ARTICLE ESG principles and their impact on corporate world

ARTICLE ESG principles and their impact on corporate world

      Article 74 (3) of the Constitution of the Republic of Serbia stipulates that Everyone will be obliged to preserve and improve the environment
In the wake of all events happening around the world and severe climate impact of such events, but also keeping in mind the fact that many businesses rely on traditional corporate models, three letters have risen to prominence – ESG.
These three letters seem to be setting the course of the future of this planet, and in this article we will provide a general outline of the phenomenon.


ESG – What it stands for
ESG stands for Environmental, Social, and Governance. These are key factors when evaluating the existing operations and practices of a company in terms of sustainability, and ethical impact of its business. The “sustainability of business” has been a hot topic for a while and these three words are the reason for it.


E – Environmental

This category encompasses the impact  that any company activity has on the natural world, such as climate change, pollution, resource depletion, and waste management. A company with good environmental performance is one that takes measures to minimize its environmental footprint and reduce the negative impact on the planet. The following factors, among others, are in focus:
•    Climate change and CO
2 emissions;
•    Biodiversity;
•    Air and water polution;
•    Waste management;
•    Deforestation.


S – Social

The impact a company has on society is being observed in a social context, including factors such as 
•    Labor practices, 
•    Human rights, 
•    Employee diversity and inclusion, 
•    Community engagement, 
•    Product safety, 
•    Data protection and privacy, etc. 

The companies that prioritize social responsibility aim to create positive outcomes for all stakeholders, including employees, customers, and wider community. 


G – Governance

Focuses on the management and decision-making processes, including the work of the board of directors, executive compensation, transparency, and accountability. Strong governance practices are crucial for maintaining the trust of stakeholders and ensuring long-term sustainability. Therefore some key factors are: 
•     Structure of the Board of Directors;
•     Bribery and corruption;
•     The whistleblowers policy.

The ESG has gained importance as investors and consumers have become more aware of the impact that corporate practices have on the world around us. Companies that prioritize ESG are often seen as more responsible, trustworthy, and sustainable, and may be more attractive to those investors looking for long-term value.


Regulation of the ESG
In a transition to a better, greener and more transparent environment key national and international players started adopting regulations that tend to encompass such principles. One to mention is the commitment of the United Nations to define the Sustainable Development Goals - a set of 17 targets created to lead to peace and prosperity - as part of the 2030 Agenda, which influences the promotion of environmental and social responsibility.

Other binding acts:

  1. - EU Sustainable Finance Disclosure Regulation (SFDR): This regulation, which came into effect in March 2021, requires financial market participants to disclose information on how they integrate ESG factors into their investment decision-making processes. It also establishes a classification system for sustainable economic activities (EU Taxonomy) and requires companies to disclose the proportion of their revenues that come from environmentally sustainable activities. 
  2. - Corporate Social Responsibility laws (France): In 2017, France passed this law requiring companies with over 5.000 employees to implement a CSR plan that includes measures to reduce their environmental impact, promote social responsibility, and improve their governance practices.

These acts, and many others, are not equally binding on all subjects and their implementation depends on the jurisdiction, yet they do pose an obligation of submitting ESG reports. It is worth mentioning that there is no universal “ESG Act“.  These principles are rather scattered in multiple individual acts which, among the key topic they regulate, contain some or most of these principles.
Such task is not an easy one either, due to the fact that the ESG principles are not standalone principles, capable of being strictly divided, but are intertwined and interconnected. Therefore, it is very challenging when trying to report business results and activities related to ESG in terms of the metrics and evaluation methodology.
The best take to this day might be the White Paper on Stakeholder Capitalism Metrics created by the “Big Four” (four biggest consulting companies in the world - PwC, EY, KPMG, Deloitte) in cooperation with the World Economic Forum. This White Paper offers solution for standardization of ESG principles, where some of the metrics are Stakeholder engagement, Ethical behavior, Nature loss, Health and well-being, and so on.

An interesting take on this matter are Sustainability linked bonds (SLBS) where the issuer commits to meeting certain ESG targets or performance indicators in given timeframe. If the company fails to meet the target metrics, higher interest must be paid to the investors. It is a binding financial instrument that can play a crucial role in encouraging companies to make sustainability commitments. 

Pros and cons
With all said above, we can now create a list of pros and cons that ESG principles bring to the table.

