07 Dec 2021

The New Landscape of Corporate ESG


Dr. Karthik Balakrishnan

President and Co-Founder

The reality facing enterprises now requires a strategic policy and transformation regarding their ESG and climate change positioning. Too often, the response has been to passively react via planting some trees here, buying some carbon credits there, or some other hodge-podge bits overlapping sustainability or climate or whatnot. However, these challenging times are also the critical opportunity to establish an integrated ESG and carbon strategy rigorously framed on disciplined risk management and positive financial performance metrics.

ESG is still for many, an aspirational haze, rapidly shifting in terms of both more subtle societal expectations and increasingly, regulatory oversight and control. Navigating it has thus far been with a multitude of incongruent and incomplete performance metrics scattered across different activities – all entirely accepted as purely cost-side solutions. “Just buy some carbon credits and issue a press release”.

The reality, however, is that carbon credits are themselves difficult – prices are unstable, forms of the credits range from non-fungible yet reputable to sketchy, the markets themselves are nascent, supply is inherently challenged and volatile, and credits themselves expose buyers to compounding risks as wildfires become more frequent and tree diseases spread. At the same time, real ESG transformation through investing in capital assets, new business lines, improved efficiency, and so on can lead to improved revenues, reduced risk, and improved profits.

What is needed now in the face of this global paradigm shift for companies, is a comprehensive ESG strategy encompassing organizational and asset transformation, rigorous financial metrics, and risk management.

First, enterprises need to take control over their plans, bringing predictive modeling and leveraging AI and ML techniques to impose structural discipline and a visual conformity with which meaningful ESG plans can be constructed and key metrics identified. With such understanding of the plans can overall corporate goals and targets then be properly contextualized, not only for a team or department, but across an enterprise, with real data  driving benchmarking and operational improvements.

Second, based on such analytics, an asset transformation strategy which integrates carbon credits functionally where necessary (for generation, trading, hedging and synthetic asset management purposes) should then be structured. Rather than a short-term “cookie-cutter” solution, carbon credits could then be properly utilized as a unit of value translation upon which ESG performance metrics can be conformed and managed.

Third, with such control over their own data and understanding of the tools, senior management and leadership can then take affirmative control over their own desired corporate positioning and forge a properly unique direction rather appropriate for the desired risk management evolution for the longer-term.

In this climate challenged landscape, carbon and ESG need not be seen as a burden or cost.  Properly understood, their management can unlock further value.  Integrating ESG and carbon management is the pathway for enterprises to utilize carbon credits proactively, link ESG metrics to positive financial performance, and regain control over their strategic direction.

William I.Y. Byun is Senior Partner at GAV Conservation Management, and an advisor for energy, infrastructure, investment and project development worldwide.

Illustration by Stefan Gustafsson of Stefangus Design.

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