Article Type : Research Article
Authors : Sheng Pin K
Keywords : Sustainability Development Goals (SDG); ESG; ESG; Integrated management systems; Climate change
In 2015, the United Nations proposed a 15-year long-term
plan for sustainable development. “The 2030 Agenda for Sustainable Development”
has made public health and other non-traditional security challenges as a
priority for the United Nations, placing survival and development issues in a
prominent position in the global macro framework, and paying more attention to
promote and protect the right to survival and development, and set 17
Sustainability Development Goals (SDG). Administrator of listed companies
should enlarge their visions and think in depth on ESG issues: environmental
protection (E), social responsibility (S) and corporate governance (G). The ISO
9000 series has undergone several revisions and promotions, and has now moved
from the perspective of sustainable operation and management to the integration
of overall development gradually. This sustainable development system
architecture is based on the three major aspects of economy, ecology and
society to form a Sustainable Development Architecture. It not only hopes to be
compatible with the system, but also strikes a balance between professional and
industry requirements. In the future, the integration of management systems of
enterprises needs to be taken into account, which can be called the “ESG -
Integrated Management Systems.” The author try to integrate the complicate
management systems of ESG relevant key issues by using “ISO/IEC Directives:
2015, Part 1, Consolidated ISO supplement proposed HLS” Annex SL. This article
is the first part: Introduction, next articles will present how to form the
vision, goals, strategies and self-assessment methodologies of ESG relevant key
issues.
Although the
development of modern quality professional fields, were originated from the
requirements of the procurement of US. Department of Defence during the World
War ?, but some of useful philosophies, systems, technologies, methodologies
and tools, were promoted by many quality gurus and organizations to the
different organizations widely, such as governments, industries, enterprises,
schools, hospitals,…etc., most of them can get the value-added effectiveness.
Furthermore, it induces some safety, health, environment, ecology, social
accountability issues, and try to let the economic production, ecological
environment and people's life to enhance the upward balance. When we discuss
the issue of economic and social development of a country, with quality as its
topic, it will get less controversy in ideology. The quality of the subject to
the “essence of substance” requirements are precise, accurate and reliable; to
the “process of business” focus on efficiency, effectiveness and value; to the
“conduct oneself” emphasis on words and deeds should be consistent; to the
“quality of life” pursue the balance of production, ecology, and life; to the
society “Datong (The Ideal World)” is our dream. The impact of modern network
information technology on future quality development, the quality requirements
will be more transparent. As the demand chain: product and service will be
required more accurate, speedy, reliable, safety, ecological, and
environmental. As the supplier chain: the product and service will be required
more easily to design, manufacture, change, transport, maintain, recycle and
trace; and the business model of the organization must be transparent also. The
governments of the 30 Member States of the Organization for Economic
Co-operation and Development (OECD) agreed to a revised version of the 2004
“The OECD Principles of Corporate Governance”. The corporate governance
framework should promote transparent and efficient markets, be consistent with
the rule of law and clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement authorities. Markets for
corporate control should be allowed to function in an efficient and transparent
manner. The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matters regarding the corporation, including
the financial situation, performance, ownership, and governance of the company.
Information should be prepared and disclosed in accordance with high quality
standards of accounting and financial and non-financial disclosure [1]. The
OECD guidelines have been recognized by member states and other countries as
the yardstick for measuring good corporate governance. This trend is a
universal value, and how to use modern network information technology to
strengthen company transparency and information disclosure should be an
important topic for the development of future economic production, ecological
environment, and people's quality of life. In August 2020, the activities of Taiwan’s
cultural circle of the industrial economy, coincidentally reported in the news
media about the ESG issues of listed companies: environmental protection (E),
social responsibility (S) and corporate governance (G) (ESG), which is similar
to the above-mentioned discourse. The quality professional field should also
follow the trend of the times and keep pace with the times. Here are two
relevant events as follows. One is on August 25, 2020, Chairman Huang Tianmu of
the FSC in Taiwan announced “Corporate Governance 3.0-Blueprint for Sustainable
Development”, which includes [2]:
Implement
corporate governance and enhance corporate sustainable development.
Create
a sound ESG ecosystem and strengthen the international competitiveness of the
capital market.
In order to respond to the rapid changes in the capital market environment and accelerate the progress of Taiwan’s corporate governance towards internationalization, the FSC will uphold the spirit of excellence and plan this version of the blueprint “Corporate Governance 3.0-Sustainable Development Blueprint” for the next three years. To promote the guidelines of corporate governance policies, in order to achieve the core vision, five major driving axes are proposed as follows.