The pros are:

  • •    Improved sustainability - ESG encourages companies to reduce their environmental impact and create more sustainable business practices, which can help protect the planet and ensure resources are used more efficiently;
  •     Better stakeholder relations - prioritizing social responsibility and good governance can help companies build trust with stakeholders, including customers, employees, and investors;
  • •    Risk mitigation - by considering ESG factors, companies can better identify and mitigate potential risks, such as supply chain disruptions or reputational damage;
    •    Increased responsibility, trustworthiness and overall brand reputation.

 

The cons are:

  •   Lack of standardization – there is currently no standardized framework for ESG, which can make it difficult to compare companies or evaluate their performance in a meaningful way (except the stated Stakeholder Capitalism Metrics);
  •   Greenwashing – in connection to the previous drawback, some companies may engage in "greenwashing" or "ESG-washing" by making exaggerated or misleading claims about their environmental or social performance without actually implementing significant changes to their practices - companies can define their own ESG strategy through easily achivable KPIs;
  •    ESG are not binding on businesses – they are voluntarily accepted standards;
  •   Lack of human capacities – since the ESG standards are being implemented all around the world in a stunning speed and under pressure of environmental activists, a need for specialists in this field is rising. However, there are yet no adequate courses and the companies resort to school its internal personnel. The courses are taken usually by financial analysts in a sped up manner and they obtain the certificates, but if there is a true knowledge gained remains a mystery.

 

Concluding remarks

Bearing in mind all of the above, it is obvious that further steps need to be taken for a more efficient implementation of the ESG principles. Even with all the drawbacks, these flaws can be solved with adequate involvement of all key political, commercial, environmental and other factors.
At the World Economic Forum 2023, held in Davos, the President of the EU Commission Ursula von der Leyen presented the EU's Green Deal Industrial Plan, which aims to help Europe become a leader in green technology and achieve carbon neutrality. An important regulatory part of such Plan is the Net-zero Industry Act which aims to reach the set-out goals.

Therefore, even though these standards are not binding per se, they do play an important role when investors seek investment opportunities and support companies and their businesses, while customers tend to select the companies that are more ESG-oriented. The steps to formally binding ESG are already undertaken and in the future our markets are expected to be transformed significantly, while the countries are expected to support companies following ESG principles by providing incentives and advantages.

 

Authors:

Miloš Vučković, Senior & Managing Partner

Aleksandar Čermelj, Associate

 

*The information in this announcement does not represent legal advice and is provided for general informational purposes only.

**Partner, Senior Associate and Associate refers to Independent Attorney at Law in cooperation with IVVK Lawyers.

 

13/04/2023

SHARE the NEWS on :

PREVIOUS

PREVIOUS

ACQUIRING THE ENERGY PERMIT

PREVIOUS

PREVIOUS

EU’S New AML Measures

PREVIOUS

PREVIOUS

Corporate Sustainability Due Diligence Directive: Navigating Trough the Turmoil

PREVIOUS

PREVIOUS

Jurisdiction for Issuing Construction Permits

PREVIOUS

PREVIOUS

EU Minimum Corporate Income Tax Directive: What to Know and What to Expect?

PREVIOUS

PREVIOUS

Marking Data Protection Day: A Reminder of How Important it Is to Protect Privacy

PREVIOUS

PREVIOUS

Drag Along and Tag Along in Domestic Legal System

PREVIOUS

PREVIOUS

AI Act - Challenges of Artificial Intelligence To the Global Market

PREVIOUS

PREVIOUS

Understanding NPLs: Scheme, Serbian Context & Notes of Economists

PREVIOUS

PREVIOUS

Insurance – Luxury or Necessity?

PREVIOUS

PREVIOUS

Claims Secured by a Mortgage and the Statute of Limitations

PREVIOUS

PREVIOUS

Alert: New Regulation Concerning Incentives in the Hotel Industry

PREVIOUS

PREVIOUS

Most Profitable Investments In The Republic Of Serbia

PREVIOUS

PREVIOUS

Annex to the Employment Contract for Transfer to Another Suitable Job (Due to the Needs of the Work Process and Organization)

PREVIOUS

PREVIOUS

Delayed justice is denied justice

PREVIOUS

PREVIOUS

Regulation of the Government of the Republic of Serbia on electricity delivery and supply conditions: Outlining the conditions for connection to the grid

