A left turn: Can ESG principles drive sustainable economic growth under new leadership?

The ESG narrative within the new political context could be beneficial for positioning Sri Lankan businesses to attract investment into the country

Sri Lanka’s new president Anura Kumara Dissanayake has been sworn into office, marking a significant shift in the country’s political and economic trajectory. The new administration is focused on steering the country towards a more sustainable and inclusive economic model, which could significantly impact the business environment and the promotion of Environmental, Social, and Governance (ESG) policies. Could the potential of more left-leaning policies help to foster a more sustainable business economy by emphasising local industries and sustainable practices?

Aligned ideologies

Leftist policies often align with the core principles of ESG and sustainability in several fundamental ways. Both ideological frameworks emphasise the importance of social equity, environmental stewardship, and responsible governance, although they approach these concepts from different angles.

Marxist theory critiques the capitalist system for its tendency to exploit natural and human resources unsustainably for profit which often disregard environmental consequences and social inequalities. Leftist policies, along with ESG notions, typically advocate for regulations that promote sustainable practices. Further, leftist policy seeks to address social inequalities especially emphasising social welfare, labour rights, and equitable distribution of resources. These ideals align with the social goals of ESG, particularly in ensuring fair labour practices, community development, and reducing economic inequality. 

Finally, in terms of governance, both ESG and leftist lines of thinking critique the concentration of power and advocate for more democratic control over economic and political institutions. Leftist policy supports strong governance frameworks that prevent corporate malfeasance, promote transparency, and ensure that companies operate in the public’s interest, aligning closely with ESG principles.

Emphasis on local industries and economic resilience

One of the key aspects of Dissanayake’s approach is the shift towards a “people-centric” production economy. This strategy focuses on reducing reliance on imports and boosting local production, especially in agriculture and small-to-medium enterprises (SMEs). Strengthening domestic production also reduces the country’s vulnerability to global economic shocks, fostering a more resilient economy that is less dependent on foreign debt and imports. 

The left-leaning policies proposed by the new administration emphasise sustainability, aligning economic growth with environmental and social objectives. This includes promoting sustainable agricultural practices, investing in renewable energy, and ensuring that economic development benefits the broader population, not just the corporate elite. Idealistically, this approach also aligns well with the global shift towards ESG principles, making Sri Lanka a more attractive destination for responsible investments.

Challenges: A need for corporate buy-in

While leftist policies can play a crucial role in promoting social equity, environmental sustainability, and responsible governance, their implementation in the business world is fraught with challenges.

Emphasis on regulation, fair wages, and environmental protection can inevitably increase operational costs for businesses. For companies operating in highly competitive markets, these additional costs can make it challenging to maintain profitability and compete with firms in less regulated environments. The lack of adequate human resources and a skilled workforce add to the difficulties faced by businesses where socialist ideals can stunt innovation and growth with a heavy reliance on social programs.

Further, aggressive redistribution policies and heavy taxation can potentially slow economic growth. While these measures aim to reduce inequality, they can also reduce incentives for investment and innovation. The gap between policy objectives and business interests can lead to conflicts that undermine the effectiveness of leftist policies. Fostering a conducive environment for business investment is important to drive economic growth and private sector buy-in is essential to achieving desired social and environmental outcomes.

Balancing ESG goals with business agility: A path to resilience

The ESG narrative within the new political context could be beneficial for positioning Sri Lankan businesses to attract investment into the country. The focus on local industries, environmental stewardship, and social equity resonates with global trends toward responsible business practices. The challenge lies in designing policies that achieve social, environmental, and governance goals without creating excessive regulatory burdens that stifle business agility and innovation. Streamlining regulations while maintaining their effectiveness should remain a priority — in a form of reformed or responsible capitalism.

Considering the recovery state of Sri Lanka’s post-crisis economy, it is crucial that Government continues on a growth-focused trajectory, compliant with the IMF contracts. The country’s recovery hinges on adopting sustainable practices that address both immediate financial concerns and long-term sustainability challenges. Integrating ESG principles into business and Government strategies can help mitigate risks related to environmental degradation, social inequality, and governance failures. Sri Lanka is particularly vulnerable to climate-related risks, global market shifts, and social upheaval, making ESG-aligned policies essential for safeguarding its future — leveraging the current political climate to do so.

(The writer is a policy specialist with over a decade of experience in international development and holds an MSc from the London School of Economics and Political Science, UK. Views are her own and not a reflection of her employer or associates. She can be reached via email at [email protected].)