Five
major driving axes
·
Strengthen
the functions of the board of directors and enhance the sustainable value of
the company.
·
Improve
information transparency and promote sustainable operation.
·
Strengthen
communication with stakeholders and create a good channel for interaction.
·
In
line with international standards, guide due diligence.
·
Deepen
the company's sustainable governance culture and provide diversified products.
ESG information needs to be further strengthened: As international investors and the industry chain are increasingly paying attention to ESG-related issues, it is necessary to expand the scope of the Corporate Social Responsibility (CSR) report prepared by listed companies, and continue to improve the disclosure of ESG information, and remind companies to pay attention to issues related to environmental (E), social (S) and governance (G) related stakes. In addition, considering the increasing international emphasis on climate-related financial disclosure regulations (Task Force on Climate-related Financial Disclosures, TCFD), listed companies will be further required to disclose relevant information, so that benevolent investors can learn about the impact of climate that companies face up to and effectively assess their possible risks. In addition, the CSR report prepared in accordance with GRI Standards (Global Reporting Initiative Standards), because its target audience is for all interested parties, and the disclosure is non-financial information related to ESG issues, but for company investors, pay more attention to the ESG-related information that may affect the company’s finances and even the stock price in the future. It should be possible to disclose in the CSR report ESG-related information that has the company’s financial significance and the usefulness of investors’ investment decisions. The other is on August 29, 2020, the “Zhong Dao Leadership & Culture and Corporate Excellence Management Seminar” was organized by the Zhong Dao Association of Leadership & Culture (ZDALC) and the Chinese Society for Quality (CSQ), Dr. Chen Shu, Chairman of ZDALC, delivered a keynote speech on the topic of “Deepening Corporate Governance and Social Responsibility in Corporate Culture”, shown as Figure 1. The following is partial content of his speech [3] (Figure 1).
Figure 1: Chen Shu, Chairman of ZDALC.
People’s mind,
thinking, words and deeds must follow the Zhong Dao; “Dao” is a set of concepts
in the individual, and the way that brings people together becomes “culture”.
So, in short, if everyone has the “Zhong Dao” in their hearts, what they
achieve together is to have in the organizational culture of the Zhong Dao, if
the leader has a “Zhong Dao” in his heart, then the direction he will lead is
to move forward on the road of long-term governance and stability. “People
today cannot see the ancient moon, but today moon once shone the ancients.”
Chen Shu said, the sun and the moon are like the unchanging ways of constant
ancient, the chaos of people's minds is the ignorance of the sun and the moon
and this will naturally lead to chaos in the world. On the contrary, if you
clarify the mind and distinguish the truth, the Daoism will naturally connect
the whole world. Under the impact of the epidemic of COVID-19, the performance
of the global economy is not good, but it must be thinking deeply that the
earth should be avoided not be beautiful anymore. Chen Shu believes that human
beings are greedy for comfort and are harming other species and ruining the
living environment. Nature is one with human beings and everything, not hurting
others is not hurting oneself, and all the core comes from the human heart,
with the “Zhong Dao” as the main principle, not to be partial, but also to find
the best choice for various causes and circumstances.
Chen Shu pointed out that using scientific
leadership and management to shape the “Zhong Dao” culture, in the upper level,
it is necessary to construct a vision that is both competitive and attractive,
to carry the mission of peace for all generations, to foresight, perseverance,
and to sincere cooperation and in high-quality competition; in the foundation
level, it is the innovation of technological capabilities, the cultivation of
talents and the pursuit of excellence; in the individuals level, it is the
ethics between individuals and families and organizations. The core concept is
the key to concentricity, like the trunk of a big tree, and its branches and
leaves are like open sunshine and air, competition and cooperation are like the
soil, integrity is like the root of a big tree, and excellence and innovation
are like flowers and fruits. Dr. Chen Shu emphasized that the “Zhong Dao” is a
combination of scientific phenomena and philosophical thoughts and ontological
nature; it is a fusion of technical and mental methods. If you can experience
and apply them, you can grasp the key to success for both individuals and
enterprises.
