THE REVIEW OF APPROACHES TO ESG (ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE) IN POLITICAL SCIENCE

THE REVIEW OF APPROACHES TO ESG (ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE) IN POLITICAL SCIENCE

Anna Pesotskaya

2^nd year master student, Saint Petersburg State University

Russia, Saint Petersburg

Various thinkers have considered the problem of social responsibility of capital since the formation of capitalist relations. In particular, A. Smith and D. Ricardo, the classics of political economy, wrote the importance of the moral qualities of the entrepreneur. The founding fathers of capitalism were in the framework of Protestant ethics, so they viewed market relations, among other things, from a moral position. The activities of both worker and employer were seen as a godly endeavor for the good of society. Also, from the beginning of entrepreneurship, charity was encouraged as a concern for neighbor. However, as capitalism developed, the religious and ethical component weakened, with the result that market fundamentalists began to see entrepreneurship as separate from concern for the needy, and private property guarantees became self-valued.

In the second half of the 20th century, concepts of social partnership became popular in political and economics, considering the interaction of workers, employers and the state in terms of achieving a mutually beneficial result, without antagonism. L.L. Tonysheva, D.V. Chumlyakova in their monograph consider four paradigms in the formation of social responsibility of business [7].

The social foundations of economic activity were considered by utopian socialists (R. Owen, C.H. Saint-Simon, Ch. Fourier), who viewed the development of society during industrial capitalism and the initial accumulation of capital. They viewed man as a hired worker, a highly specialized appendage necessary to maintain machines and equipment. The utopian socialists saw the ideal model of the future, within which man lives in maximum well-being, as a labor commune.

In the 20th century such economists as G. Bowen, K. Davis, J. McGuire, A. Carroll, who wrote scientific works about the social role of business, began to consider the social responsibility of business from the position of human capital. According to these ideas, investments in education and science are "hidden investments" of economic growth and social well-being.

The fourth view on social responsibility of business appeared at the end of the 20th century appeared from "managerial positions" and is connected with such scientists as E. Freeman, J. Post, L. Preston, S. Sachs and is connected with such concepts as integration into stakeholders, corporate citizenship, triple bottom line.

An important stage in the formalization of social responsibility of business was the emergence of the concept of corporate social responsibility (CSR). This area of management research began to emerge in the early 1950’s and became particularly important in the 1990’s. CSR is a difficult concept to define precisely; in general terms, it is described as "the behavior of business that is aimed at solving social problems in society that are not usually solved by increasing profits" [9]. The goal of CSR is to seek and create public goods. The fundamental premise of CSR is to generate profits while improving the quality of life of society, especially for the less fortunate and disadvantaged segments of society. G.Palazzo, Professor of Ethical Business at the University of Lausanne and A Georg Scherer, Chair of the Department of Business Administration and Firm Theory at the University of Zurich, understand the complexity of the category and define CSR as an umbrella term because it includes all discussions and perspectives on the role and responsibility of business toward society, whether in the field of business ethics, stakeholder theory or business and society [4].

А. Carroll, an American CSR researcher, believed that a firm should strive to make profits, comply with the law, be ethical, and be a good corporate citizen [2]. By the 1990’s A. Carroll formalized CSR theory as a multi-level pyramid including the following top-down components: philanthropic activities (non-profit activities, voluntary support in community development), ethical responsibility (meeting the expectations of society), legal responsibility (necessary for legitimate business conduct), economic responsibility (the basic function of the company) [2].

G.L. Tulchinsky, Doctor of Philosophy, Professor at the Department of Applied Political Science of the Higher School of Economics, includes two forms in CSR - social investments and social partnership. Social investments imply the investment of monetary resources in solving problems of society and companies concerning society in general [8]. Social partnership is defined as a "manifestation of social responsibility in the form of cooperation between the authorities, business and organized society to solve specific social problems, contributing to the consolidation of society, harmonizing the interests of participants in socio-economic, political and cultural development" [8]. Yu.E. Blagov gives the following definition: "CSR is the company's rational response to a system of conflicting stakeholder expectations, aimed at the company's sustainable development" [1].

