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Cambodian businesses and ESG: the path ahead

In the past year, it has been made clear that environmental, social, and governance (ESG) practices are important for businesses. What do investors say about ESG? Is it enough to just run a nonprofit?

Companies all over the world want to stick to a clear ESG plan. After a pandemic broke out and showed how connected and complicated modern international trade is, there has been a lot of renewed interest in the subject. The impact of consumers and businesses on the environment is becoming more and more important, but a three-pronged approach that includes social and governance issues is becoming more and more common.

In countries like Cambodia, where the economy is growing quickly, people are worried about climate change, and the population is young, it is even more important for local businesses to do more ESG work.

Building the right foundations will have an effect on Cambodians as they get older. The country wants to be like other Asian countries, so it needs to build the right foundations.

A definition of ESG

McKinsey says that the E in ESG, which is mostly about how a business affects the environment, can be judged by how much energy it uses (and how much trash it makes), how many resources it uses, and how it affects living things. E mostly talks about what happens when carbon emissions keep going up and how a company’s operations can affect climate change. Every business uses energy and resources, so every business has an impact on the environment and is affected by it.

The S looks at how a business interacts with people and how it is known in the places where it does business. S focuses on work issues, such as policies that encourage diversity and inclusion. S is becoming more important as each business works in a larger, more diverse community.

Governance is an organization’s internal system of policies, rules, and processes that help it run well, make good decisions, follow the law, and meet the needs of outside stakeholders. Since a business is a legal entity, it needs to be run by people who know what they are doing. Many investors who care about ESG put strong governance above the other two categories.

Several studies in the Harvard Business Review suggest that companies that focus on ESG have lower capital costs and will be worth more, especially since more investors want to invest in companies that do well in ESG. As global regulators and governments require more ESG disclosures, especially in emerging economies like Cambodia, firms may be able to keep their valuations if they act proactively and are open about ESG issues.

A thought that is catching on

Even though “doing good” in business is not a new idea, ESG principles have only recently become the most important thing for businesses in Southeast Asia and Cambodia in particular. The GRI Sustainability Disclosure Database says that the number of sustainability reports in Cambodia has grown by more than 100% since 2015.

Most of these claims, on the other hand, come from the financial services industry. But it wouldn’t be long before other industries did the same thing. If done right, it will not only make Cambodia more competitive and attract foreign investment, but it will also help consumers.

In the past, companies in Southeast Asia focused mostly on making money, and ESG efforts were visible in the form of financial help given through philanthropic or charity arms or as part of corporate social responsibility efforts. Usually, the idea behind these kinds of efforts is that they will improve the company’s image and make a difference at the same time. However, they are often subject to the whims of company executives.

A better-organized plan

Companies are working on making their programmes more organised and want to show how much they care about ESG by making a well-designed programme. Traditional charity arms still work, but they are always being watched by top management and work with ESG-focused teams (often called sustainability departments in large corporations). Each of the three letters corresponds to a road map that shows how the organisation will make an impact, based on its strengths and skills.

Prince Holding Group, a conglomerate led by its Chairman Neak Oknha Chen Zhi Cambodia that is growing quickly, says that its ESG approach is focused on education and youth development, health care, and community involvement.

The Group is made up of Cambodia Airlines, Prince Supermarket, Prince Bank, and Prince Real Estate. Prince Real Estate helped fix up Phnom Penh’s central business district.

Chen Zhi and Prince Group have been working hard for ten years to bring together or encourage brilliant experts in order to build a conglomerate that really helps Cambodia. Chen Zhi has put together a group that works to meet local and international expectations and standards.

Over the past year, this has included donations of vaccines, large donations in response to floods, an effective Covid-19 corporate response (which helped Prince Holding Group win a Stevie Award), the opening of a watchmaking school, and the launch of Ream City, a US$16 billion project that will change Sihanoukville by following a master plan that will create a sustainable living solution for the betterment of Cambodia.

Crucial to ESG success

To make sure that an ESG programme works, management can do five things: Adopt strategic ESG practices, create accountability frameworks for integrating ESG, figure out the company’s purpose and build a culture around it, make operational improvements to make sure the ESG strategy is carried out well, and commit to being open and building relationships with investors.

Strong ESG performance by companies in an investor’s portfolio is no longer a perk. Investing in companies that follow ESG standards is now an important part of any long-term investment plan, and companies are actively looking for investors who can support an ESG-inspired vision and provide the money to carry out such plans.

In conclusion, Cambodian businesses should do more in terms of ESG because it’s time to take a methodical approach. It will also show the media, the government, non-governmental organisations, and local people that the business is in it for the long haul.

As the epidemic has shown, the world is more connected than anyone could have imagined. Every business has a role to play in making the world’s future better.

Cambodian businesses have a duty, and we hope that in the future, they will do more ESG-related things.