ESG stands for
Environmental Social and Governance, and refers to the three key factors when
measuring the sustainability and ethical impact of an investment in a business
or company. Most socially responsible investors check companies out using ESG
criteria to screen investments. It is a generic term used in capital markets
and commonly used by investors to evaluate the behaviour of companies, as well
as determining their future financial performance. The Environmental Social and
Governance factors are a subset of non-financial performance indicators which
include ethical, sustainable and corporate government issues such as making
sure there are systems in place to ensure accountability and managing the
corporation’s carbon footprint. The number of investment funds that incorporate
ESG factors has been growing rapidly since the beginning of this decade, and is
expected to continue rising significantly over the decade to come [4].
ESG’s three central
pillars are:
Environmental criteria,
which examines how a business performs as a steward of our natural environment,
focusing on:
·
waste
and pollution
·
resource
depletion
·
greenhouse
gas emission
·
Deforestation
·
Climate
change
Social criteria, which
looks at how the company treats people, and concentrates on:
·
Employee
relations & diversity
·
Working
conditions, including child labour and slavery
·
Local
communities; seeks explicitly to fund projects or institutions that will serve
poor and underserved communities globally
·
Health
and safety
·
Conflict
Governance criteria,
which examines how a corporation polices itself – how the company is governed,
and focuses on:
·
Tax
strategy
·
Executive
remuneration
·
Donations
and political lobbying
·
Corruption
and bribery
·
Board
diversity and structure
Transforming
our world: the 2030 Agenda for sustainable development
In 2015, the United Nations proposed a 15-year long-term plan for sustainable development. “The 2030 Agenda for Sustainable Development” has made public health and other non-traditional security challenges as a priority for the United Nations, placing survival and development issues in a prominent position in the global macro framework, and paying more attention to promote and protect the right to survival and development, and set 17 Sustainability Development Goals (SDG), as shown in Figure 2 below. Administrator of listed companies should enlarge their visions and think in depth on ESG issues: environmental protection (E), social responsibility (S) and corporate governance (G) (Figure 2).
Figure 2: 17 Sustainability development goals (SDG).
MSCI
ESG ratings
From natural resource scarcity to changing governance standards, from global workforce management to the evolving regulatory landscape, ESG factors can impact the long-term risk and return profile of institutional portfolios. MSCI ESG Ratings are designed to help investors to understand ESG risks and opportunities and integrate these factors into their portfolio construction and management process. These key topics include the 3 pillars of ESG, 10 themes, and 37 key issues. As shown in Table 1 (Table 1).
Table 1: MSCI ESG key issues.
3 Pillars |
10
Themes |
37 Key
Issues |
Climate Change |
Carbon
Emissions |
|
Product
Carbon Footprint |
||
Financing
Environmental Impact |
||
Climate
Change Vulnerability |
||
Natural Capital |
Water
Stress |
|
Biodiversity
& Land Use |
||
Raw
Material Sourcing |
||
Pollution & Waste |
Toxic Emissions & Waste |
|
Packaging
Material & Waste |
||
Electronic
Waste |
||
Environmental Opportunities |
Clean
Tech |
|
Green
Building |
||
Renewable
Energy |
||
Social |
Human Capital |
Labor Management |
Health & Safety |
||
Human Capital Development |
||
Supply Chain Labor Standards |
||
Product Liability |
Product Safety & Quality |
|
Chemical Safety |
||
Financial Product Safety |
||
Privacy & Data Security |
||
Responsible Investment |
||
Insuring Health & Demographic Risk |
||
Stakeholder Opposition |
Controversial Sourcing |
|
Social Opportunities |
Access to Health
Care |
|
Opportunities in
Nutrition & Health |
||
Access to Health
Care |
||
Opportunities in
Nutrition & Health |
||
Governance |
Corporate Governance |
Board |
Pay |
||
Ownership |
||
Accounting |
||
Corporate Behaviour |
Business Ethics |
|
Anti-Competitive Practices |
||
Tax Transparency |
||
Corruption & Instability |
||
Financial System Instability |
ESG
- Integrated management systems
The ISO 9000 series has undergone several revisions and promotions, and has now moved from the perspective of sustainable operation and management to the integration of overall development gradually. This sustainable development system architecture is based on the three major aspects of economy, ecology and society to form a Sustainable Development Architecture. It not only hopes to be compatible with the system, but also strikes a balance between professional and industry requirements. In the future, the integration of management systems of enterprises needs to be taken into account, which can be called the “ESG - Integrated Management Systems.” Its architecture is shown (Figure 3).
