Course: BUSS6171

Effective Period: 2021

Exploring Environmental, Social, and

Governance Issue and Their
Relationship with Sustainability

Session 04
 Learning Outcome

• Understand corporate structures and the roles of each actor

• Explore how Corporate Culture entangle with ESG issues
• Bridge ESG Principles with Sustainability Principles
• Integrating Sustainability into the Company’s ‘Organizational DNA’
Corporate Structures and The Role of Each
Actor
Stakeholders
Corporate Structures and The Role of Each
Actor
Stakeholders

• Although there are many stakeholder groups that the firm needs to
interact with, the economic stakeholders of the firm seem to get more
attention.
• How organizations have been able to positively impact key stakeholders
• Company needs to identify each stakeholder, their interest and their
roles
• Organisations in different stages, with different objectives and key
activities, will involve different stakeholders and they may change
through time.
• Organizations can become sustainable only by interacting with their
stakeholders to understand and respond to their needs.
Corporate Structures and The Role of Each
Actor
Stakeholders

• Managers have to identify stakeholders from a business operations and

profitability perspective, moral or corporate social responsibility in terms of
aspects such as gender equality, equity, sustainability and justice.
• Risk-based model of stakeholders classifies the stakeholders into two groups:
– voluntary stakeholders: “are those individuals or groups who have knowingly
or voluntarily made, or taken, stakes in a firm. The voluntary stake-holder
groups include: investors, employees, suppliers and so on;
– involuntary stakeholders are: “those that are, or have been, un- knowingly
placed at risk as a result of the form’s activities, goods or services”. They may
include local communities, the natural environment and so on.
• The voluntary stakeholders can be seen as the stakeholders “who can affect the
organisation”,
• The involuntary stakeholders are the groups “that are affected by the organisation
Corporate Structures and The Role of Each
Actors
Stakeholders

• The most significant barrier that hinders stakeholder engagement

is the varying degrees of importance that organizations place on
different stakeholder groups.
• The first and most important element of stakeholder engagement is
making all stakeholder groups equitable in the eyes of the firm.
• The next step is to develop a process to interact with each stakeholder.
This could be in the form of a dialogue, participation in the
stakeholders’ initiatives, or by working with the stakeholders of your
stakeholders. This could be a dialogue organized by the firm, or the firm
participating in the activities of other stakeholders.
Case: Nike
In this chapter, we discussed the garment factory tragedy in Bangladesh.
Even if the building had not collapsed, what were the working conditions for
the garment workers? Oftentimes, employees toil in extremely poor
environments that lack air-conditioning and suffer from poor lighting. This
issue was brought to the global stage in the 1990s when various not-for-
profit and advocacy organizations targeted Nike’s overseas production
facilities, referring to them as sweatshops. Nike’s initial response was similar
to those affiliated with the garment factory in Bangladesh: it does not own
the factories and is not responsible for them. Others defended Nike’s
practices, maintaining that workers were not forced to work and were
satisfied with their employment; otherwise, they would not have shown up
to work every day. Nonetheless, most organizations argued that the work
was exploitative, and workers deserved better conditions and salaries.
Case: Nike
Consequently, various protests occurred, from colleges to Nike stores, as a
greater percentage of the public became aware of Nike’s supply chain. In
response, Nike launched its SHAPE program, which stands for safety, health,
attitude, people, and environment. The initiative has been met with success, as
Nike was able to improve working conditions and simultaneously realize
greater profitability through the improved workspaces it had
established. Some of Nike’s competitors, though, including PUMA and adidas,
have long-standing corporate social responsibility programs and are pushing
the industry further.

If you were Mark Parker, the CEO of Nike, how would you measure Nike’s
sustainability performance?
Would you maintain the SHAPE framework or expand it?
Corporate Culture and ESG Issues

Implementation of Sustainability

• Organizations need to realign with their missions with a more sustainability-

oriented purpose.
• Based purpose-driven mission statement, if your organization had twenty-
five years to work toward fulfilling that mission, what should it do
• Organization needs to pursue a sustainability-oriented mission with a long-
term perspective – incorporate sustainability in the vision
• Majority of companies rely on corporate social responsibility reports to
identify various issues, develop key performance indicators (KPIs) to
measure them, and then track performance.
Corporate Culture and ESG Issues

