Climate change requires urgent action: a phrase we’ve become all too familiar with, a staggering reminder of the challenges that lie ahead. In three weeks, international leaders will converge on the 28th UN Climate Change Conference (COP28) in UAE, the spotlight is fixed not just on environmental factors but increasingly on the ‘S’ in ESG (Environmental, Social, and Governance). It is possible that within ESG, the social pillar could be our most potent weapon in addressing climate change emergencies.
The importance of the ‘S’ in ‘ESG’
E and G in ESG are always under the spotlight and command widespread attention, with investors keen on environmental sustainability and corporate governance, but the ‘S’ or social component is equally crucial. ‘S’ emphasises human rights, labour rights, and community relations. It focuses on SDGs (Sustainable Development Goals) and the future of generations to come. The centrality of social equity to the climate change discourse is clear: as climate events worsen, they amplify existing inequalities, disproportionately affecting vulnerable communities.
We know that communities with strong social bonds are more resilient to the adverse impacts of climate change. The ‘S’ pillar doesn’t just address societal inequalities—it also ensures that communities can bounce back stronger after climate and other disastrous events, making its role paramount in the climate narrative.
Sustainable finance and investing in a greener future
When we finance humanity, we take care of nature. The impending COP28 stands as a historical juncture for rethinking climate strategies. At the heart of this should be a renewed focus on both the environment and social elements of sustainability. More focus should be built around Community-Based Initiatives and COP28 must emphasise the importance of grassroots organisations, which given the right resources, can foster community resilience and ensure local involvement in climate mitigation and adaptation strategies.
It is vital to speak about the reallocation of financial resources towards social-centric solutions. This includes funding educational campaigns, improving access to healthcare in regions most affected by climate change, and supporting job transitions as we move towards greener industries.
As we work together everyone must ensure that vulnerable groups, including indigenous communities, and those most affected by climate change, have a voice in decision-making processes. Their lived experiences offer invaluable insights into creating viable climate solutions. From the perspective of sustainable finance, it is important to encourage countries and corporations to adopt green bonds that equally prioritise environmental and social returns. This will ensure that as we invest in a greener future, we also invest in a more socially equitable one.
When we finance humanity, we take care of nature. COP28 stands as a historical juncture for rethinking climate strategies. Climate issues have no borders, and neither should our efforts.Ana Nacvalovaite
International collaboration is key
It is no secret that when we strengthen international collaboration and have an open dialogue change happens. Climate issues have no borders, and neither should our efforts. International partnerships, especially between developed and developing nations, are fundamental in help and knowledge transfer, technological collaborations, and financial support that lies ahead of a lengthy collaborative journey.
The intertwined fate of the environment and society cannot be overstated. Just as we cannot address climate change without considering its social repercussions, we cannot hope to build a socially equitable world without addressing the looming shadow of climate challenges. Everyone needs to participate in ‘just transition’.
The connection between the ‘S’ in ESG and climate action is obvious, and COP28 offers an opportunity to emphasise this. The hope is that by COP29, ESG will not just be a corporate benchmark, but an integral roadmap guiding our collective journey towards a sustainable and just future.
Crucially, by aligning efforts across borders and sectors, this collaboration can drive transformative change, address global sustainability challenges, and promote responsible business practices worldwide.
ESG integration on an international scale will mobilise significant financial resources toward sustainable development. By pooling global capital and directing it towards environmentally and socially responsible projects, countries can accelerate the transition to a low-carbon economy, support renewable energy initiatives, enhance sustainable infrastructure, and foster inclusive economic growth. The collective financial strength and expertise that international collaboration brings can unlock innovative solutions and make substantial progress toward achieving the SDGs.
Standardisation of regulations
Standardisation of regulation has been an issue globally, and international collaboration on sustainable finance and ESG can promote transparency and accountability in global markets. By establishing common standards, frameworks, and reporting requirements that are clear and transparent, states can ensure that businesses and investors consider environmental and social impacts in their decision-making processes. This collaborative approach fosters trust and reduces greenwashing and gender washing, it also forms a level playing field for businesses operating across borders.
We have seen that it is by exchanging best practices, lessons learned, and research findings that many states are able to ensure the adoption of sustainable finance and ESG practices. This collaboration facilitates learning from successful initiatives, enhances technical expertise, and promotes innovation in sustainable finance solutions. Through partnerships, countries can collectively develop green bonds, sustainable investment frameworks, and financial mechanisms that address regional and global sustainability challenges effectively and create a foundation for generations to come.
Making ESG in everyday business the norm
Collaboration and support by the governments in setting the regulatory frameworks and policies that promote ESG integration are foundational for making ESG practices the norm. Governments can establish standards, incentives, and penalties to encourage businesses and investors to incorporate ESG considerations into their practices. Policymakers also have the power to create a supportive environment for sustainable finance and responsible business conduct.
Globally and locally, businesses and investors are key stakeholders in driving ESG implementation. Businesses must prioritise sustainable business practices, reduce their environmental footprint, promote social responsibility, and ensure sound governance. Investors, including asset managers, pension funds, and institutional investors, must integrate ESG factors into their investment decision-making processes, prioritise the allocation of capital towards sustainable projects, and engage with companies to improve their ESG performance.
Civil society organisations and academic institutions should not be neglected in this process. Non-profit organisations, environmental groups, social advocacy organisations, and consumer associations play a critical role in promoting ESG awareness and holding businesses and governments accountable. They advocate for sustainable practices, conduct research, raise public awareness, and engage in dialogue and collaboration with other stakeholders to drive change. Collaboration between academia, research institutions, and other stakeholders can foster innovation and inform policy decisions.
Financial Institutions, such as banks and insurance companies have a significant influence on the allocation of capital. They can develop innovative financial products and tools that support sustainable finance and ESG objectives. Along with international organisations such as the United Nations, World Bank, International Monetary Fund, and regional bodies which are able to support capacity-building efforts, coordinate international standards, and advocate for sustainable finance and responsible business conduct at a global level.
Finally, let us not forget that we, the consumers, have the ultimate power to drive demand for accountability, sustainable products and services. Their choices influence businesses to adopt ESG practices. Each one of us holds a key to make a change.
Clark, G. L., Dixon, A. D., & Monk, A. H. (2013). Sovereign wealth funds: Legitimacy, governance, and global power. Princeton University Press. https://doi.org/10.1080/02692171.2013.839504