ABOUT 50 years ago, Milton Friedman, a Nobel prize-winning economist, wrote: "There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits."
With climate change and social issues taking centre stage, opinion has since shifted. Businesses are expected to discharge their moral obligation to care for society and to protect the environment.
Businesses themselves are pushing that agenda. They hope that their good deeds will earn public esteem for their products. This will be especially so when a company goes green in its technology and products.
Consumers would consider themselves as indirectly saving the planet by buying from such companies. Social responsibility in protecting the environment is a differentiating strategy.
It will enable a company to earn more profits than its competitors. Take Toyota. It led the way in going green through its hybrid cars. It had a head start over the competition, which has since introduced hybrid and electric cars.
There is another reason why companies are under great pressure to minimise their environmental impact. Non-governmental organisations (NGOs) and sustainability-rating agencies monitor their environmental, social and (corporate) governance, or ESG, activities.
Similarly, investors want to increasingly pour their money into companies that have a strong ESG. Even employees want to do good through their company's ESG efforts. And the war for talent will partly be won by how a company scores in its ESG.
In the past, big companies such as Enron had defrauded the public. That had undermined public trust in them. To regain the lost trust, companies are working harder at being exemplary corporate citizens.
The added motivation is social media.
Any misbehaviour will be exposed to the detriment of a company's bottom line. The expose over a decade ago of Nike and GAP using child labour in the manufacture of their products, is a case in point.
In Malaysia, the sustainability-focused CEO Action Network (CAN) has assembled some 50 leading corporations to further the ESG agenda.
CAN has committed to helping the nation achieve carbon neutrality by 2050. It also subscribes to Malaysia's Shared Prosperity Vision 2030.
How can companies engage in ESG without being accused of tokenism? Here are three strategies.
FIRST, managers must realise that in a consumerist world they are not at liberty to do what they please. It is not business as usual any more. Companies have broader social responsibilities beyond the pursuit of profits.
Managers must recognise that, ultimately, they are accountable not just to shareholders but also to stakeholders.
A sustainability and governance committee at the board level can demonstrate a company's commitment to the ESG agenda.
SECOND, companies could collaborate with others in implementing ESG activities. They can partner with competitors to set rules of engagement in this increasingly important agenda.
Companies can also join organisations such as CAN to craft ESG plans and build capacity for their execution. Like rotating a flywheel, sharing experiences and collaborating with like-minded organisations locally and internationally can accelerate momentum for sounder ESG practices.
THIRD, companies should embed ESG in their corporate culture. In his 2018 book, , Colin Mayer, an Oxford professor, exhorts businesses to focus on the purpose their stakeholders bring to the business rather than shareholder value per se.
He implies that managers should focus on the triple bottom line — people, planet and profit.
He further argues that a corporate purpose that chimes with the world's needs is a potent way for a company to demonstrate its moral obligation to society.
Hence, sustainable business practices must be part of a company's purpose and goals. For example, a food manufacturer can dedicate itself to producing more nutritious or organic products.
It could even consider downsizing those subsidiaries that magnify the company's carbon footprint. Expenditure on ESG should be viewed as a long-term investment.
Research shows that companies that practise social and environmental responsibility prosper in the long-run.
The writer is AIMST University vice-chancellor
