Management at ESG, where kindness triumphs.
It has a flavor of paper but I applaud you
for being environmentally conscious.
In 2018, Starbucks launched the Greener Starbucks Korea campaign, and paper straws were introduced for the first time in franchise coffee shops.
Paper straws were chastised for having a "paper taste," but they succeeded in projecting an image of a "good brand" to the MZ generation, who consider
Starbucks also has introduced cup lids that allow ice drinks to be consumed without straws, as well as reusable cups to eliminate the use of disposable plastic cups entirely. Starbucks' eco-friendly move aligns with the MZ generation's "value consumption" tendency to purchase eco-friendly products, even if the price is a little higher, cementing the company's unrivaled position as the world's No. 1 coffee brand.
Companies are focusing on improving their constitution to be nicer in order to be loved more by the MZ generation, as "good companies" are well received by the MZ generation.
And at the heart of the transformation is ESG, a new global standard for sustainable management.
The circumstances surrounding ESG's birth.
How well do you understand ESG? ESG is an indicator that is used as a criterion for judging a company's non-financial performance. ESG stands for Environmental, Social, and Governance.
ESG management has recently emerged as a hot keyword around the world, but it is difficult to summarize the concept in a single sentence because it encompasses a wide range of areas such as "social responsibility," "creating shared value," and "sustainable management."
Many people will think of companies' moves that reflect eco-friendly trends because most companies focus on the environment and practice ESG management.
Should we go over the history of the terminology?In 2004, the term "ESG" was first used in a report titled "Who Cares Win?" co-authored by the UNGC (UNGlobal Compact) and more than 20 financial institutions.
According to this report, a company's ESG (environmental, social, and governance) performance can generate mid-to-long-term value. A "new management direction" has been proposed in order for a company to succeed.
Later that year, the United Nations issued the Principles for Responsible Investment (PRI). As the ESG term is reflected in this investment principle, a new management guideline known as ESG becomes widely used around the world.
In a nutshell, the core of this principle is that when investing in a company, it will now use "value" as a standard rather than "performance."
Given that this principle was enacted around the time that discussions about climate change began to heat up, ESG can be described as the financial sector's urgent pledge to ensure the survival of the Earth.
The PRI is the world's first socially responsible investment principle, developed in collaboration with a number of experts, including financial institutions affiliated with the United Nations Environmental Programme/Financial Initiative (UNEP/FI).
The Social Responsibility Investment Principle (PRI) is made up of six investment principles and 35 specific practice programs.
| Investment Principles of the United Nations on Social Responsibility (PRI)
① We actively consider ESG issues in our investment decisions.
② We become active investors, incorporating ESG considerations into our investment philosophy and management principles.
③ We request that our investment targets disclose information on environmental, social, and governance (ESG) issues.
④ We strive for the PRI level and financial industry implementation.
⑤ We work together to improve the effectiveness of PRI implementation.
⑥ We provide detailed reports to the outside world on the activities and progress of the PRI implementation.
Link to UN PRI
In other words, the principle of socially responsible investment is financial institutions' pledge to "invest only in companies that improve society."
As of January 2021, 3,615 financial institutions from all over the world had signed on to the Principles of Social Responsibility Investment (PRI).
Companies must implement ESG management to attract investment now that more and more financial institutions are willing to invest only in companies that practice EGS management.
| The Principle of the Equator
The Equator Principles (EPs) are a voluntary agreement between financial firms not to invest in bad companies.
The Equatorial Agreement's central tenet is that development projects that threaten the environment or violate human rights will not be reimbursed for their investment. Currently, 123 Equator Principles Financial Institutions (EPFI) from 37 countries are taking part.
Link to the principle of the equator
Who is assessing ESG?
A well-liked company's condition is ESG grade! Companies are eager to manage ESG in order to gain the favor of investors and consumers. Then, who will assign grades to ESG based on which criteria?
There are currently more than 125 organizations worldwide that evaluate ESG. Morgan Stanley Capital International (MSCI), Sustainitics, and Bloomberg are examples of global ESG evaluation agencies.
These 125 or so evaluation agencies rate companies by analyzing their respective data and evaluation criteria.
Morgan Stanley Capital International is the most representative evaluation firm (MSCI).
Every year, MSCI assesses 35 key ESG issues for publicly traded companies around the world. There are seven levels of ESG ratings, ranging from AAA to CCC.
Microsoft and NVIDIA are among the companies that have received MSCI AAA ratings as of 2020.
Check out your favorite company's ESG rating on MSCI!
Find out your company's ESG score on Standard & Poor's (S&P Global)!
Because different evaluation institutions are used, one company may receive different ESG grades. In the case of Tesla, it received an A grade from MSCI but is also ranked in the bottom 10% by Just Capital.
This is due to MSCI giving a large boost to Tesla's eco-friendly energy policy (E), whereas Just Capital rated Tesla as not responding well to customer response or safety accident problems (S).
In any case, these institutions' ESG ratings of companies have a significant impact on investors. Companies with lower ratings are expected to have a more difficult time attracting investment than in the past.
All companies should do ESG!
"Everyone, ESG!" If you don't do it, you won't be invested."
Spreading ESG across companies and society was the theme of Larry Fink's annual letter as CEO of BlackRock, the world's largest asset management firm, in early 2020.
With more than $7 trillion in assets under management, BlackRock is the world's largest asset management firm.
Every year, Founder Larry Pink sends letters to CEOs of investment firms, and the flow of money around the world will inevitably change as a result of the letters sent by the world's largest financial giant.
