Short excursion: ESG
CSR and Compliance are often discussed in the same breath – effective Compliance measures are often credited with spillover positive effects on society. One example of Compliance policies that create clear societal benefits are regulations requiring the operation of whistleblowing systems. This helps the prevention of corruption and manipulation. Of course, a key difference between Compliance and CSR is their scope of regulation — companies are legally obligated to follow regulations. Full regulatory compliance results in risk minimization, a prime goal of companies. By contrast, CSR is less regulated and often less quantifiable, requiring companies to voluntarily contribute and work towards the well-being of society.
Finally, we can’t discuss CSR without touching on ESG, which stands for ”Environmental, Social, and Governance“. ESG is a financial markets metric used by investors to measure how companies perform their corporate activities, socially and environmentally. In terms of long-term strategy, CSR and ESG have many building blocks that may have overlap, such as seeing corporate effects on consumers, supply chains, environments, and operations. As a testament to recent traction in the ESG movement, companies listed on the Hong Kong exchange must now disclose certain ESG metrics to comply with regulations. ESG metrics can be seen as one of many measures of a company’s valuation (and affect their cost of capital) and can also help teams assess and manage potential industry risks.