Figure 3: ESG - integrated management systems.
According to the “Taipei Exchange Rules Governing the Preparation and Filing of Corporate Social Responsibility Reports by TPEx Listed Companies” TPEx listed company that meets the requirements of Article 2 herein shall each year prepare a corporate social responsibility report for the preceding year by referring to the Global Reporting Initiative (GRI) Standards and Sector Disclosures issued by the GRI, and other applicable rules according to its sector features.
Table 2: ESG- Integrated management system (Environmental).
ESG-Integrated management system
(Environmental) |
||
GRI Standard &
CSR Report |
Sustainable Development Goal (SDG) |
MSCI ESG Key Issues |
GRI 301?Materials GRI 302?Energy GRI 303?Water and Effluents GRI 304?Biodiversity GRI 305?Emissions GRI 306?Effluents and Waste GRI 307?Environmental Compliance GRI 308?Supplier Environmental Assessment |
2.
Zero Hunger 6.
Clean Water and Sanitation 7.
Affordable and Clean Energy 11.
Sustainable Cities and Communities 13.
Climate Action 14.
Life below Water 15.
Life on Land |
Carbon Emissions Product Carbon Footprint Financing Environmental Impact Climate Change Vulnerability Water Stress Biodiversity & Land Use Raw Material Sourcing Toxic
Emissions & Waste Packaging Material & Waste Electronic Waste Clean Technology Green Building Renewable Energy |
ESG-Integrated
management system (Social) |
||
GRI Standard & CSR Report |
Sustainable Development Goal (SDG) |
MSCI ESG Key Issues |
GRI 401?Employment GRI 402?Labour/Management Relations GRI 403?Occupational Health and Safety GRI 404?Training and Education GRI 405?Diversity and Equal Opportunity GRI 406?Non-discrimination GRI 407?Freedom of Association and Collective Bargain GRI 408?Child Labour GRI 409?Forced or Compulsory Labour GRI 410?Security Practices GRI 411?Rights of Indigenous Peoples GRI 412?Human Rights Assessment GRI 413?Local Communities GRI 414?Supplier Social Assessment GRI 415?Public Policy GRI 416?Customer Health and Safety GRI 417?Marketing and Libelling GRI 418?Customer Privacy GRI 419?compliance with laws and regulations |
1. No Poverty 3. Good Health and
Well-being 4. Quality
Education 5. Gender Equality 8. Decent Work and
Economic Growth 10. Reduced Inequalities |
labour Management Health & Safety Human Capital Development Supply Chain labour Standards Product Safety & Quality Chemical Safety Financial Product Safety Privacy & Data Security Responsible Investment Insuring Health & Demographic Risk Controversial Sourcing Access to Health Care Opportunities in Nutrition & Health Access to Health Care Opportunities in
Nutrition & Health |
The company's report
shall disclose its identified material economic, environmental, and/or social
topics, its management approach, its topic-specific disclosures for each material
topic, and the reporting requirements for those disclosures, and shall be in
accordance at least with the core option set out in the GRI Standards. The ESG
service team can assist Taiwanese listed companies to prepare the previous
year's corporate social responsibility report (CSR), and more importantly,
assist in the introduction of an ESG integrated management system to comply
with SGS international certification and MSCI ESG ratings. The ESG - integrated
management system integrate air pollution, water pollution, noise, energy
conservation and emission reduction (CO2), climate change related
management systems; integrate HR management, employee safety and health
management, green supply chain management, welfare system, public welfare
activities, conflict of stakeholders, product design and life cycle management
control related management systems; and integrate the board of directors
management and supervision, donations and political lobbying, corruption and
bribery related management systems. The ESG service team applied ISO/IEC
Directives, Part 1, Consolidated ISO supplement in its Annex SL and proposed
“High Level Structure (HLS)” to solve the complexity of management system
integration, as shown (Table 2,3).
