ESG AGENDA
Compiled by Yamini Sequeira
BLOODSTREAM OF BUSINESS
Pyumi Sumanasekera believes that ESG oriented businesses will go places
Q: What are the emerging environmental, social and governance (ESG) trends that Sri Lankan companies should be aware of? And how can they prepare for these changes?
A: ESG considerations have evolved from being a trend to become fundamental to contemporary business practice.
As ESG is increasingly integrated into the core fabric of business operations, companies in Sri Lanka must remain vigilant about rapidly developing global regulations that will impact supply chains.
Failure to comply with these evolving standards could critically undermine a corporate’s ability to sustain its operations.
A large portion of the emerging regulatory framework originates from the EU, which has been at the forefront of enforcing stringent ESG requirements. These regulations necessitate immediate and comprehensive attention from Sri Lankan companies.
It is essential for businesses to understand and mitigate the risks associated with various environmental, social and governance factors – including climate change, environmental sustainability and social equity.
Implementing rigorous reporting standards is an effective method to establish accountability and ensure transparency, which in turn attracts the right level of attention from stakeholders and regulatory bodies.
To effectively prepare for these changes, companies should incorporate ESG considerations into risk management frameworks, strategic planning and decision-making processes.
As supply chains shift to more sustainable models, companies that adopt ESG oriented initiatives will be better positioned to identify and capitalise on emerging opportunities.
Integrating ESG considerations should not be seen as a peripheral activity but a central component of a business’ operational strategy – akin to its ‘bloodstream,’ permeating every facet of its operations.
Q: In the context of global ESG standards and practices, where does Sri Lanka stand and what steps are needed to align more closely with international benchmarks?
A: Historically, Sri Lanka has demonstrated proficiency in ESG reporting, as evidenced by its high rankings in the KPMG Survey of Sustainability Reporting 2020.
However, there was a notable decline in performance by 2022, reflecting changes in international benchmarks and standards.
Although Sri Lanka has displayed strength in reporting, weaknesses persist in ESG governance practices – particularly at the board level. For instance, the incentivisation of decision makers based on ESG outcomes and transparency of climate related disclosures have been areas of concern.
Recent surveys highlight that while improvements are evident at management level, there is still a huge gap in board level engagement with ESG issues. This lag is partly due to the broader economic challenges faced by the country, which have affected the urgency with which these practices are adopted.
Investing in the transformation of business models to incorporate ESG considerations and leveraging data to highlight potential advantages can yield significant benefits.
The transition to renewable energy and increased awareness of biodiversity are gaining traction in Sri Lanka. Given the country’s unique positioning as an island nation, we have the potential to make a noteworthy impact in these areas.
Q: How can Sri Lankan businesses integrate ESG considerations into their core strategies to drive long-term value and resilience?
A: For Sri Lankan businesses, it’s essential. A crucial first step is to identify and prioritise ESG related risks. Understanding global trends while leveraging local innovations can reveal significant opportunities for businesses.
The traditional view that profit and sustainability are mutually exclusive is becoming increasingly outdated. This paradigm shift necessitates a change in business thought processes, emphasising that ESG isn’t merely a regulatory compliance requirement but a strategic imperative.
To effectively integrate ESG into business operations, companies must develop robust data collection and monitoring mechanisms to stay on track and measure progress.
Q: What role do regulatory frameworks and government policies play in shaping ESG practices in Sri Lanka?
A: Regulatory frameworks and government policies play a pivotal role in this regard, particularly in enhancing credibility with international investors and customers who prioritise ESG factors.
Effective implementation and consistent monitoring of regulations can instil confidence among global stakeholders, thereby reinforcing the importance of ESG compliance.
Well designed and enforced regulatory frameworks can greatly reduce the compliance burden on companies, enabling them to focus more on innovation and the development of sustainable practices.
Government policies can support businesses across various sectors including energy, agriculture, waste management, deforestation and biodiversity. Establishing comprehensive national level data and consistent reporting standards can further facilitate the ESG integration process.
Q: And what are the key governance challenges faced by Sri Lankan companies in implementing effective ESG strategies?
A: One of the primary governance challenges is the need for increased awareness and capacity building. Despite a recent surge in interest for ESG, some companies are still implementing strategies without fully understanding potential future regulatory risks.
Effective ESG implementation requires a comprehensive understanding at the governance level, ensuring that all divisions and sectors within an organisation are aligned.
ESG should be integrated into the core governance framework, and considered a fundamental aspect of risk and return management. It’s not merely a compliance issue or the responsibility of a single individual; rather, it should be embedded throughout the organisation’s operations and decision-making processes.