ESG – Environment Social and Governance

• ESG is a company standard in its investment practice which consists of

three concepts or criteria: Environmental, Social, and Governance.
• In other words, companies that apply ESG principles in their business and
investment practices will also integrate and implement their company
policies so that they are in line with the sustainability of these three
elements.
• Environmental criteria will be the main consideration for the company to
carry out high financial and operating performance but are sustainable and
do not damage nature.
• Social criteria will seek to explore the relationship between the outside
community and the company, as well as between workers, product
suppliers, customers, communities, and so on.
• Corporate governance criteria discuss the capacity and legitimacy of a
company, internal relations, internal controls, investor rights, and so on.
Corporate Culture and ESG Issues

ESG – Environment Social and Governance

• Based on the belief that addressing ESG issues will protect and enhance
portfolio returns, responsible investment is rapidly becoming a
mainstream concern within the institutional industry.
• By late 2016, over a third of institutional investors (commonly referred
to as LPs) based in Europe and Asia-Pacific said that ESG considerations
played a major or primary role in refusing to commit to a private equity
fund, while the same is true for a fifth of North American LPs.
• In reaction to investor interest in ESG, private equity and other industry
trade associations have developed a number of ESG best practices,
including a due diligence questionnaire for private fund managers and
other asset managers to use before investing in a portfolio company.
Corporate Culture and ESG Issues

ESG – Environment Social and Governance

• Asset managers and other financial institutions increasingly rely on ESG

ratings agencies to assess, measure and compare companies' ESG
performance.
• More and more companies are aware of the importance of the best
practices in environmental, social and governance issues.
The Bridging of ESG and Sustainability

ESG and Sustainability

• Although sustainability and ESG are similar, there's one main

difference: sustainability is vague, and ESG is specific and measurable.
• While sustainability can mean different things to different companies,
ESG provides a specific set of criteria — namely, environmental, social,
and governance — that companies can measure and report against. 
• Sustainability is an umbrella term that encompasses all of a company’s
efforts to reduce its impact on the world around it. For example,
sustainability can also mean creating good jobs or promoting gender
equality — in addition to helping the environment. 
• ESG, on the other hand, is much more specific and data-driven. It is
focused on three dimensions (environmental, social, and governance)
rather than just going green or being a responsible steward. Let’s take a
closer look at each of these dimensions. 
Integrating Sustainability into Company DNA

• Non-financial reporting landscape is changing at an increasing rate,

across the voluntary and regulatory reporting space and across
the globe.
• Across the 60 countries currently covered by the Reporting Exchange
platform, there has been a 10-fold increase in the number of reporting
requirements and guidance documents related to corporate reporting on
ESG issues in the last 20 years as governments, NGOs, stock exchanges and
others look to companies for transparency on their sustainability
performance
 Integrating Sustainability into Company DNA

• Sustainability reporting is key to improving access to information,

accountability and transparency for stakeholders. Increasing transparency is
a business value that fosters greater stakeholder engagement, while
effective reporting showcases how ESG aspects are impacted by companies’
activities.
• Non-financial information of companies, e.g. business models, management
strategies and measures for responding to potential risks, is important for
investors in assessing corporate value. Moreover, in recent years,
institutional investors have also been trying to integrate ESG factors into
their evaluation, investment decisions, monitoring of investee companies
and other stewardship activities.
https://docs.wbcsd.org/2020/10/WBCSD_Reporting_Matters_2020.pdf
References
Textbook:
Francisco Szekely and Zahir Dosa, Beyond The Triple Bottom Line, 2017, 1st
ed, MIT Press, ISBN 7980262035966

Others:
• W. Wang et al. European Journal of Operational Research 246 (2015) 562–
574
• Reporting matters 2020:
https://docs.wbcsd.org/2020/10/WBCSD_Reporting_Matters_2020.pdf
• How Your Company Can Advance Each of the SDGs:
https://www.unglobalcompact.org/sdgs/17-global-goals
• http://www.perillon.com/blog/sustainability-vs-esg
Assignment 4
• Based on the previous assignments, in a group of 2-3 students, please
come up with one compelling tagline or slogan for your company’s
sustainability report. This tagline must encapsulate all the strategies
and transformation that the group has formulated.
Thank You