PREVIOUS

PREVIOUS

Shareholders agreement – General overview and important clauses

PREVIOUS

PREVIOUS

Serbia drafting new Law on Information Security

PREVIOUS

PREVIOUS

IVVK Lawyers becomes part of the LexQuire family

PREVIOUS

PREVIOUS

Serbia looking for strategic partners for solar power plants

PREVIOUS

PREVIOUS

ARTICLE Benefits of employee stock ownership plan in Serbia

PREVIOUS

PREVIOUS

In 5 years 450 new RES power plants in Serbia

PREVIOUS

PREVIOUS

ARTICLE Co-ownership of share in Serbia

PREVIOUS

PREVIOUS

Serbia hosts Specialised Expo 2027

PREVIOUS

PREVIOUS

ARTICLE Uncovering legal challenges of AI

PREVIOUS

PREVIOUS

Energy related Memorandum of Understanding signed with UK

PREVIOUS

PREVIOUS

Serbia established quota for solar power auctions

PREVIOUS

PREVIOUS

ARTICLE The dark side of ESG

PREVIOUS

PREVIOUS

ARTICLE ESG principles and their impact on corporate world

PREVIOUS

PREVIOUS

Serbia focuses on energy, IT and biotech

PREVIOUS

PREVIOUS

Serbian Orthodox Church becomes solar prosumer

PREVIOUS

PREVIOUS

Notary Chamber of Serbia releases E-Notary app

PREVIOUS

PREVIOUS

ARTICLE CFD brokers hiding behind Terms and Conditions

PREVIOUS

PREVIOUS

Process of company founding in Serbia goes electronic

PREVIOUS

PREVIOUS

Upward trend of renewables confirmed in 2022

PREVIOUS

PREVIOUS

ARTICLE Obtaining hemp cultivation permit in Serbia

PREVIOUS

PREVIOUS

ARTICLE Legal aspects of cultivation, trade and use of cannabis in Serbia

PREVIOUS

PREVIOUS

Serbia's 2023 economic growth depends on IT sector

PREVIOUS

PREVIOUS

ARTICLE Legal considerations of seasonal work engagements in Serbia

PREVIOUS

PREVIOUS

IVVK Lawyers hosted lecture for foreign business people

PREVIOUS

PREVIOUS

ICT sector recorded 2 billion EUR surplus

PREVIOUS

PREVIOUS

Growth of creative industries sector in Serbia

PREVIOUS

PREVIOUS

Serbia large biomass energy potential

PREVIOUS

PREVIOUS

Rich gold deposit found in Serbia

PREVIOUS

PREVIOUS

Serbia among top 3 global raspberry producers

PREVIOUS

PREVIOUS

Serbian Chamber of Commerce present in Dubai

PREVIOUS

PREVIOUS

Establishment of Serbia-Qatar Business Council

PREVIOUS

PREVIOUS

Serbia's Securities Commission approved establishment of a new AIF

PREVIOUS

PREVIOUS

Serbia adopted Air Quality Protection Program 2022-2030

PREVIOUS

PREVIOUS

Danube region transnational cooperation program 2021-2027 approved

PREVIOUS

PREVIOUS

Rakija entered UNESCO-s Intangible Cultural Heritage of Humanity List

PREVIOUS

PREVIOUS

Possible electricity import from Azerbaijan

PREVIOUS

PREVIOUS

Serbia's unique solar energy storage solution

PREVIOUS

PREVIOUS

Serbia abundant in rare minerals

PREVIOUS

PREVIOUS

Luxury Real Estate Market in Montenegro

PREVIOUS

PREVIOUS

LexQuire meets IVVK Lawyers

PREVIOUS

PREVIOUS

ARTICLE Law on Agency Employment aimed at prevention of labor abuse

PREVIOUS

PREVIOUS

11 cities and municipalities signed a Memorandum of Understanding

PREVIOUS

PREVIOUS

Price increase of housing units in Montenegro by 40%

PREVIOUS

PREVIOUS

Foreign trade in goods increased by 35.1%

PREVIOUS

PREVIOUS

ARTICLE Tax Incentives to Employers Who Hire Newly Registered Residents of Serbia

