by Grace Sharen Raharjo
4th-semester student – International Business Management – Global Class
Financial Management has always played a crucial role in building the economy and controlling an organization’s financial resources. It helps with budgeting, cash flow management, risk assessment, and financial forecasting. However, in recent years, creating and maximizing profits and balance sheets along with upholding shareholder value are not their main concern anymore. Financial management concepts have expanded into taking sustainability into account. The integration of Environmental, Social, and Governance (ESG) factors is one of the key drivers in fostering sustainable business practices around the globe. In this article, we will explore and take a deep dive into how the implementation of ESG metrics has gone on a global scale and how it has affected business practices.
Through the ESG variables, they have grown into a widely used methodology for assessing how a business or corporation performs in these three fundamental areas. This ESG framework offers an assortment of standards for evaluating the sustainability of a business’s dedication to its stakeholders, investors, and management. Some examples of these factors would be social considerations, carbon emissions, and resource conservation. Social considerations include things such as labor practices, human rights, and community involvement. The successful operation of a company’s leadership, transparency, and ethical practices can be evaluated through governance standards. Building a foundation for long-term success is just as important as obtaining funding for ongoing operations when it comes to accessing capital sustainably. Businesses that place a high priority on sustainability in their capital access plans stand to draw in a wider pool of lenders and investors and set themselves up for growth and resilience in an environment and economy that is changing quickly.
This concept has tested the company’s ability to take these ideas into account on how a business’s capacity can sustain its long-term economic viability while supporting more general environmental and social objectives. One key trend that has arisen in growing more impactful financial sustainability is the ability to access the company’s capital. Access to finance is a critical component of a company’s financial viability. ESG considerations are becoming more and more important to banks and other financial organizations when they make loan choices. Businesses having a track record of sound financial sustainability could have an easier time getting funding and good conditions. Past examples of capitalism have contrasted the desire for profit against the general welfare of society, leading to conflict between the goals of various businesses and a dead end. Adopting voluntary transparency may provide a fresh viewpoint on the market by making success synonymous with good behavior. This conceptual flip would realign capitalism in the direction of the public interest and create a new competitive environment where morality, inventiveness, and initiative are truly rewarded. In addition, exploring green financing options and having robust and transparent reporting of ESG performance is crucial. Examine your choices for green funding, such as sustainability-linked loans or green bonds. These financial tools are specially made to support endeavors or projects that have a good environmental impact. Through the use of these tools, businesses may draw in funding from sustainability-focused investors. It is also crucial to interact with stakeholders, such as consumers, investors, and the community. An organization’s image may be improved and its attraction to sustainable investors increased by showcasing a dedication to sustainability and paying attention to the worries and expectations of stakeholders. A company’s appeal to investors and creditors may be increased by exhibiting a clear alignment with international sustainability goals, such as the Sustainable Development Goals (SDGs) of the United Nations. Businesses that positively impact the SDGs are likely to receive greater support from investors that place a high priority on sustainable investing.
A great example of an Indonesian case is Bank Danamon. They integrate ESG into their investment and lending decisions. They engage in supporting local communities by implementing social programs and financing environmentally friendly projects. It not only aligns with the global sustainability goals but also as a responsible financial institution. Danamon invests in adding value to the communities through practicing social responsibility while incorporating environmental preservation and management, social responsibility, and risk reduction into risk management. Danamon also actively engages in a variety of activities and works with stakeholders that run operational initiatives linked to the application of sustainable development principles in order to hasten the enhancement of social welfare, economic welfare, and the quality of the environment for all Indonesians. For Danamon, sustainability is important as they believe that sustainable financing has a positive impact not only on our own lives but also in the business and economic sectors. Continuing to develop strategic initiatives and systematic actions will help reduce emissions in operational activities as well. Danamon proceeded with the implementation of its Sustainability Finance Action Plan (SFAP) in 2020 which was grounded in POJK No.51/POJK.03/2017. It formed a sustainability vision and purpose in 2018, and since then, it has implemented its main programs in accordance with sustainability principles.
Following the SFAP, Danamon will increase its sustainable finance. It will also keep an eye on any changes to the government’s policies, particularly those that deal with the application of sustainable finance. Their Board of Commissioners anticipates the ESG-based credit framework adoption in 2021 and supports its development in 2021 which lead to Danamon being able to manage any future risk and improve its sustainability performance in personnel capacity building.
Next is a global case example: Unilever. They are a multinational consumer goods company that has been integrating sustainability into its business strategy and practices. By establishing challenging goals for carbon neutrality, ethical sourcing, and waste reduction. Unilever has drawn investors who are concerned about sustainability and decreasing its environmental effects while simultaneously improving its brand. Their sustainability relies on promoting transparency and openness, which are fostered by each particular duty. Having accountability helps their dedication to sustainability remain to be a foundation for the planning and execution of their business practices. They respond to the marketplace and consumer trends quickly due to the reorganization which makes it easier for them to prioritize any sustainability concern and accomplish a bold objective. Implementing a new organizational model aligns with the broader commitment to sustainability by facilitating the development of employees who are ready for future growth. In order for them to determine the most important ESG concerns, they do a materiality assessment that benefits both the business and its partners. Univeler uses efficient resource allocation and value creation for its stakeholders for its sustainability strategies. Through this continuous process, they have been able to remain ahead of the current trend of sustainability risk and possibilities.