ISO 14001:2015
Environmental management systems - Requirements with guidance for use;
ISO 14067:2018
Greenhouse gases - Carbon footprint of products - Requirements and guidelines
for quantification;
ISO 14064: Greenhouse
Gas Accounting and Verification;
ISO 14064-1:2018
Greenhouse gases - Part 1: Specification with guidance at the organization
level for quantification and reporting of greenhouse gas emissions and
removals;
ISO 14064-2:2019
Greenhouse gases - Part 2: Specification with guidance at the project level for
quantification, monitoring and reporting of greenhouse gas emission reductions
or removal enhancements
ISO 14064-3:2019
Greenhouse gases - Part 3: Specification with guidance for the verification and
validation of greenhouse gas statements;
ISO 50001:2018 Energy
management systems - Requirements with guidance for use;
ISO 45001:2018
Occupational health and safety management systems - Requirements with guidance
for use
ISO 22301:2019 Security
and resilience - Business continuity management systems — Requirements;
ISO 28000:2007 Specification
for security management systems for the supply chain;
ISO 9004:2018 Quality
management - Quality of an organization - Guidance to achieve sustained
success;
ISO IEC Directives,
Part1 Consolidated ISO Supplemental - Procedures specific for ISO (2020) Annex
SL (normative) Proposals for management system standards.
ISO 45001:2018
Occupational health and safety management systems - Requirements with guidance
for use
ISO 22301:2019 ISO
22301:2019 Security and resilience - Business continuity management systems
-Requirements;
ISO 26000:2010 Guidance
on social responsibility
ISO 27001:2013
Information technology - Security techniques - Information security management
systems - Requirements
ISO 28000:2007
Specification for security management systems for the supply chain
ISO 22000:2018 Food
safety management
ISO 37001:2016
Anti-bribery management systems - Requirements with guidance for use
ISO 9001:2015 Quality
management systems - Requirements
ISO 9004:2018 Quality
management - Quality of an organization - Guidance to achieve sustained
success;
ISO IEC Directives,
Part1 Consolidated ISO Supplemental - Procedures specific for ISO (2020) Annex
SL (normative) Proposals for management system standards.
The OECD Principles of
Corporate Governance;
SASB Sustainability
Accounting Standards;
ISO/IEC
20000-1:2018Information technology - Service management - Part 1: Service
management system requirements;
ISO 27001:2013
Information technology - Security techniques - Information security management
systems - Requirements;
ISO 37001:2016
Anti-bribery management systems - Requirements with guidance for use
ISO 56002:2019
Innovation management - Innovation management system - Guidance;
ISO 9001:2015 Quality
management systems - Requirements;
ISO 9004:2018 Quality management
- Quality of an organization - Guidance to achieve sustained success;
Table 4: ESG- Integrated management system (Governance).
ESG-Integrated management system
(Governance) |
||
GRI Standard & CSR Report |
Sustainable Development Goal (SDG) |
MSCI ESG Key Issues |
GRI 101?Basic GRI 102?General Disclosures GRI 103?Management Approach GRI 201?Economic Performance GRI 202?Market Presence GRI 203?Indirect Economic Impacts GRI 204?Procurement Practices GRI 205?Anti-corruption GRI 206?Anti-competitive Behaviour |
9. Industry,
Innovation and Infrastructure 12. Responsible
Consumption and Production 16. Peace,
Justice and Strong Institution 17.
Partnerships for the Goals |
Board Pay Ownership Accounting Business
Ethics Anti-Competitive
Practices Tax
Transparency Corruption
& Instability Financial System Instability |
As Dr. Chen Shu pointed out that using scientific leadership and management to shape the “Zhong Dao” culture, in the upper level, it is necessary to construct a vision that is both competitive and attractive, to carry the mission of peace for all generations, to foresight, perseverance, and to sincere cooperation and in high-quality competition; in the foundation level, it is the innovation of technological capabilities, the cultivation of talents and the pursuit of excellence; in the individuals level, it is the ethics between individuals and families and organizations. The core concept is the key to concentricity, like the trunk of a big tree, and its branches and leaves are like open sunshine and air, competition and cooperation are like the soil, integrity is like the root of a big tree, and excellence and innovation are like flowers and fruits. According to this, the introduction of ESG in listed companies is also the same. Leaders must know “seek commonality in differences” and lead different people in the same direction; management must know "seeking differences in commonality" and under the same direction, let everyone do their own efforts. Therefore, the leader of an organization leads the organization to what level of the configuration, depending on the tacit knowledge accumulated by the leaders over the years and the explicit knowledge formed through the transformation of the data ? information ? knowledge, then wisdom is formed by the conversion of the two kinds of knowledge, and leads the stakeholders with wisdom. Therefore, an organization can establish a vision for the organization’s sustainable development in the future; formulate reasonable goals; develop effective strategies; take feasible action plans; monitor and adjust goals, strategies, and plans (Figure 5).