ESG, Business Ethics and Reputation

ESG (Environmental, Social and Governance) is undoubtedly one of the most important issues of recent times and a trend gaining momentum in the face of concrete global challenges.It will certainly drive regulatory developments and corporate governance activities in the future.[i] ESG, which refers to “environmental, social and governance” has come to play a vital role in corporate governance in recent years. ESG practices have led companies to act responsibly and ethically while conducting their activities and making decisions. In a sense, the perception of ethics has created a framework in which stakeholders such as consumers, investors and employees can monitor and audit if an undertaking is “doing the right thing even when no one is looking”. It also contributed to translating individual ethical values into companies’ business ethics policies. In the words of BlackRock Chairman and CEO Larry Finn:

“Society demands that both public and private companies serve a social purpose. To be successful over time, every company must not only be financially successful, but also be able to demonstrate how it makes a positive contribution to society. Companies must benefit all stakeholders, including shareholders, employees, customers and the communities in which they operate.” [ii]

As a matter of fact, companies that adopt ESG practices recognize that the structure in which they operate has the power to influence society and the environment and, in a sense, present a declaration of will to use this power and influence positively. These factors, which bring together themes such as sustainable use of resources, combating climate change, reducing carbon footprint, giving back to the community, and focusing on protecting consumers and employees, along with transparent, accountable, and ethical leadership, are a way of integrating the ethical-based will of the relevant company to give back through declaring that “environmental, social and corporate governance elements are essential elements for them”.[iii] Thus, it is evident that some important ethical questions such as the following need to be answered when determining a company’s ESG direction.[iv]

It is clear that ESG practices provide other advantages for a company besides following ethical values. These advantages can be can be summarised as follows:[v]

• • Identifying and minimizing environmental and social risks,
  • Ensuring positive impacts on society and the environment through ESG investments,
  • Opportunities for employees to take part in practices that contribute to the environment and society in the companies they work for,
  • Attracting the investment appetite of investors interested in sustainable investments,
  • Gaining the trust of stakeholders such as customers, employees and investors,
  • Ensuring that the company is successful and sustainable by adopting sustainability and ethical values and
  • Reputation management.

ESG issues, are inherently related to reputation, and observations about a company’s ESG actions or inactions are frequently published. In this respect, companies that fail to respond to public demands to give back to the environment and society and to conduct business in line with ethical principles may have to face critical tests in terms of corporate reputation.[vi] On the other hand, it is known that companies that adopt ethics-based ESG practices gain financial and economic benefits and contributions in addition to the aforementioned advantages. It is a well-known fact that companies with high sustainability scores, have higher organizational performance and deliver superior results compared to those without ESG-based investments.[vii] In addition, in the “TEİD Report on the Impact of ESG and Business Ethics on Reputation”, in which 145 representatives from 44 different sectors participated, it was observed that the majority of the participants think that there is a close relationship between business ethics, ESG and reputation, and that performance in ESG and business ethics will affect their future position both in terms of reputation and financially.[viii]

To conclude, it is evident that ESG, ethics and reputation go hand in hand and have the potential to significantly impact companies’ reputation and financial results in today’s world. To answer the needs of stakeholders’ will to monitor whether a company gives back to the community or not, these concepts will no

Author: Merve Bakırcı

Footnotes

[i] Zalles Barrero, Diana / Dolan, Cristina: “Transparency in ESG and the Circular Economy: Capturing Opportunities Through Data” 1st Edition, Business Expert Press, New York 2021, p. 69.

[ii] Fink, Larry: “2018 Letter To CEOs: A Sense of Purpose”, Blackrock, https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter.

[iii] Skeet, Ann: “What do ESG and Ethics Have in Common?”, Marrkula Center for Applied Ethics, 4 February 2022, https://www.scu.edu/ethics/esg/what-do-esg-and-ethics-have-in-common/.

[iv] Armstrong, Anona: “Ethics and ESG”, University of Wollongong Australia, AABFJ | Volume 14, No.3, 2020.

[v] Emerick, Dean / Keskin, Huzur: “What is ESG? Exploring Sustainability Strategies”, ESG the Report, 8 January 2024, https://esgthereport.com/esg-nedir-surdurulebilirlik-stratejilerini-kesfetmek/.

[vi] Bergman, Mark S. / Deckelbaum, Ariel J. / Karp, Brad S.: “Introduction to ESG”, Harvard Law School Forum on Corporate Governance, 1 August 2020, https://corpgov.law.harvard.edu/2020/08/01/introduction-to-esg/ .

[vii] Clark, Gordon L. / Feiner, Andreas / Viehs, Michael: “From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Out Performance”, University of Oxford Press, 5 March 2015, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2508281.

[viii] TEİD Ethics and Reputation Society: “TEİD, The Impact of ESG and Business Ethics on Reputation Report 2022”, December 2022, https://www.teid.org/wp-content/uploads/2023/01/TEID-ESG-ve-Is-Etiginin-Itibara-Etkisi-Arastirma-Raporu.pdf.