top of page

A synonym to “granular” is “detailed”. A granular learning on E.S.G refers to its “scale” or “extent”. The term “granularity” in business refers to the layers of details taken into account during decision-making process (EcommerceMasterclass, 2022). In term of content-and-form architecture, in its straightforward explanation, content is what to be performed, about the substance and material, form is the way in which the content is arranged and performed, about the technique and method. In the context of business management, E.S.G should be depicted in a content-and-form architecture, where environment and society are acted as content and governance as form. 


The Content: Environment and Society


The granularity of the environmental and social content is often opaque. Even though the EU trying to introduce the EU Taxonomy Regulation to “call for the creation of a common classification system for sustainable economic activities”  (EuropeanCommission, 2020), in its efforts to create clarification for all stakeholders with appropriate definitions of “being green”, its robustness and feasibility remain controversial. Intense discussions are ongoing that the ultimate result of this legislation is still open.


Apart from the legislative level, more and more investors reply on E.S.G ratings to evaluate corporation information, a group of third parties providing E.S.G rating reports emerges. However, criteria, elements, metrics are disagreed substantially. Chatterji et al. provides two terms “theorization” and “commensurability” as the reasons for causing the divergence in E.S.G ratings (Chatterji et al., 2016). Research done by Berg et al., investigating the divergence of E.S.G ratings based on data from six selected E.S.G raters, discovered a “rater effect” that different views on categories are taken in E.S.G evaluation, which often happens that two different rating methods produce different assessment results on a same firm. (Berg et al., 2022) Raters have own preference, and the rater effect suggests that divergence follows rater-specific and firm-specific patterns. These patterns further suggest the structural reasons for the existence of divergence.


Although consensus is difficult to build, it is not mission impossible. Until the legislation can work out a more widely recognized taxonomy, there are existing standardizations working for environmental and social management system for organization internal performance. The International Organization for Standardization (ISO) released ISO 14000 family for the environmental management standards, and ISO 26000 providing guidance for companies to implement corporate social responsibility. ISO 14001 Environmental management systems (EMS) is a framework to help organizations to identify, manage, monitor and control the environmental issues. Such system can be tailored to the needs of the industry using it with quantified standards. However, ISO 26000 is a set of voluntary standards to help companies implement corporate social responsibility. As nature of social responsibility is difficult to be quantified, ISO 26000 provides guidance rather than requirements, standards can only be set for all types of organizations, regardless of their activity, size, or location (Fernando, 2023), confusion is occurred when organizations in different sizes, or different business models to share with the same group of standards. Key stakeholders from around the world should contribute to setting the ISO 26000 standards to achieve an international level of consensus.


The Form: Corporate Governance


Corporate governance is the system by which powers are exercised and controlled over the companies. Shareholders of the company appoint the directors to exercise such powers to satisfy their appropriate value. The appointed directors take responsibility for the governance of their companies in order to accomplish the interests of the shareholders. It encompasses a wide range of issues. In the content-and-form architecture of E.S.G, governance is about how to arrange and perform the environmental and social elements into the management strategy and practices. The C-suite, when designing the governance structure or setting rules and processes and practices, should blend in environment and society. The effectiveness of governance should be functioning by penetrating E and S in all levels in the organization


In this content-and-form architecture, although they are discussed as separate entities, the relationship is closely tight and related. The form, corporate governance, in which the content of being environment- and society- focused is presented, can shape and influence the impact and interpretation. It is like the orchestra performing symphony. Symphony is set (environment and society issues). The conductor (the board) should be able to lead the orchestra effectively, setting the tempo, shaping the sound, while each musician (employees, stakeholders) has the technical ability to play their instruments at a high level. Different orchestra might convey different emotion and meaning of the same symphony to the audience. Ultimately a successful performance is one in which the conductors and musicians are able to deliver the beauty and power of the symphony to the audience.


