ESG as corporate responsibility

Over the past year, many friends of mine who are responsible for sustainability at listed and over-the-counter companies have been extremely busy. They have shouldered a major responsibility: preparing sustainability reports and compiling materials for related assessments. The Taiwan Stock Exchange and Taipei Exchange have established a mechanism to evaluate companies’ environmental, social and governance (ESG) commitments, with the results expected to be announced by the end of April next year.

The heavy rains that have caused flooding and other damage in central and southern Taiwan in the past few days and weeks have prompted me to think about what companies can do. Specifically, how they can put their profits and resources to good use and support disaster relief efforts, thereby fulfilling their social responsibilities. ESG assessments generally assign different weights to each of its three evaluating principles; many frameworks heavily weight governance, followed by social factors, with environmental risks coming in last. There has also been a shift away from institutional questions and toward focusing on results.

There is good reason for governance to carry the greatest weight, as it is the foundation of sound corporate management.

However, what I would suggest is that when disasters occur as a result of extreme weather under climate change, the weightings for the environmental and social metrics could be adjusted upward. This would give companies greater incentives to contribute to disaster relief and have their efforts to be reflected in ESG assessment scores.

The purpose of ESG assessments is to encourage companies to improve their governance, fulfill their social responsibilities and do more to protect the environment. Dynamically adjusting the weightings of the three dimensions in response to changing circumstances, is practical and worthwhile. Such flexibility could be a boon for corporate performance and social wellbeing.

Cheng Ming-te is a professor at the Taipei City University of Science and Technology’s department of business administration.