid the exploitation of society and the environment for the sake of profits.
Furthermore, if the ESG standards are implemented exclusively in the scope of business ethics, they will be able to largely differentiate “good business” from “bad business”. Additionally, such implementation also means that the applicability of ESG standards relies solely on the commitment of business actors and stakeholders such as financing institutions and buyers.
For example, as of now, there are many international financing institutions, whether banking institutions or otherwise, which require the fulfillment of ESG standards as a condition to be eligible for funding and many buyers now also required the same.
From the perspective of business ethics, compliance with ESG standards only depends on the ethical judgment of stakeholders. Freeman and McVea (2001) explain that the concept of ethical judgment among groups and individuals who are stakeholders, can affect or be affected by the achievement of corporate goals. That means, referring to the business ethics approach, the fulfillment of ESG standards will very much depend on the dynamics of the relationship between the corporation and the stakeholders.
