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Is ESG old vine in a new bottle?
McKinsey and Co’s research in 2023 showed that companies that applied ESG showed 7 percent higher growth and profit than the rest of the sample.
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Clean energy: A motorcyclist drives near a geothermal power station operated by PT Geo Dipa Energi (Persero) in the Dieng mountains in Banjarnegara, Central Java, on Nov. 15, 2020. Businesses across the world have been championing renewable energy in response to climate change. (Reuters/Willy Kurniawan)
E
nvironmental, social and governance (ESG) issues are gaining popularity. These topics, especially the environment, have also attracted the attention of Indonesian presidential and vice presidential candidates, who were involved in the recent televised debate focusing on these issues.
Today, companies and organizations, both in the public and private sectors, are looking to implement ESG principles.
This rising interest in ESG principles is reminiscent of the popularity of corporate social responsibility (CSR) in the early 2000s. At that time, companies conducted CSR activities with the hope of getting support from the public, getting licenses to operate and generating profit. It became very common during that period to see companies conducting press conferences to announce their charity programs and donations as a means to show that they gave back to communities.
However, interest slowly faded away. CSR activities became something that companies did because of regulatory requirements. It soon became a tick-boxing activity, despite some studies showing the linkages between certain CSR activities and performance.
Will ESG follow in CSR’s footsteps?
This time it might be different because, unlike the CSR, ESG principles seem to start from business needs. There is a strong linkage between ESG initiatives and business strategy.
A number of studies have validated this. For example, accounting and financial economics researchers from Spain in 2022 found that companies in the FTSE-250 that had three women in the boardroom were more innovative than those dominated by men. Moreover, McKinsey and Co’s research in 2023 showed that companies that applied ESG principles showed 7 percent higher growth and profits than the rest of the sample.
