A responsibility to be better

Environmental, social, and governance performance is now the defining reflection of ‘responsible’ behaviour from companies.

Environmental, Social, and Governance (ESG) has been around for a few decades now, but it has been gaining momentum in recent years.

It is believed that companies perform better when they are responsible and concerned about their surrounding environment.

And societal issues and maintain proper governance throughout the organization (Youmatter, 2019). 

Investors are also taking an interest in companies that are open and outspoken about their ESG practices.

It is well documented that companies with better ESG scores pay better to investors (Youmatter, 2019), therefore.

Attracting more investors and paying more in return which then works like a chain reaction

Another term associated with this concept is Sustainable and Responsible Investing (SRI).

This concept allows investors to combine both financial return and social well-being.

They make strategic investment decisions based on ESG factors that the companies have been regularly practicing (Palma-Ruiz, Apraiz, and Martínez, 2020).

There are some ESG practices that an investor specifically looks for in the companies before considering them “responsible” and investing in them.

Environmental factors that indicate responsible behaviour are energy efficiency, renewable energies sourcing, waste disposal, clean water treatment, and deforestation activities.

Social factors to look for that companies focus on are diversity issues, working conditions, labour standards, employee law enforcement, and community engagement.

The last element is related to governance factors which are indicated by tax compliance, risk management, agency problem, and board structure. 

Corporate Social Responsibility or ESG disclosures have been voluntary in the past years.

In the US stock market, 83% of the registered companies disclose sustainability reports and responsible practices, of which most are considered voluntary (Christensen, Leuz, and Hail, 2021).

Considering them as voluntary disclosures, it is questionable if those are verified efforts or manipulated numbers.

Nevertheless, investors are more likely to trust actions when they are supervised and regulated rather than claimed to be voluntarily done.

Considering this behaviour pattern, the Indian government has made it mandatory for all listed companies to disclose their CSR activities, making it a statutory obligation in new rules laid out in January 2021.

This declares India as the first country to make CSR disclosure mandatory.

However, the effectiveness of this new rule can only be measured if the CSR disclosures of Indian corporations are verified and proven to be well-advocated. 

The concept of ESG is not new but it has only been emphasized in recent years.

Bangladesh is a developing South Asian country, where corporations understand the value of being responsible.

Many companies voluntarily disclose their efforts on being responsible, to that end.

Their annual reports and website content often have separate CSR sections where they claim to execute many actions that have a positive impact on society.

Bangladesh has gained rapid momentum in its CSR disclosures but is quite new in the ESG spectrum.

A close look at the RMG industry of Bangladesh reveals that the companies are vaguely stating their CSR practices.

Their disclosures are more qualitative than quantitative.

There is, moreover, a lack of consistency in the disclosure pattern in their annual reports over the years. 

CSR or ESG seems like an element that is treated as a competitive instrument rather than making a company a more responsible operator.

A randomly chosen sample of the top 10 RMG companies in Bangladesh was analyzed through their websites and annual reports.

Most of them explicitly announce the measures they undertake to impact the community positively.

The highest emphasis is placed on the societal element of ESG.

Companies are transparent and explicit regarding their societal contribution.

They are not only focused on child labour laws and working conditions anymore; they go beyond the necessities.

They have initiated women’s health centres, empowerment programs, breastfeeding in workplace practices, charity work, sponsorships, disability inclusion programs, and medical centres.

Among them, the most interesting initiative by two companies from the sample has been a “fair price” shop for employees, where they can buy daily necessity products at a subsidized price.

Societal efforts have also been a promotional strategy to attract foreign buyers for decades.

The last element is, of course, governance — which is sincerely being inspected and examined by auditing firms in Bangladesh.

The auditing practice in Bangladesh is strict and structured, making it effective in maintaining the governance practices of companies.

Websites and annual reports vaguely share any agency issues, accountability, board structure transparency, and chain of command elements.

However, auditing firms check these elements annually and report somewhat accordingly which warrants the governance practices overall. 

The topic of ESG is still fresh in Bangladesh and not many research and journal articles are published yet.

This leaves a lot of scope for researchers to invest their time and identify how Bangladesh can enter the ESG conversation like other countries already have.

The corporations should also collaboratively steer towards ESG, now that they have been quite experienced in CSR reporting and practices.

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