Corporate governance has been defined as the set of rules and practices that direct and control a corporation toward its goals and objectives, while encompassing a broad web of relationships between the focal corporation and its diverse stakeholders (Solomon, 2007). The traditional conception of corporate governance was that of ensuring that the firm continually targeted profit maximization, reflecting the neo-liberal ideology. More recently, corporate governance has come to be redefined as ensuring that the interests of other stakeholders such as employees, customers, and the community are also fully respected (Yung, 2021). Reflecting this development, we use the term environmental, social, and corporate governance (ESG), which is not only about legal compliance, but also entails the adoption of arrangements that are conducive to the common good, such as accountability, transparency (Bain & Band, 2016) and sustainability (Elkington, 2006).
The environmental component of ESG casts companies as stewards of nature, responsible for reducing environmental risks through their daily operations across all supply chains. Associated responsibilities include preserving scarce natural resources and habitats, reducing greenhouse gas emissions from energy use and industrial processes, and humane treatment of animals. The social component of ESG requires that companies commit to responsible management of relationships with multiple stakeholders such as employees, customers, suppliers, and members of the communities where they operate. For example, responsible management of employee relations includes emphasis on cooperation and mutual benefit, safe and healthy working environments, and respect for employee diversity and gender equality. The governance component of ESG emphasizes the need for fairness and transparency regarding matters such as executive pay, senior leadership appointments, and prevention of bribery and corruption (Plan A Academy, 2021).
Responsible ESG has gained recognition as a corporate imperative for several reasons. First, companies are facing increasing pressure in that direction from legislators, investors, consumers, and media. Second, responsible ESG has become an attractive branding factor for companies and employers. Third, evidence has indicated that companies implementing responsible ESG practices have better financial performance, higher employee productivity, and fewer legal fines and sanctions. Fourth, conversely, companies that do not effectively engage in ESG practices have higher costs of capital and higher business volatility arising from skepticism about the authenticity of their financial reports, and concerns about the risk of labor strikes or other types of governance irregularity. Fifth, it has been inferred from the above that responsible ESG accounts for why some companies outperform others and how investors make their decisions (Plan A Academy, 2021). In addition, prior literature indicates that effective corporate governance results in distinctive human resource capabilities (Pelayo-Maciel et al., 2012), and that there is a positive relationship between employees’ empowerment, as a reflection of the social component of ESG, and the strategic success of corporations (Abuzaid, 2018).
Conventional approaches to corporate governance are based exclusively on the neo-liberal conception of the firm, with a narrow focus on aligning the interests of agents with principals (shareholders) (Turnbull, 2011). Considering this to be an inadequate basis for ESG, Young (2010) developed a framework for corporate governance that incorporated Confucian virtues. Lam (2016), Low and Ang (2013), and Miles and Goo (2013) argued, similarly, that Confucian ethics, firmly and sincerely embraced, can raise the standard of ESG. Accordingly, we infer the following:
Worked example: mapping CLP’s ESG report to the five Junzi virtues
China Light & Power (CLP) was incorporated in 1901 in Hong Kong and has been operating and investing in the energy sector in the Asia–Pacific for 120 years, with subsidiaries in Mainland China, Australia, Thailand, Taiwan, and India. As illustrations of how ESG reporting may convey the five Junzi virtues, we shall analyze extracts from the firm’s ESG report (CLP, 2020c) along with references to related documents, namely, CLP’s (2019) climate vision for 2050, CLP’s (2020a) value framework, and CLP’s (2020b) code of conduct, focusing on the Hong Kong entity.
Our methodology for the thematic coding of CLP’s (2020c) ESG report was informed by Fereday and Muir-Cochrane (2006), and is explained next. At the outset, the authors read and re-read that ESG report to get familiar with the contents. The initial coding was then undertaken by the second author, who used the concepts of the five Junzi virtues as reference points for categorization. The second author began with the “winnow” process (Guest et al., 2012) by identifying passages in the text (i.e., first order quotes) that relate to CLP’s good ESG practices, and disregarding unrelated passages in the text. The second author then developed a set of second order themes based on the first order quotes, and mapped the second order themes to specific Junzi virtues, which constituted the third order themes. Following this, the first author conducted a round of checking on the second and third order codings, proposed minor modifications to the wording of some of the second order themes, and sought feedback from the other two authors about the proposed modifications. Thereafter, all three authors engaged in an additional round of discussion, through which they reviewed the alignment between first order quotes, the second order themes and the third order themes, and finally confirmed all the codings. Table 2 gives examples of our thematic coding of CLP’S reported ESG practices, and these are further explained below.
Possible signs of “Ren” are reports of supporting the community and employees (Tian et al., 2021). In the ESG report, CLP (2020c) expresses a desire to support employees, customers, and those in the wider community as they face contemporary challenges.
Supporting the community
In 2020, CLP spent more than HK$200 million on community support programs and set aside another HK$160 million in 2021 (CLP, 2020c, p.4).
Supporting and helping employees in challenging times
Amid the COVID-19 crisis, as soon as in January 2020, the firm embraced measures to safeguard employees’ health and well-being, such as flexible working arrangements, equipment for remote working, and special leave for employees for purposes of self-isolation, care, and family reunion (CLP, 2020c, p.84). CLP addressed stressors arising from COVID-19 through its “Boost Health and Wellbeing” training program (CLP, 2020c, p.93), and rolled out its Home Loan scheme, under which employees receive financial support to buy a first home (CLP, 2020c, p.93).
