Application of ESG Principles in the Company's Business and Investment Model
Environmental, Social and Governance (ESG) is the basic principle of a company in managing its business and carrying out investments based on a number of criteria that have a positive impact on the environment, social-community and business governance. The purpose of ESG is to measure the social and sustainability impact of the investments made by companies.
ESG refers to three criteria that are closely related to the company's sustainability. Investors generally use these three criteria as their considerations in choosing investments to take. These three criteria are also used as the main measuring tool to see the impact of sustainability in investment decision making. The three criteria for implementing ESG are as follows:
1. Environment Criteria
Investors should consider how the company performs in an environmentally friendly manner. Examples of implications of the Environment criteria are: the use of environmentally friendly energy, waste management so that it does not become a pollutant, participating in the conservation of irreplaceable natural resources, treating animals that are not arbitrary, and implementing an effective risk management system in managing environmental risks.
Environment criteria can also be used to evaluate the operations of a company. Meanwhile, for companies that implement this, it will have a positive impact, such as obtaining sustainability in business operations.
2. Social Criteria
Investors should consider how the company manages working relationships with employees, suppliers, customers and the communities in which they operate, for example: selecting suppliers who also have ESG policies and practices, being involved in the organization of a community (either in the form of a percentage of profits and/or or voluntary work of employees), ensuring a healthy and safe work environment for employees, taking into account stakeholder inputs and expectations of the organization.
Social criteria can be used to assess the readiness of a company in adapting its position to social problems. This will have an impact on a company's financial performance.
3. Governance Criteria
Investors should consider how a company could possess a good and sustainable management process in the structure of the board of directors and board of commissioners, remuneration system for directors and senior management, audit system, internal control, and protection of the rights of both majority and minority shareholders.
Aspects that need to be considered in this criteria are company policies, company standards, culture, disclosure, information, audit process and compliance. These factors can be a plus for companies that can give potential investors’ confidence to invest in related companies
By: Corporate Communications PT ABM Investama Tbk