Corporate social responsibility is based on interaction with stakeholders. Business management is not simply engaged in the organization of commercial activities, but is engaged in a dialogue with actors who influence the company and have an interest in its activities. Stakeholders can be internal or external. Internal stakeholders include the company's employees and shareholders. External stakeholders are consumers, suppliers, representatives of the state, non-profit organizations (NPOs), representatives of the local community. When interacting with stakeholders, the company seeks not just to finance projects based on its interests, but to enter into a dialogue. This dialogue is based on taking into account the opinions of both the company and the stakeholder. Because of this dialogue, in theory, mutually beneficial relations should be established that reduce risks both for the business entity and for the entities that have a relationship with it.

During 2000-2010 CSR ideas began to be raised by organizations that regulate investment activities. In 2009, the UK Social Investment Forum changed its name to the UK Sustainable Investment and Finance Association. Similarly, in 2011, the US Social Investment Forum was renamed the Forum for Sustainable and Responsible Investment. At the same time, the company's management noted that the new name was intended to better reflect the current realities of a changing world.

In 2006, the United Nations formed the Principles of responsible investment. The example of Australia allows us to trace the decades-long evolution of terminology. As early as 1999, the Ethical Investment Association was founded in Australia. In 2002, the association launched an annual survey called Socially Responsible Investment in Australia, while retaining the name of the association itself. Finally, in 2007, the Association was renamed Responsible Investment. The name was changed to Responsible Investment Association Australasia (RIIA).

Socially-oriented approaches to doing business were developed internationally as part of the Sustainable Development Goals (SDGs) developed by the UN General Assembly in 2015. These goals include the introduction of energy-saving technologies, reducing inequality, providing quality education accessible to all, combating climate change, etc. Based on the UN SDGs, a new concept ESG began to develop in global business practice. This acronym translates as Environmental, Social, Corporate Governance. The ESG criteria are developed all over the world, which are followed by the business structures seeking to achieve global leadership. ESG activity implies that the company is committed to caring for the environment, caring for society (including workers, suppliers and customers), and also corporate management on the principles of increasing the validity of payment, increasing the role of staff in the company management, anti-corruption and fraud within the organization. Often the concepts of Corporate Social Responsibility and ESG are used as synonyms in both scientific and business literature, as well as in the media.

Analyzing the scientific literature considering the problems of CSR and ESG, the following distinctive features of these concepts can be highlighted:

1. ESG pays more attention to environmental aspects, while within the framework of CSR following the «green economy» is an important component of the strategy of a socially responsible company, but is not a key one;

2. Environmental, social, and corporate governance (ESG) is usually considered within the framework of investment activity as a business practice which increases the investment attractiveness of a company, while CSR does not emphasize this aspect of company management.

3. ESG is based on 17 Sustainable Development Goals, which were formulated in 2015 by the UN General Assembly. The ESG-framework accommodates three dimensions: E - environmental, S - social, G - Governance. Each dimension has its own definition and factors.

In business practice, there is often a confusion between achieving the UN Sustainable Development Goals (SDGs) and company sustainability. Of course, following the UN SDGs is intended to contribute to achieving sustainability in business development, since the company can mitigate possible risks by collaborating with stakeholders. However, a situation may arise when a company follows the UN SDGs, but doesn’t achieve sustainability, because the company has spent excessive funds on social projects, despite the growth of financial indicators.

There is also criticism of the ESG concept by supporters of classical political economy by neoclassic and libertarians. According to their worldview, social obligations that a company voluntarily accepts are contrary to the idea of free enterprise. According to this position, ESG projects are a form of pressure of the state and society on business, when companies that do not comply with these social and economic standards cannot compete with those business entities that comply with them. Scientists and business representatives who adhere to this point of view believe that ESG practices are a form of symbiosis between part of big business and the authorities and the purpose of preventing competitors from entering the market. The second part of the criticism of ESG is that companies cannot perform social functions as effectively as the state, so the adoption by business of functions that are not inherent to it only makes them worse.