A corporation with “Yi” engages in righteous business practices while requiring employees to do likewise. In the ESG report, CLP (2020c) claimed to be embedding sustainability advocacy, combatting climate change, and promoting fair work practices and equal opportunity.
Embedding sustainability advocacy
At board level, CLP has a Sustainability Committee and an Audit and Risk Committee to address sustainability issues (CLP, 2020c, p.28). At the management level, CLP has a director-led Group Sustainability Department, with input into strategic management (CLP, 2020c, p.29).
Combatting climate change
CLP made a set of pledges regarding decarbonization in its policy document on Climate Vision 2050 (CLP, 2019). Pledges include the following: “not adding new coal-fired generation assets” and “progressively phasing out the remaining coal-based assets before 2050” (CLP, 2020c, p.42). CLP provides online assessment and benchmarking tools to customers to help them improve energy usage management (CLP, 2020c, p.195). As a contribution to electric vehicle infrastructure, CLP provides “free charging facilities to the public and is helping individual and commercial organizations install relevant facilities” (CLP, 2020c, p.57).
Upholding fair compensation, employee rights, and equal opportunity
In 2018, CLP earned certification as a Fair Wage Employer (CLP, 2020c, p.94). The firm claimed to have adopted rigorous measures to prevent child or forced labor in its operations and to provide related “training for key contractors who provide manpower or services to operations” (CLP, 2020c, p.94). Regarding gender diversity, CLP recognized the need to address the problem of “significant underrepresentation of women in operational professional and leadership roles” (CLP, 2020c, p.82).
A corporation with “Li” is expected to have morally acceptable norms, rites, and rules (Kwong et al., 2015), to interact with stakeholders modestly and respectfully, and to seek a harmonious and win–win resolution to conflicts (Cua, 2007). In the ESG report, CLP (2020c) claimed to have built collaborative partnerships with external parties and to promote mutual respect.
Building collaborative partnerships with external parties
CLP seeks collaboration with entrepreneurs to enhance the Group’s energy businesses and generate opportunities in growth markets (CLP, 2020c, p.72). To that end, the firm sponsors outside accelerator programs on smart and clean technologies (CLP, 2020c, p.72).
Promoting mutual respect
In its Value Framework (CLP, 2020a), the firm committed to the following: “trust(ing) and respect(ing) colleagues … respect(ing) differences and communicat(ing) with each other openly, honestly and frequently and fostering open, two-way communication, encouraging participation and discussing issues and concerns raised by anyone” (CLP, 2020a, p.4). CLP also committed to “treating every customer with courtesy and respect” (CLP, 2020a, p.3). Furthermore, the firm claimed to have embedded “human rights in the promises made to stakeholders about how CLP upholds its values” (CLP, 2020c, p.82), and stated that it requires “business partners and suppliers to do the same” (CLP, 2020a, p.3). A key principle within the firm’s Code of Conduct (CLP, 2020b) is “Respect for People.” Refresher training regarding this and other principles in the Code is provided for all CLP employees every 4 years (CLP, 2020c, p.105).
“Zhi” constitutes a body of knowledge and capabilities that equip the organization and its managers to be sensitive to the changing circumstances, and to formulate effective judgments and responses (Thompson, 2007). The need for “Zhi” requires firms to engage in continuous learning, and for CLP, this is reflected in a quest to harness innovations to tackle external challenges and defend against cyber-attacks.
Harnessing technological innovations
Arising from the accelerator programs mentioned above under “Li,” CLP has aggregated some third-party services on its Smart Energy Connect consultancy platform, as resources for helping business clients find energy-saving solutions (CLP, 2020c, p.72). Besides, CLP is using robots for inspecting underwater cooling structures at power plants, reducing the need for life endangering diving activities (CLP, 2020c, p.68).
Building cyber resilience
In 2020, CLP set up a Group Cyber Security team, composed of security professionals recruited from the industry, tasked with providing “physical, personnel and cyber security capability and expertise” (CLP, 2020c, p.77). CLP has sought to establish a cyber risk-aware culture by delivering security awareness and training programs for employees, who are all expected to join in cyber defense (CLP, 2020c, p.77).
A company can demonstrate “Xin” by providing full disclosures, and subjecting these disclosures to external verification. CLP’s enhanced disclosures, and the firm’s reporting on personal data protection may indicate responsible operations and honesty to stakeholders.
CLP has followed the recommendations of the G20 championed Task Force on Climate-related Financial Disclosure (CLP, 2020c, p.41). The corresponding data items are tabulated in a section on “Standard ESG Disclosures” with footnotes indicating how these were compiled (CLP, 2020c, pp. 96–102). Attached to the ESG report is an assurance report by auditors, PWC, listing the items that they could verify, and these items are also highlighted in the ESG report (CLP, 2020c, pp. 96–102).
Protecting personal data
In 2020, although CLP Hong Kong reported that there had been no cases of customer data loss, there was one case where CLP’s Group Cyber Security Team was alerted through standard reporting procedures about the fraudulent use of CLP’s name. The firm promptly warned stakeholders about that scam (CLP, 2020c, p.80).
Alignment with the United Nations’ Sustainable Development Goals (SDGs)
The ESG report (CLP, 2020c) refers in various places to the firm’s policies in relation to four of the SDGs, i.e., Climate Action (SDG13), Affordable & Clean Energy (SDG7), Decent Work & Economic Growth (SDG8), and Industry, Innovation & Infrastructure (SDG9). This, along with the inclusion of data about key sustainability ratings and ESG recognitions by global institutions (see CLP, 2020c, pp. 32–33), is an indication that the firm has been seeking to address universal ethical norms and standards.