The importance of ESG for businesses  

Author: Kasiti Ketsuriyonk
Audit & Assurance Partner and Sustainability & Climate Leader
Deloitte Thailand

This article is an extract from Deloitte's Thailand's 2022 ESG and Sustainability Survey Report.

Environmental, social, and governance (ESG) risks increasingly demand the attention of finance leaders. The fast-evolving market and regulations are challenging businesses and their leaders to demonstrate more sustainable and socially responsible practices. In a recent survey conducted by Deloitte Thailand, C-suites and executives across 106 leading companies in Thailand were surveyed, covering a range of key industries, to better understand organizational approaches to ESG.

Integrating ESG into corporate strategy and raising ESG awareness

The survey results revealed several challenges in integrating ESG into a corporate strategy, including a lack of technology for effective data collection, talent and skills, and shortcomings in data availability (see Figure 1).

However, great strides have been made in standardizing and quantifying measures of the organization’s performance according to ESG criteria. Additionally, investor interest in companies actively pursuing ESG goals is becoming increasingly prevalent. It is therefore essential that business leaders prioritize raising awareness levels of ESG in the organization. At the intersection of sustainability and financial performance, the CFO is in the best position to define and communicate how a company’s management of ESG risks can contribute to value creation for the whole firm. By addressing these issues directly with the guidance and involvement of the CFO, companies can be better prepared to create enterprise value while meeting sustainability reporting demands and broader stakeholder expectations of responsible risk management.

The role of finance in driving the ESG agenda

Finance leaders in Thailand are highlighting the importance of ESG reporting, primarily to ensure conformity with the recently mandatory 56-1 One Report requirements for listed companies. Most survey respondents believe that better corporate sustainability performance will bring key benefits such as operational efficiency and cost saving, brand credibility and image, and risk management (see Figure 2).

The survey revealed that it is increasingly clear that sustainability plays an important role in corporate finance, with sustainability strategies being associated with fewer constraints in securing funding sources, creating a wider range of opportunities to obtain bank loans or issue equity (see Figure 3). To drive the ESG agenda, CFOs need to leverage the vast amounts of data and insights available to them, both internal and external, and work closely with fellow leaders to form cross-collaboration, in order to better discover risks and opportunities of initiatives.

The growing sustainable finance market

The sustainable finance market is growing, with only 17% of the respondents having already issued sustainable financial products or loans, whereas 18% have plans to and 36% still have no plans to (see Figure 4). The sustainable finance landscape is expected to see a shift, with many countries, including Thailand announcing publications of their own green or sustainable taxonomies. The importance of Taxonomy in establishing a foundation and facilitating the expansion of sustainable financing is evident in many countries. The Thailand Taxonomy is expected to impact all sectors, especially the financial sector, in their planning for the transition to net zero. As Taxonomy-based regulations continue to grow, it encourages increasing sustainable and green funding and the capital available to facilitate the low-carbon transition.

CFOs leading effective sustainability transition

Given that risk management and value creation are core to their role, CFOs are well-positioned to lead their organization in driving timely and effective sustainability transition. Stakeholders, including customers, employees and investors, are demanding greater and faster action, and local and regional legislations are quickly changing, ensuring that organizations can take the path to manage climate risk and adopt sustainable practices.