Chairman Larry Pink stated in January 2020, "We will be the first to see climate change and sustainability in all future investment and acquisition decisions." "I will not invest in coal developers or producers of fossil fuels." "Go, 1,000," I said.
This letter quickly sparked the global ESG management craze.
Generation MZ is already consuming ESG
ESG is becoming our daily routine beyond investment and management.
ESG is now a daily occurrence for the MZ generation born after 1980.
Sensitive to the crisis of climate change, the MZ generation pursues eco-friendly consumption, and keywords such as upcycling, zero-waist (no plastic), eco-friendly delivery (precycling), and refurbishment (resupplies) accurately describe the MZ generation's consumption behavior.
Generation MZ does not buy things simply because they are inexpensive and of high quality. This is because social value is important to the MZ generation. As a result, even if it is a little more expensive, I buy products from companies that take responsibility for social issues and take action.
The Meaning Out generation is another name for Generation MZ. Mining out is a combination of "Coming Out," which refers to revealing one's identity, and "Meaning," which refers to expressing one's values or beliefs through consumption.
Fairness and transparency are important to Generation MZ. They do not ignore unreasonable or unethical situations and actively advocate for a variety of social issues such as fairness, equality, the environment, safety, gender discrimination, and animal abuse.
MZ Generation is an activist. If you share similar values and interests, you can easily exchange ideas or organize joint activities via online and offline meetings.
When it is discovered that a good company is "rich," or that a company is not ethical or does not follow the law, they may launch a "borrowing campaign" via SNS.
Companies that are found to be engaging in illegal management activities or turning a blind eye to social problems may now face a boycott by the MZ generation.
[E]Patagonia, your very existence is ESG.
‘The Earth's Watchman.’
All of these titles refer to Patagonia, a US-based outdoor clothing company.
Patagonia discontinued production of steel phyton, which used to account for a significant portion of sales, after discovering that the phyton for climbing the rock they made cracked and damaged the rock walls.
Instead, it is a well-known anecdote about Patagonia, which created aluminum chokes that did not harm the environment and achieved greater success.
Even before the climate change crisis became apparent, Patagonia was already equipped with an eco-conscious mindset.
Patagonia donates 1% of its total sales to environmental organizations each year, referring to it as a "tax paid to the Earth."
Patagonia also advertises, "Please don't buy our clothes," claiming that farming to grow eco-friendly cotton and not consuming even eco-friendly products as much as possible is more environmentally friendly.
Even in consumption, Patagonia's ESG management has captivated the MZ generation's pursuit of social meaning.
As a result, Patagonia earned the reputation of being a "good company that cares about the environment," and it now ranks second in the US outdoor clothing market.
The female protagonist in a familiar Netflix world.
Have you noticed how many "female protagonists of color" there are in Netflix videos?
This is due to Netflix's extra effort in earning an "S" in ESG.
Netflix is attempting to match the gender equality of main characters in movies and series, as well as increase the proportion of main characters of color. As a result, 19 of the 22 inclusion indicators of 'S' evaluation items have significantly improved year after year.
According to the 2019 Inequality in Popular Films report, Netflix has significantly more characters that are diverse in terms of gender, race, LGBTQ, and sexual orientation.
Read more about the "Inequality in Popular Films" report:
Equal board of directors
In comparison to the environment and society, 'G (Governance)' is a somewhat unfamiliar concept among ESG. Governance is defined as "any device that allows all stakeholders to make transparent decisions with responsibility within the constraints of given resources in order to achieve common goals."
In most cases, it refers to the board of directors and outside doctors. According to ESG experts, governance is the most important aspect of the environment (E), society (S), and governance (G). This is due to the fact that all corporate activities for the environment (E) and society (S) ultimately stem from management's decision-making.
Governance is ranked first among the four pillars of ESG by the World Economic Forum (WEF) (governance, district, people, and prosperity).
Every year, ESG evaluation agencies add a new G index, with evaluation indicators such as "female director ratio," "CEO wage calculation method," "lobby funds," "bribery prevention measures," and "risk management" increasing.
BlackRock stated in 2018 that it would not invest in companies with fewer than two Yeo Sang directors. Goldman Sachs has stated that beginning in the second half of 2020, it will not entrust Initial Public Offering (IPO) work to companies that do not have directors who meet diversity standards.
Gender balance of high-level officials inflows to senior executives is born, with many women breaking through the glass ceiling. Citigroup, one of the top ten major US banks, has appointed its first female CEO. Msnbc (Rashida Jones) Jones is the cable news industry's first black woman, appointed to the next president.
Furthermore, the BLM (black lives matter the lives of black people) movement is spreading racial segregation in the gender perspective due to the diversity of the Board of Directors.
Leap for a better society
"90% of Gen Z consumers believe companies must act to help social and environmental issues and 75% will do research to see if a company is being honest when it takes a stand on issues. "
-2019 Porter Novelli/Cone Gen Z Purpose Study-
The primary reason for people's interest in the environment, society, and governance structure is that consumers' and investors' "values" regarding the role of corporations have shifted.
Expectations have grown that companies that have caused major social problems should solve them through responsible management activities and take actions that have a positive impact on our lives, in addition to the existing values that only expected corporate economic performance.
ESG demonstrates that the era of so-called "good companies," in which companies that strive to protect the environment, fulfill their social responsibilities, and have transparent governance, has arrived.
Unlike in the past, when companies were concerned with "how much" money they made, the emphasis now is on "how" they made money.
When we consider the environment (E), respond to various societal issues (S), and have a transparent governance structure (G), a more peaceful and sustainable society can grow.
Why don't you engage in ESG investment, management, and consumption in order to create a "more peaceful world"?