What Can ESG Offer Us?

Milton Friedman, in his article published in the New York Times in 1970, mentions a principle that will later be referred to as the “Friedman Doctrine”: Companies have no “moral” obligations to the society; the sole responsibility of businesses is to please their shareholders by increasing their profits. This view, which is one of the most important elements of the classical capitalist understanding, seems to have lost its influence with the increasing importance of the concept of sustainability today: According to the United Nations Global Compact’s Global Corporate Sustainability Report published in 2013[1], 93% of company executives believes that sustainability is important for its success.

In this context, making business activities sustainable requires companies to create value not only for shareholders, but also for suppliers, employees, customers and even the environment. These policies, which are different from the intention of making profit, are called environmental, social and governance (ESG).

As the name implies, environmental policies constitute one of the three main pillars of ESG, and ESG principles are of great importance in the fight against climate change. So, let’s take a look at what ESG policies can contribute to the fight against climate change.

  • Climate Disclosures

The reporting of enterprises on sustainability and climate increases the awareness of investors about the environmental sensitivity of the company in which they want to invest. Thus, the information asymmetry between companies and investors regarding environmental issues is eliminated. In addition, such reporting also serves as a self-control mechanism that allows businesses to review their own activities within the scope of combating climate change. In this context, Singapore has implemented a regulation for companies that are listed on the stock exchange and operating in the fields of finance, energy, agriculture, food and forestry to report their climate-related activities as mandatory since 2022[2]. In Europe and the USA, regulations proposals regarding corporate sustainability reporting have been shared with the public.

  • Impact Investment

Another phenomenon under the ESG framework is impact investing. Similar to the Milton Friedman’s out of date views regarding companies’ responsibilities, the evaluations that the only expectation of investors when investing in companies are to make profits are losing their validity day by day. Instead, impact investing, investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return[3], come to the fore. Investing in businesses operating in fields such as renewable energy, which can contribute positively to the fight against climate change, is among the things that can be done for our common future in terms of impact investment.

[1] https://www.unglobalcompact.org/library/371

[2] https://www.pinsentmasons.com/out-law/news/singapore-sets-out-corporate-climate-and-board-diversity-disclosure-requirements

[3] https://www.eydk.org/etki-yatirimi-nedir/?lang=tr

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