Further Utilizing ESG in Business

Related to the following themes:

ESG alone does not convey the attractiveness of one’s own company.
Engaging in ESG alone merely addresses the negative aspects.
ESG does not align with the strategy and cannot be incorporated into business activities.
Focusing solely on ESG cannot surpass other companies.

ESG Doesn’t Convey the Attractiveness of One’s Own Company

ESG is undoubtedly an excellent framework. It functions as a standard framework for companies to measure their integrated and comprehensive response to social demands and sustainability. Particularly from the perspective of investors, ESG allows for the comparison of companies and initiatives, enabling consistent and coherent investment decisions. However, some opinions suggest that ESG has a strong checklist-like aspect and is not particularly effective in helping companies accurately communicate their contributions both internally and externally.

In this regard, impact holds the potential to express one’s own social value more accurately and attractively, depending on how it is used. For example, impact paths and impact models are methods that provide a clearer representation of a company’s created impact (social value), including the pathways of creation. Over the past few years, these frameworks have been gradually gaining popularity, especially among institutional investors. Such frameworks are expected to become more widely accepted as a complementary methodology to ESG, serving as a common language for institutional investors and companies in the future.

Engaging in ESG Alone Addresses Only Negative Aspects

Moreover, the evaluation criteria for ESG span a wide range across various rating and evaluation agencies. However, it is common to emphasize the aspect of ‘how to avoid fatal risks in promoting sustainable management’ from the perspective of environmental, social, and governance (ESG) for each agency and rating institution. Risk reduction and avoidance are not only crucial for investment decisions but also highly important in terms of business management. On the other hand, it can be argued that truly integrating ESG into a company’s core growth strategy represents a significant leap.

Through impact management, companies can not only hedge against risks on the negative side but also shine a spotlight on the positive aspects of their business activities. This allows them to align their growth strategy with the broader concept of ESG. In other words, it becomes possible to harness a company’s strengths and assets to create social value while simultaneously achieving sustainable growth from a financial return perspective (revenue and profit).

ESG Fails to Align with Strategy and Business Operations

When it comes to aligning ESG with corporate strategy, it can be particularly challenging due to the inherent characteristics of ESG as a framework, as mentioned earlier. Achieving alignment with actual business activities and strategies can be even more complex. While ESG is already recognized as a top agenda in many companies, only a small number appear to have integrated it as a comprehensive policy that goes beyond vision and slogans to embody both solving societal issues and contributing to their business growth (a broader concept of sustainable business).

IMPACTLAKE perceives impact as not merely social contribution or CSR but as a long-term trend in society (where people, goods, and money flow as significant currents), and capturing this trend naturally leads to future forecasting. At the same time, considering the various solutions and implementation methods for the same impact, each with its own priorities and competitiveness, it becomes crucial to seek the most viable solution or adopt a strategic approach that takes into account other solutions, even if it means exploring the most logical approach, especially for critical societal issues. Understanding impact in this context can potentially lead to risk diversification and business portfolio optimization.

Focusing Solely on ESG Won’t Outperform Others

As previously mentioned, ESG is primarily a framework designed to help companies mitigate negative impacts they may generate and the various risks that stem from them. It is not inherently a tool for achieving a competitive edge or for someone to ‘break through’ in a particular way. Therefore, when a company intends to establish uniqueness or competitive advantage compared to others, it is essential to examine how the company can uniquely create its own impact, how that impact can be recognized as valuable, and how, in the long term, it can enhance the company’s distinctiveness and competitive advantage as a business. From this perspective, actively leveraging impact and promoting impact management becomes essential.

Exploring and Utilizing Impact Management

For insights into impact management and the latest trends, particularly focused on Europe, resources such as Global Impact Investment Network (GIIN), and in Japan, GSG Advisory Committee and Social Impact Management Initiative (SIMI), provide valuable knowledge as foundational information.

In these sources, practical methodologies and case studies on impact management, particularly from the perspective of businesses, are still relatively scarce in terms of publicly available information. To address this gap, IMPACTLAKE offers the following content and services for your reference and use. Please feel free to take advantage of them and reach out for inquiries.

Additional Knowledge on Impact Management and Impact Accounting can be found here.

If you are considering utilization, please feel free to contact us.

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