The Inevitable Transformation and Reshaping
Citigroup CEO Jane Fraser stated at the 7th Future Investment Initiative (FII) Institute forum in Saudi Arabia in October 2023: "There is now a new 'S' in ESG, and that is Security." This encompasses food security, energy security, but also potentially regional security or financial security.
Citigroup CEO Jane Fraser at the 7th Future Investment Initiative (FII) Institute forum in Saudi Arabia
This is not the first time someone has redefined the term "ESG," but this new "S" reflects a shift in business focus over the past year. In fact, the concept of "security" has always been part of the original "S"—the social aspect of ESG—primarily reflected in issues such as cybersecurity, privacy protection, and supply chain resilience.
Why is Security Now Emphasized as the New 'S'?
Although each ESG topic reflects a company's sustainability capabilities to some extent, it is undeniable that ESG is a broad and relatively fragmented concept. The importance of its components varies depending on the context, similar to how some argue that greenhouse gas emissions are the most important part of ESG.
Over the past two years, "security" has frequently made headlines and has become a priority for governments and businesses worldwide. The Russia-Ukraine conflict, which began in 2022, resulted in a global energy crisis and supply chain disruptions, further exacerbating inflation and slowing economic growth. Two years later, not only does the Russia-Ukraine situation remain unresolved, but the Israel-Palestine conflict and the Red Sea crisis have made more people realize that global affairs are unlikely to return to their pre-pandemic state.
Against this backdrop, the meaning of ESG has also subtly shifted. Shortly after the outbreak of the Russia-Ukraine conflict, voices emerged calling for the inclusion of the weapons industry in sustainable investments—a sector that ESG funds had previously excluded alongside tobacco and gambling. Meanwhile, in March 2023, Silicon Valley Bank (SVB), which had once been highly regarded by ESG investors, collapsed overnight as it failed to withstand a high-interest-rate macroeconomic environment.
The reason why the ESG concept has resonated with companies and financial institutions is based on a key premise: as regulatory measures and public awareness continue to improve, companies will be penalized for prioritizing economic value over environmental and social impacts. As more people engage in ESG practices, the concept will inevitably undergo transformation and reshaping to enhance its applicability.
In a podcast titled "The Road to 2050: Balancing Climate Goals with Energy Security" released by Goldman Sachs, John Goldstein, the Global Head of Sustainable Finance Group at Goldman Sachs, shared an interesting perspective: "E (Environment) is the net present value of S (Social)."
So, what is the net present value of "S" (Security)?