A Look into the Future


The growth of ESG in recent years has been exponential. The more granular look at E.S.G, the more apt to the idea that E.S.G is old wine in new bottles. The concept of CSR (Corporate Social Responsibility) has existed for many decades and have been largely neglected until the beginning of this century. Great wine is always a matter of perfect terroir, that blend of altitude, climate, and soil producing the essential fruit for excellent wine. E.S.G offers the world such an ideal mix of elements amid the best of 3 pillars: environment, society, governance, re-blend them all together to create a new taste to please the palate of any wine lover. A great wine is a very personal choice that comes down to the taste of the drinkers, so as E.S.G.. There is no universal one-size-fit-for-all rule or methodology for all companies to implement E.S.G. It is the confusion, but also the charm for organizations who can understand the essence. Looking into the future, it is likely that E.S.G will continue to thrive, but importantly, it is about the human survival that no one can stay out or left behind. Collaboration and cooperation should be built among individuals, organizations, nations, and the globe. The sooner, the better.



Reference

 

Berg, F., Kölbel, J. F., & Rigobon, R. (2022). Aggregate Confusion: The Divergence of ESG Ratings. Review of Finance, 26(6), 1315-1344. https://doi.org/10.1093/rof/rfac033

Câmara, P., & Morais, F. (2022). The Systemic Interaction Between Corporate Governance and ESG. In (pp. 3-40). Springer International Publishing AG. https://doi.org/10.1007/978-3-030-99468-6_1

Chatterji, A. K., Durand, R., Levine, D. I., & Touboul, S. (2016). Do ratings of firms converge? Implications for managers, investors and strategy researchers: Do Ratings of Firms Converge? Strategic management journal, 37(8), 1597-1614. https://doi.org/10.1002/smj.2407

EcommerceMasterclass. (2022). The Importance of Being Granular in your digital marketing. Retrieved 22/07/2023, from https://swifterm.com/the-importance-of-being-granular-in-your-digital-marketing/

Enriques, L. (2022). ESG and Shareholder Primacy: Why They Can Go Together. In (pp. 131-136). Springer International Publishing AG. https://doi.org/10.1007/978-3-030-99468-6_6

EuropeanCommission. (2023). A European Green Deal. European Commission Retrieved from https://ec.europa.eu/commission/presscorner/api/files/attachment/859152/What_is_the_European_Green_Deal_en.pdf.pdf

Fernando, J. (2023). Corporate Social Responsibility (CSR) Explained With Examples. Investopedia. Retrieved 23/07/2023, from https://www.investopedia.com/terms/c/corp-social-responsibility.asp

Ferrarini, G. (2022). Sustainable Governance and Corporate Due Diligence: The Shifting Balance Between Soft Law and Hard Law. In (pp. 41-57). Springer International Publishing AG. https://doi.org/10.1007/978-3-030-99468-6_2

Friedman, M. (1970, 13/09/1970). The Social Responsibility of Business Is to Increase Its Profits. New York Times Magazine.

Hart, O., & Zingales, L. (2020). Serving Shareholders Doesn’t Mean Putting Profit Above All Else. https://www.promarket.org/2020/09/05/serving-shareholders-doesnt-mean-putting-profit-else/

Jarvie, M. E. (2016). Brundtland Report. https://www.britannica.com/topic/Brundtland-Report.

Mischke, J., Woetzel, J., & Birshan, M. (2021). The necessity of doing well by doing good. Milken Institute Review (Apr). https://www. mckinsey. com/mgi/overview/in-the-news/the-necessity-of-doing-well-by-doing-good.

Sjåfjell, B. (2022). Reforming EU Company Law to Secure the Future of European Business. In (pp. 59-85). Springer International Publishing AG. https://doi.org/10.1007/978-3-030-99468-6_3

Webster'sDictionary. Sustainable. https://www.merriam-webster.com/dictionary/sustainability. Retrieved 22/07/2023, from

Winter, J. (2022). The Duty of Societal Responsibility and Learning Anxiety. In (pp. 115-130). Springer International Publishing AG. https://doi.org/10.1007/978-3-030-99468-6_5


Author: Ms. Huang Xumin, Certified ESG Planner, ICSD


bottom of page