In summary, sustainability has grown ingrained in business operations, and ESG indicators offer a thorough framework for evaluating a company’s ethical management practices, investor relations, and stakeholder commitment. The case studies of Bank Danamon in Indonesia and Unilever globally exemplify how companies are successfully integrating ESG into their operations. Bank Danamon’s commitment to sustainable financing and engagement with local communities demonstrates how financial institutions can contribute to social welfare and environmental preservation. Unilever’s strategic incorporation of sustainability into its business model, including carbon neutrality goals and ethical sourcing, showcases how multinational corporations can lead in promoting transparency and addressing ESG concerns. It is abundantly clear that financial management is moving away from profit-centric approaches and towards a more broad and sustainable strategy as companies continue to implement and grow their ESG frameworks. In addition, businesses all around the world are expanding and implementing ESG standards, and the financial system is changing to reward profitability along with innovation, moral behavior, and long-term sustainability. Businesses are actively assisting in the development of a more sustainable and responsible global economy, which signifies a change not just in business practices but also in the concept of success.
(This paper was part of the Global Systems Learning Class – GSLC assignment for Financial Management Class)
Gracia, S. (2022, March 25). Bank Danamon Terapkan Sustainable Finance Dan Prinsip berkelanjutan. Stabilitas.
Bakken, R. (2021, August 9). What is Sustainable Finance and why is it important?. Harvard Extension School.
Unilever Indonesia Tbk. (2022). Rejuvenating Growth for a Sustainable Future. https://www.unilever.co.id/files/92ui5egz/production/b0745a9b89e4800147f3705c34eccd434553 99f4.pdf
Bank Danamon Indonesia Tbk. (2020). Commiting Among Challenges: Komitmen di Masa Penuh Tantangan. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.danamon.co.id/-/media/ALL- CONTENT-ABOUT-DANAMON/LAPORAN-KEUANGAN/LAPORAN-KEBERLANJUTAN/Laporan-Keberlanjutan-2020-PT-Bank-Danamon-Indonesia.pdf
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The article discusses the integration of Environmental, Social, and Governance (ESG) factors into financial management practices. It highlights the importance of sustainability in business operations and how companies are incorporating ESG metrics to evaluate their performance in areas such as social considerations, carbon emissions, and resource conservation.
Financial Management and Sustainability
Financial management has traditionally focused on budgeting, cash flow management, risk assessment, and financial forecasting. However, in recent years, there has been a shift towards considering sustainability in financial management practices. This shift is driven by the recognition that businesses need to take into account environmental and social factors, in addition to financial considerations, to ensure long-term success and meet the expectations of stakeholders [].
Environmental, Social, and Governance (ESG) Framework
The integration of ESG factors has become a widely used methodology for assessing a company's performance in environmental, social, and governance areas. The ESG framework provides standards for evaluating a business's dedication to its stakeholders, investors, and management [].
- Environmental considerations include factors such as carbon emissions and resource conservation. By evaluating a company's environmental impact, stakeholders can assess its commitment to sustainable practices and reducing its ecological footprint.
- Social considerations encompass labor practices, human rights, and community involvement. Evaluating a company's social impact helps stakeholders understand its commitment to ethical practices and social responsibility.
- Governance standards assess the successful operation of a company's leadership, transparency, and ethical practices. By evaluating governance practices, stakeholders can assess the company's commitment to accountability and responsible decision-making [].
Importance of Sustainability in Financial Viability
Sustainability is not only important for ethical reasons but also for a company's financial viability. Businesses that prioritize sustainability in their capital access plans can attract a wider pool of lenders and investors. By aligning with sustainability goals and demonstrating a commitment to environmental and social objectives, companies can set themselves up for growth and resilience in a rapidly changing environment and economy [].
ESG Considerations in Access to Finance
ESG considerations are becoming increasingly important to banks and other financial organizations when making loan choices. Businesses with a track record of sound financial sustainability and a commitment to ESG factors may have an easier time accessing funding and securing favorable conditions. By integrating ESG metrics into their operations and reporting, companies can demonstrate their commitment to sustainability and attract sustainability-focused investors [].
Green Financing and Stakeholder Engagement
To further support sustainability goals, businesses can explore green financing options such as sustainability-linked loans or green bonds. These financial tools are designed to support projects with a positive environmental impact. By utilizing these tools, businesses can attract funding from sustainability-focused investors [].
Engaging with stakeholders, including consumers, investors, and the community, is also crucial. By showcasing a dedication to sustainability and addressing stakeholder concerns, companies can improve their image and attract sustainable investors. Aligning with international sustainability goals, such as the United Nations' Sustainable Development Goals (SDGs), can also enhance a company's appeal to investors and creditors [].
Case Examples: Bank Danamon and Unilever
The article provides two case examples to illustrate how companies are successfully integrating ESG into their operations.
Bank Danamon in Indonesia has integrated sustainable finance and principles into its investment and lending decisions. The bank supports local communities through social programs and financing environmentally friendly projects. Bank Danamon's commitment to sustainability aligns with global sustainability goals and demonstrates its role as a responsible financial institution [].
Unilever, a multinational consumer goods company, has incorporated sustainability into its business strategy and practices. By setting goals for carbon neutrality, ethical sourcing, and waste reduction, Unilever has attracted investors concerned about sustainability. The company promotes transparency and openness, which are fostered by each employee's accountability. Unilever's organizational model facilitates the development of employees ready for future growth and enables them to prioritize sustainability concerns [].
These case examples highlight how companies can lead in promoting transparency, addressing ESG concerns, and integrating sustainability into their business models.
In summary, financial management is evolving to include sustainability considerations. The integration of ESG factors allows companies to evaluate their ethical management practices, investor relations, and stakeholder commitment. Businesses worldwide are expanding and implementing ESG standards, and the financial system is changing to reward profitability along with innovation, moral behavior, and long-term sustainability. This shift signifies a change not only in business practices but also in the concept of success, as companies actively contribute to a more sustainable and responsible global economy [].