Questions and challenges related to sustainable and responsible business have been obvious for decades. Most of the ESG principles we hear about today have been devised thanks to various international initiatives, agreements, protocols and events over the past 35 years. However, the general public’s perception of what exactly is meant by that, which tools to apply and how to be sure that we are on the right path to sustainability, sometimes create serious dilemmas and doubts, both in business and in the entire expert community. This is why it is necessary to shed light on all these issues through the lens of previous sustainability instruments compared to the latest ones, which present new requirements and challenges to companies. We spoke with Dušan Stokić, MBA, head of the Environment, Technical Regulations, Quality and Social Responsibility Centre from the Chamber of Commerce and Industry of Serbia, about which countries are seriously implementing ESG principles and how Serbia compares to them, similarities and differences between corporate social responsibility (CSR) and ESG principles and other important aspects of responsible and sustainable business.

Companies today, perhaps more than ever before, are faced with numerous challenges, impacts, disruptions and business risks. Safety of supply of raw materials and energy, new regulatory requirements, community concerns about environmental impact, demands related to human and employee rights, climate change mitigation, decarbonization and digitalization, verified sustainability reporting and the like, require radical changes in business approach, strategic planning and maximum engagement of all resources to adapt to changed circumstances.

“Sometimes it seems that even large international companies, as well as those in Serbia, wander a bit when it comes to aligning their business strategy and policy with the new market circumstances and demands, investors, consumers and the general public. Therefore, it should not come as a surprise that, first of all, small and medium-sized companies and small business owners have difficulty understanding terms such as ESG, CSR and SDG and especially how to apply them at the organizational level. At the same time, consumers and service users have increased their demands over time and significantly raised the bar of their expectations, which now increasingly exceed good service and a quality product,’’ explains Mr. Stokić.

IN FOCUS:

• EFFECTIVE APPLICATION OF THE GREEN CONSTRUCTION PRINCIPLES, EMPLOYEE EDUCATION AND PARTNERS
• CHARGE&GO EXPANDS ITS NETWORK TO THE REGIONAL MARKET IN 2024
• SUPPORTING A BETTER LIFE FOR CITIZENS AND A MORE ENVIRONMENTALLY RESPONSIBLE SOCIETY

Implementation of ESG principles

A study published in 2021 in the Journal of Business Perspective showed the kind of approach that countries around the world have towards the implementation of ESG principles. The study included developed and emerging countries and based on the results obtained, they were classified into four different categories. Norway, Sweden, Denmark, Finland, the United Kingdom, Belgium and France are classified as countries with a well-developed ESG framework and excellent ESG results. Countries who se ESG framework is rapidly improving and which achieve medium to high ESG scores are Germany, Italy, USA, Australia, Switzerland, Canada, Japan, Brazil and South Africa. On the other hand, Singapore, India, China, the Philippines, Malaysia and Argentina are categorized as countries with a developing ESG framework, while Russia, Indonesia, Thailand, Nigeria and Vietnam are classified as countries in an early stage ESG framework due to their relatively low ESG results.

In terms of Serbia, Mr. Stokić says that an increasing number of companies are becoming aware of the need for an integrated approach to business, which means that caring for environmental aspects, social issues and good management of the organization must be treated the same as the economic and financial parameters of business. Moreover, from a long-term perspective, proving to key stakeholders that the company monitors, measures and improves its processes and activities related to the environment, employee care, product safety, transparency and availability of business results plays a crucial role in maintaining their competitiveness and business sustainability.

Regarding sectors that are most often associated with the implementation of ESG principles, the vehicle manufacturers that commit to making their vehicles more sustainable in terms of the negative impact on the environment should lead the way. This also goes for major oil and gas companies needing to respond to the demand that the industry should expedite the adoption of modern tools and invest in new technology to achieve net zero emissions and climate change mitigation.

Practice shows that there are numerous similarities, but also differences, between the concept of corporate social responsibility (CSR) and the concept that includes the environment, society and corporate governance (ESG), while taking into account the United Nations Sustainable Development Goals (SDG). In the last twenty years, a lot of work has been done to promote and implement CSR, a business model that is regulated by the organization itself, and whose main goal is to positively contribute to society and the environment. As Mr. Stokić explains, by its nature, this is a self-regulating concept based on qualitative information. The ISO 26000 international standard – Guidance on Social Responsibility – gives practical instructions to organizations on how to define social responsibility, how to recognize the key issues to be addressed and how to practically realize the CSR strategy.

According to this standard, the social responsibility of an organization implies consistent compliance with laws and regulations (which may differ from country to country) and compliance with international norms of behaviour, expectations of interested parties, as well as own/ internal requirements, rules and standards. Only when all these are met, we can talk about the development and implementation of social responsibility by the organization. If a company’s CSR is well thought out and implemented, it will boost its public image and reputation with key stakeholders. The most common form of communication regarding an organization’s CSR is the annual CSR report (or report on sustainable development), which can be based on an internationally recognized methodology (GRI, UN Global Compact, OECD Guidelines, etc.). Organizations must adopt CSR in an authentic way that is closely aligned with the company’s strategy, goals, culture and core values, says our interlocutor.

Although there are similarities between the CSR and ESG concepts, we also have to understand their differences, primarily in the nature of the concept itself, the measurability of goals, the assessment of materiality and the management of financially tangible risks. The key differences can be reduced to the two most visible. First, identifying and managing financially tangible ESG risks and opportunities is a key part of ESG strategy and this is significantly different from CSR. While a CSR strategy is more likely to align with and support a company’s values, the information a company discloses in ESG reporting is based on its materiality to the company’s operations and business model. Second, while corporate social responsibility (CSR) initiatives can certainly include measurable goals and reporting, with ESG this is significantly more pronounced. Companies that report on ESG metrics have to collect and publish a significant amount of quantitative data — although qualitative data also plays a key role in ESG reporting.

Prepared by: Katarina Vuinac

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