J. Hill uses the term to define a specific portfolio investment approach in which an investor invests in public debt and/or equities, often through mutual funds or ETF funds. Typically, the goal of such a portfolio is to generate at least a below-market return when investing in assets that are positive in terms of ESG factors [3].

In contrast, W. Sherwood and J. Pollard are proponents of the second approach, defining ESG investing as "a conceptual principle of research and investment strategy that evaluates environmental, social, and governance factors as non-financial aspects of a security's valuation, return dynamics, and risk profile" [5].

It is worth noting that terminology in the field of non-financial investment is not limited to different interpretations of the term "ESG-investing" itself. This field includes a number of concepts: sustainable investment, ethical investment, socially responsible investment, responsible investment, impact investment, mission investment. The line between these concepts is sometimes so thin that some experts are inclined to ignore it in principle. They believe that there is no fundamental difference between the above-mentioned concepts, because, in fact, they all have the same meaning and, therefore, can be used interchangeably [5].

In terms of interaction with the political agenda, ESG is guided by the UN Sustainable Development Goals. At the same time, the influence of state institutions on ESG practices is indirect. On the one hand, the government is seen by socially oriented businesses that implement responsible investing as a stakeholder with whom they need to interact, finding common ground and working out options for cooperation. On the other hand, for ESG the key direction is adherence to international standards in social and environmental activities as well as in issues of corporate governance. Analysis of global ESG practices shows that although the companies implementing them are trying to adapt to national specifics, there is still a general global trend of socially responsible investing.

The concept of ESG is closely intertwined with the rise of left-liberal ideas (social liberalism) on a global scale. This system emphasizes the inviolability of private property and entrepreneurial freedom, but public institutions do not function in isolation from business, but actively interact with it. Business is politicized, it is not just engaged in regular commercial activities aimed at selling goods (or providing services), but acts as a carrier of a certain ideology. Companies following the ESG fight discrimination based on gender, race, religion, social orientation, participate in climate preservation, strengthen institutions of global partnership, and emphasize the importance of fair justice and the need to develop civil society. In certain situations, socially oriented companies make over political demarches. For example, many leading global brands supported the Black Lives Matter campaign and supported anti-Russian rhetoric after the start of the Russian Armed Forces' military operation in Ukraine. The latter example is the most telling: international companies voluntarily withdrew from the Russian market, worsening their economic performance and reducing their customer base, but assumed that such activities would support sustainability from brands internationally.

References:

1. Blagov Yu.E. Koncepciya korporativnoj social'noj otvetstvennosti I strategicheskoe upravlenie / Yu.E. Blagov // Rossijskij zhurnal menedzhmenta. – 2004. – No3;
2. Carroll А.В. Corporate Social Responsibility: Evolution of a Definitional Construct. / A.B. Caroll // Business and society, 1999. Vol. 38, No3. Pp. 268-295;
3. Hill, J. Environmental, social, and governance (ESG) investing. A balanced analysis of the theory and practice of a sustainable portfolio. – London: Academic Press, 2020;
4. Scherer A.G., Palazzo G. Toward a Political Conception of Corporate Social Responsibility: Business and Society Seen from a Habermasian Perspective // Academy of Management Review – 2007. - No4.
5. Sherwood W., Pollard J. Responsible investing: An introduction to environmental, social, and governance investments. - New York: Routledge, 2019;
6. Schueth S. Socially responsible investing in the United States // Journal of Business Ethics – 2003. - 43(3) – Pp. 189–194;
7. Tonysheva L.V. Integraciya social'noj otvetstvennosti biznesa v sistemu strategicheskogo upravleniya organizaciej: monografiya / L.L. Tonysheva, D.V. Chumlyakova - Tyumen': TIU, 2016 – 175 p.;
8. Tul'chinskij G.L Korporativnye social'nye investicii i social'noe partnerstvo: tekhnologii i ocenka effektivnosti. Sankt-Peterburg, Otdel operativnoj poligrafii NIU VSHE — Peterburg, 2012 — p. 236;
9. Wallis M., Klein C. Ethical requirement and financial interest: a literature review on socially responsible investing // Business Research. - 2015. - Vol. 8. Iss. 1. Pp. - 61–98;