PREVIOUS

PREVIOUS

Apartments as the leading segment of the real estate market

PREVIOUS

PREVIOUS

Businessmen optimistic about the third quarter of 2022

PREVIOUS

PREVIOUS

Inflation in Serbia amounted to 12.8% in July

PREVIOUS

PREVIOUS

Bank fees and commissions to remain stable in 2023

PREVIOUS

PREVIOUS

ARTICLE Law on Alternative Investment Funds

PREVIOUS

PREVIOUS

Montenegro introduces auctions for renewable energy sources

PREVIOUS

PREVIOUS

ARTICLE Legal framework for investments in energy facilities in Serbia

PREVIOUS

PREVIOUS

Hydro Power Plants as a possible energy solution for Serbia

PREVIOUS

PREVIOUS

ARTICLE Four-day working week in Serbia

PREVIOUS

PREVIOUS

Crops estimations for 2022 in Serbia

PREVIOUS

PREVIOUS

ARTICLE Innovation clusters as high-potential solution for SMEs

PREVIOUS

PREVIOUS

Customs-free importing quotas for Eurasian Economic Community 2023

PREVIOUS

PREVIOUS

IVVK JOB OPENING We are hiring Junior Associates

PREVIOUS

PREVIOUS

Startups Attract More Than USD 135 Million to Serbia in 2021

PREVIOUS

PREVIOUS

Construction Plan for a Wind Farm in Bor

PREVIOUS

PREVIOUS

IVVK Lawyers participated in Confindustria HR Forum

PREVIOUS

PREVIOUS

IVVK-UpSkill Workshop "Presentation on social and TV media"

PREVIOUS

PREVIOUS

Serbia and Azerbaijan up for cooperation in the energy field

PREVIOUS

PREVIOUS

Energy permits digitized starting November

PREVIOUS

PREVIOUS

Belgrade declared city with greatest economic potential in region

PREVIOUS

PREVIOUS

Digitalization of fiscalization and invoicing in Serbia

PREVIOUS

PREVIOUS

New Register of Investment Locations in Serbia

PREVIOUS

PREVIOUS

Paysend opens new European tech center in Serbia

PREVIOUS

PREVIOUS

Serbia allows free export of flour from 15 May

PREVIOUS

PREVIOUS

Serbia to announce auctions for renewable energy power plants

PREVIOUS

PREVIOUS

Energy most important for economic development

PREVIOUS

PREVIOUS

Action Plan for Implementation of Digitalisation Programme in Health System

PREVIOUS

PREVIOUS

Oracle Corporation opens regional centre in Serbia

NEXT

NEXT

ACQUIRING THE ENERGY PERMIT

NEXT

NEXT

EU’S New AML Measures

NEXT

NEXT

Corporate Sustainability Due Diligence Directive: Navigating Trough the Turmoil

NEXT

NEXT

Jurisdiction for Issuing Construction Permits

NEXT

NEXT

EU Minimum Corporate Income Tax Directive: What to Know and What to Expect?

NEXT

NEXT

Marking Data Protection Day: A Reminder of How Important it Is to Protect Privacy

NEXT

NEXT

Drag Along and Tag Along in Domestic Legal System

NEXT

NEXT

AI Act - Challenges of Artificial Intelligence To the Global Market

NEXT

NEXT

Understanding NPLs: Scheme, Serbian Context & Notes of Economists

NEXT

NEXT

Insurance – Luxury or Necessity?

NEXT

NEXT

Claims Secured by a Mortgage and the Statute of Limitations

NEXT

NEXT

Alert: New Regulation Concerning Incentives in the Hotel Industry

NEXT

NEXT

Most Profitable Investments In The Republic Of Serbia

NEXT

NEXT

Annex to the Employment Contract for Transfer to Another Suitable Job (Due to the Needs of the Work Process and Organization)

NEXT

NEXT

Delayed justice is denied justice

NEXT

NEXT

Regulation of the Government of the Republic of Serbia on electricity delivery and supply conditions: Outlining the conditions for connection to the grid

