ESG: Poison or Panacea for Thai Business?
Considering Environmental, Social, and Governance (ESG) framework has been increasingly important in Thailand in recent years. Thai businesses are still learning to fully comprehend the need to integrate ESG factors into their operations in order to safeguard their long-term viability, comply with international standards, and reduce exposure to potential and market threats.
The ESG framework represents a company's actions and impact on the environment, society, and corporate governance. In fact, the three factors are seen as key indicators of long-term sustainability and financial performance for all firms. However, adopting an ESG framework and integrating ESG considerations into business operations can be challenging for various companies. Despite the positive feedback from society when firms promote ESG actions, there are some challenges that businesses face when trying to adopt an ESG framework and integrate ESG considerations into their operations.
The lack of consensus and consistency in ESG reporting and measurements is a significant barrier to ESG adoption by business organizations, in particular small and medium sized businesses. ESG factors are multi-dimensional and complex. Different stakeholders may have different perspectives on what is important when consider a big picture of ESG.
For instance, the type of data to be included in ONE Report by Stock Exchange of Thailand (SET) should include details of fuel, electricity and water consumption on top of renewable technology, clean energy, and other related innovation (if any). This can be confusing for some companies at the beginning, if they are not familiar with the global sustainability report standard such as GRI, TCFD, CDP.
Data management, e.g. cost and complexity of gathering and interpreting ESG data, is another hurdle that small local businesses must overcome when moving to the adoption of an ESG framework. Nevertheless, many businesses lack the manpower or technology to devote to the extensive effort required to collect and analyze ESG data. Moreover, ESG data can be convoluted and hard to decipher, and there may be inconsistencies across the various data sets. As a result, companies may struggle to collect and analyze reliable ESG data, making it difficult to assess their ESG performance accurately.
Business organizations will need to balance ESG considerations with traditional business objectives. There is no compromise on benefits and doing the right things by business organizations. For example, investing in renewable energy may be seen as a long-term ESG benefit, but it may also be costly and reduce short-term profitability. As a result, companies may be hesitant to invest in ESG initiatives that they perceive as negatively impacting their financial performance. Some organizations have demonstrated the way they manage this complex issue by leveraging technology, partnering or co-sharing resources and responsibilities with local and international partners.
Social considerations and relationship between business and society are also important in Thailand, where income inequality is high, and social unrest is a concern. Many Thai companies are taking steps to improve social conditions by implementing fair labor practices, taking certain human right due diligence processes, promoting diversity and inclusion, and engaging with local communities. Having established that, there are several issues that remain untouched from the social actions by business. Those include health and well-being, same-sex marriage, and welfare for LGBTIQ+ in a serious way, or the promotion of true skills for people with disabilities. It is obvious that the Thai government has also implemented several initiatives to promote social sustainability, including the establishment of a social welfare system, the promotion of education and healthcare, and the development of policies to address poverty and inequality. The business sector will need to work with key players such as SET and the local government on pursuing these issues beyond generic social issues.
The last challenges for business organizations in Thailand is dealing with various stakeholders to achieve their ESG actions. Governance considerations in Thailand are also a tough gig for most firms. The key barriers to move ahead with governance include corruption and lack of transparency in the formal systems. Many Thai companies are taking steps to improve corporate governance by implementing strong ethical standards, promoting transparency and accountability, and ensuring compliance with legal and regulatory requirements. The Thai government has also implemented several initiatives to promote good governance, including the establishment of the National Anti-Corruption Commission, the implementation of corporate governance codes, and the development of policies to promote transparency and accountability.
Despite these systemic and structural challenges, there are also several reasons why Thai businesses should adopt an ESG framework and integrate ESG considerations into their operations. First, local and international investors are increasingly interested in ESG factors. Companies that can demonstrate strong ESG performance and sensible actions with impacts will be more attractive to investors. Second, ESG considerations are becoming increasingly important to customers, in particular the younger generation. Companies that prioritize ESG factors may be better positioned to attract and retain customers. Finally, research studies in this area confirm that adopting an ESG framework will be beneficial for organization’s financial may be better positioned to manage ESG risks, such as climate change, social unrest, and regulatory changes.
It will be necessary for Thai business organizations to build ESG strategies, action plans, and reporting frameworks that are clear, consistent, and aligned with the expectations of their stakeholders as well as the best practices in their industries. This will help Thai business to increase transparency and comparability. At the same time, it will be easier for investors, customers, and other stakeholders to see the values of the ESG performance.
Thai companies from various backgrounds and industries should invest in the necessary resources and expertise to manage, collect, and analyze reliable ESG data. This may involve developing partnerships with ESG data providers or hiring dedicated ESG professionals to manage ESG data collection and analysis. The process can be on a long and a winding road for some companies. It certainly will improve our performance, relationship with stakeholders, and be respected by the community.
