Is the ‘G’ Element in the ESG Concept Unjustifiably Neglected?

Photo: Courtesy of Milica Pešterić

When analyzing individual ESG elements, the ‘G’ element is often overlooked due to the emphasis on climate risks, social implications and other ‘E’ and ‘S’ factors. In light of the growing recognition of global diversity and income disparity, corporate governance is emerging as a key component of the ESG concept.

The ‘G’ element includes decision-making factors, from policy-making by sovereign states to the distribution of rights and responsibilities between the various governing bodies of companies, including boards, managers and shareholders. These management factors include rules and procedures for states and companies, allowing investors to explore appropriate management practices, much as they do for environmental and social factors.

In focus:

Management composition, inclusiveness and diversity

Gender diversity and equality is one of the key issues of corporate governance, with many investors demanding greater representation of women on boards and executive leadership and equal compensation and advancement opportunities for women. More and more companies highlight the financial benefits of creating inclusive workplaces to increase diversity.

Many studies have shown that companies with more women on boards and executive leadership positions achieve better financial performance than less diverse companies.

A significant contribution to the improvement of gender equality in Serbia could be achieved by implementing the European Union Directive on the promotion of gender equality in the boards of directors of companies, better known as the EU Women on Boards Directive. This directive is a key step towards achieving gender balance in the business sector, encouraging the active participation of women at the highest decision-making levels in companies. With its implementation, Serbia could make significant progress in creating an inclusive business environment that values and supports the contribution of all members of society, regardless of gender.

Foto-ilustracoja: Pexels (Vlada Karpovich)

Currently, the main sources of rules governing corporate governance in Serbia are the Law on Companies and the Law on the Capital Market, which unfortunately still do not contain provisions that would contribute to the facilitation of gender equality in company boards or the provisions that would correspond to the intention of the European legislator.

Corporate governance rules are usually systematized in internal corporate governance codes. Some examples of corporate governance codes in Serbia are those offered by the Chamber of Commerce, which also do not mention or regulate the equal representation of women in companies’ management bodies. Adequate changes to the aforementioned regulations, i.e. their alignment with the rules of the aforementioned directive, could significantly encourage and contribute to the representation of women on boards, which has proven to be a good business practice in terms of all aspects of business, especially more efficient decision-making and achieving better financial results of companies.

The Law on Gender Equality is currently in force in Serbia, which, when it comes to gender representation in company boards, obligates a public body to exercise gender balance. This provision should not be limited to administrative bodies in public services but should also be applied to companies regardless of their legal form.

Milica Pešterić

Read the story in the new issue of the Energy portal Magazine RESPONSIBLE BUSINESS