ESG in Japan is here. The ESG Integration Research and Education Center at OSIPP, The University of Osaka, combines knowledge of business practice with global public policy analysis.

What is ESG?

Overview

ESG is an acronym made up of the initial letters of “Environment,” “Social,” and “Governance.” In recent years, “ESG management” and “ESG investment” have been attracting attention as a way for companies to balance maximizing economic returns through their core business and responsible corporate management, with solving social and environmental issues for a sustainable future. So why ESG now? It’s because we are at a major turning point in history that will determine the future of the world, and business will be one of the trump cards for building a better future.

The explosive expansion of human activities in modern times has already put a dramatic strain on the Earth, which has led to climate change, for example. Ecosystems are certainly changing, and biodiversity is under dramatic threat. The biggest reason why “sustainability” is preached loudly at every opportunity is that unless we make a major change and transformation in the actions we have taken for granted every day, the Earth will break down and the future of humanity could become “unsustainable.”

But there is hope, because if we act now we can prevent catastrophe. That is one of the most important messages contained in the SDGs. The SDGs agreed upon by the United Nations are 17 goals and 169 targets to make the world sustainable, and if we can make the necessary changes to achieve them by 2030, we can be the first generation to succeed in ending poverty. And likewise, we may be the last generation to have the opportunity to save the planet, emphasizes the UN document “Agenda 2030” (2015), which includes the SDGs. ESG is the keyword for companies to carry out business activities in line with the achievement of the SDGs. This is because the process of companies integrating (incorporating) ESG elements into their core business is itself in line with the changes required by the SDGs. In addition, when companies expand their business, how can they maximize their economic returns while at the same time solving problems in the global environment and human society?

ESG is also the keyword when thinking about this puzzle. This is because, as a profit-making company, rather than a social contribution or charity, the incorporation of ESG elements will allow the company to take dynamic action, using ingenuity and innovation with a rich business sense to gain new market share and even new markets in the process of realizing the future depicted according to the SDGs.

Realizing a net-zero society, conserving biodiversity, increasing food production and reducing food loss, shifting to a sustainable and circular economy, redistributing wealth and correcting disparities, and eliminating all discrimination and human rights violations may not be easy. However, we no longer have the time to put off these challenges. Now that the SDGs have set common goals for the world, and the world has turned its course toward a “new normal” after the COVID-19 pandemic, it might not be an exaggeration to say that the business success of companies that promote “ESG integration” could save the earth and humanity from the threat of extinction.

ESG Stakeholders

There are a wide variety of stakeholders (interested parties) related to ESG. This includes public entities such as governments and international organizations, but when it comes to companies, not only large companies but also small and medium-sized enterprises, venture companies, and social entrepreneurs who collaborate with ESG also play a part. In addition, employees of companies that promote ESG, suppliers in the supply chain, and even consumers and customers, institutional investors, individual investors, and venture capitalists who financially support activities, as well as the media, civil society, NGOs, and evaluation agencies are also important ESG stakeholders. In other words, there is no one in this world who is not a stakeholder, we are all involved.

It is true that in the process of discussing global issues and policy issues that affect the future of humanity, and building governance norms and systems at the global level, the public sector, that is, governments and international organizations, negotiate and create rules between governments in many parts. However, the process of forming global public policies is no longer the exclusive domain of governments and international organizations. Rather, in this process, public and private entities will become “ESG stakeholders” and together share ideas, work together to form and practice rules, which will be the style of building a new future society. Considering this, it is no longer beneficial for companies to think about ESG initiatives individually or in isolation, but also to act as an “ESG value chain” or “ESG ecosystem.” After all, it can be said that there are no organizations, groups, or people that are unrelated to ESG these days.

The “ESG integration model”

Although various ESG stakeholders are already working together, issues are also becoming apparent. For example, there are a large number of scoring systems used around the world to evaluate the ESG performance of companies, and many of them are of Western origin. Yet there are cases where sound ESG initiatives based on good practices have continued in Japan since before ESG and SDGs were advocated. This suggests that Japanese culture and unique corporate culture, are not necessarily fairly evaluated. In addition, there is a risk that existing ESG evaluation items will only function as negative check items and become a factor that hinders the favorable growth of business. In the field of ESG scoring, we need to be more proactive, demonstrate our presence in rule-making, and propose a more fair and inclusive way of determining corporate value.

In light of this situation, the concept of “ESG integration” in a broad sense will become important beyond the previous discussions of “ESG management” and “ESG investment”. “ESG integration” actively explores ways for companies to balance expanding profits in their core business with solving various social issues, even those on a global and human scale. In addition,  closely linking with the international public policy process in which nations and international organizations form consensus on governance norms and policy tools through global political negotiations, and promoting the transformation to a truly sustainable world as targeted by the SDGs.

ESG in Japan has begun. The ESG Integration Research and Education Center established at the Graduate School of International Public Policy, The University of Osaka, will look to the future and combine knowledge of business practice with global public policy analysis to conduct research and education from both theoretical and practical perspectives on the nature of “ESG integration” in a broad sense that enables a virtuous cycle of maximizing corporate and business profits through ESG and solving problems on the planet and in human society. In the process, we will accelerate discussions among diverse ESG stakeholders, collaborate with companies and stakeholders who are promoting ESG integration, and carry out projects to propose and put into practice ideas for a better future.

The University of Osaka, Toyonaka Campus.
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