ESG has become popular in recent years, but do you know what ESG is? ESG is “Environmental Protection”, “Social Responsibility”, and “Governance”. It was first proposed by the UN Global Compact in 2004 and is regarded as an important indicator for evaluating business operations. It is also the basis for enterprises to gain the trust of customers and investors.

Environmental protection in the meaning of ESG includes climate change, pollution and waste management, renewable energy, etc.; social responsibility includes human resource development, product safety responsibility, stakeholder veto power, etc.; corporate governance includes business ethics, Competitive behavior, financial system stability and transparency, etc.

With the impact of the epidemic on the global economy and the increasingly severe climate change, the importance of ESG is increasing day by day, and countries have begun to attach importance to the promotion of the concept of ESG sustainable development. At present, international companies use the ESG indicators provided by rating agencies to rate companies in 7 ratings ranging from “best AAA” to “worst CCC” based on the three major aspects of ESG.

Therefore, it is often heard that in terms of environmental protection, companies need to disclose carbon emissions and product carbon footprints, renewable energy development, electronic waste disposal, etc.; in terms of social responsibility, they must protect the rights of employees internally and avoid human rights exploitation when purchasing externally In terms of corporate governance, transparent salary calculation and accounting and auditing systems are required. At present, there is no consistent standard among rating agencies, and depending on the business model of each industry, different key ESG indicators may be used for calculation.

The public often confuses “ESG and CSR relationship”. What is the difference between the two?

CSR covers two meanings, “Corporate Social Responsibility” and “Corporate Sustainability Report”, developed by former United Nations Secretary-General Kofi. Initiated by Kofi Anan in 1999, companies are required to take into account the rights of other stakeholders in addition to developing the economy and pursuing the interests of shareholders and promise to abide by ethical norms and improve employee welfare, which will have a positive impact on the quality of life of local communities and society as a whole.

In general, CSR is a broad concept of sustainable management; ESG is a specific practice policy and measurement indicator, including the 17 sustainable development goals formulated by the United Nations Global Compact in 2015 and expected to be achieved by 2030.

In recent years, ESG has become a compulsory course for business operations, and becoming an ESG company and performing better in ESG corporate governance ratings will help companies obtain more funds or reduce losses when market crises strike. To become an ESG company, companies must participate in evaluations, including evaluations by various local and international organizations, such as FTSE Russell. As companies attach importance to ESG, ESG investment is regarded as a sustainable and socially responsible investment and has become the focus of investors’ attention. ESG investment means that investors not only consider financial factors in the decision-making process, but also take sustainable factors such as ESG into consideration, and actively avoid investing in industries with negative impressions, such as gambling, coal, and tobacco companies, in order to have a wider impact on society and more positive shifts.

ESG ratings thus become an important non-financial indicator. More contemporary investors are targeting companies with higher ESG risk ratings, and in the process of constructing investment portfolios, they give priority to enterprises that achieve environmental protection and social responsibility.

In recent years, the global warming crisis has risen sharply. The Hong Kong government and many influential and well-known Hong Kong companies have set carbon reduction targets and begun to disclose more ESG information and performance. At the same time, third-party agencies provide ESG ratings, and ESG indexes appear in the market for investment investors as benchmarks, investors are also increasingly paying attention to ESG factors. The investment of Hong Kong investors in green bonds issued by the government is involving the development of green finance promoted by ESG in terms of environmental protection.

In an era of information transparency, Hong Kong’s ESG driving force comes from the supervision of the public. By supporting ESG actions, the public can invest in and support enterprises with environmental awareness, promote enterprises to improve their business models, and enhance social and environmental well-being. But at the same time, investors also need to beware of “greenwashing” (Greenwashing) pseudo-environmental protection behavior in which companies claim to have made environmental protection contributions in order to win a good impression from the public, but they actually do nothing.