NEXT

NEXT

Shareholders agreement – General overview and important clauses

NEXT

NEXT

Serbia drafting new Law on Information Security

NEXT

NEXT

IVVK Lawyers becomes part of the LexQuire family

NEXT

NEXT

Serbia looking for strategic partners for solar power plants

NEXT

NEXT

ARTICLE Benefits of employee stock ownership plan in Serbia

NEXT

NEXT

In 5 years 450 new RES power plants in Serbia

NEXT

NEXT

ARTICLE Co-ownership of share in Serbia

NEXT

NEXT

Serbia hosts Specialised Expo 2027

NEXT

NEXT

ARTICLE Uncovering legal challenges of AI

NEXT

NEXT

Energy related Memorandum of Understanding signed with UK

NEXT

NEXT

Serbia established quota for solar power auctions

NEXT

NEXT

ARTICLE The dark side of ESG

NEXT

NEXT

ARTICLE ESG principles and their impact on corporate world

NEXT

NEXT

Serbia focuses on energy, IT and biotech

NEXT

NEXT

Serbian Orthodox Church becomes solar prosumer

NEXT

NEXT

Notary Chamber of Serbia releases E-Notary app

NEXT

NEXT

ARTICLE CFD brokers hiding behind Terms and Conditions

NEXT

NEXT

Process of company founding in Serbia goes electronic

NEXT

NEXT

Upward trend of renewables confirmed in 2022

NEXT

NEXT

ARTICLE Obtaining hemp cultivation permit in Serbia

NEXT

NEXT

ARTICLE Legal aspects of cultivation, trade and use of cannabis in Serbia

NEXT

NEXT

Serbia's 2023 economic growth depends on IT sector

NEXT

NEXT

ARTICLE Legal considerations of seasonal work engagements in Serbia

NEXT

NEXT

IVVK Lawyers hosted lecture for foreign business people

NEXT

NEXT

ICT sector recorded 2 billion EUR surplus

NEXT

NEXT

Growth of creative industries sector in Serbia

NEXT

NEXT

Serbia large biomass energy potential

NEXT

NEXT

Rich gold deposit found in Serbia

NEXT

NEXT

Serbia among top 3 global raspberry producers

NEXT

NEXT

Serbian Chamber of Commerce present in Dubai

NEXT

NEXT

Establishment of Serbia-Qatar Business Council

NEXT

NEXT

Serbia's Securities Commission approved establishment of a new AIF

NEXT

NEXT

Serbia adopted Air Quality Protection Program 2022-2030

NEXT

NEXT

Danube region transnational cooperation program 2021-2027 approved

NEXT

NEXT

Rakija entered UNESCO-s Intangible Cultural Heritage of Humanity List

NEXT

NEXT

Possible electricity import from Azerbaijan

NEXT

NEXT

Serbia's unique solar energy storage solution

NEXT

NEXT

Serbia abundant in rare minerals

NEXT

NEXT

Luxury Real Estate Market in Montenegro

NEXT

NEXT

LexQuire meets IVVK Lawyers

NEXT

NEXT

ARTICLE Law on Agency Employment aimed at prevention of labor abuse

NEXT

NEXT

11 cities and municipalities signed a Memorandum of Understanding

NEXT

NEXT

Price increase of housing units in Montenegro by 40%

NEXT

NEXT

Foreign trade in goods increased by 35.1%

NEXT

NEXT

ARTICLE Tax Incentives to Employers Who Hire Newly Registered Residents of Serbia

NEXT

NEXT

Apartments as the leading segment of the real estate market

NEXT

NEXT

Businessmen optimistic about the third quarter of 2022

NEXT

NEXT

Inflation in Serbia amounted to 12.8% in July

NEXT

NEXT

Bank fees and commissions to remain stable in 2023

NEXT

NEXT

ARTICLE Law on Alternative Investment Funds

NEXT

NEXT

Montenegro introduces auctions for renewable energy sources

NEXT

NEXT

ARTICLE Legal framework for investments in energy facilities in Serbia

NEXT

NEXT

Hydro Power Plants as a possible energy solution for Serbia

NEXT

NEXT

ARTICLE Four-day working week in Serbia

NEXT

NEXT

Crops estimations for 2022 in Serbia

NEXT

NEXT

ARTICLE Innovation clusters as high-potential solution for SMEs

NEXT

NEXT

Customs-free importing quotas for Eurasian Economic Community 2023

NEXT

NEXT

IVVK JOB OPENING We are hiring Junior Associates

NEXT

NEXT

Startups Attract More Than USD 135 Million to Serbia in 2021

NEXT

NEXT

Construction Plan for a Wind Farm in Bor

NEXT

NEXT

IVVK Lawyers participated in Confindustria HR Forum

NEXT

NEXT

IVVK-UpSkill Workshop "Presentation on social and TV media"

NEXT

NEXT

Serbia and Azerbaijan up for cooperation in the energy field

NEXT

NEXT

Energy permits digitized starting November

NEXT

NEXT

Belgrade declared city with greatest economic potential in region

NEXT

NEXT

Digitalization of fiscalization and invoicing in Serbia

NEXT

NEXT

New Register of Investment Locations in Serbia

NEXT

NEXT

Paysend opens new European tech center in Serbia

NEXT

NEXT

Serbia allows free export of flour from 15 May

NEXT

NEXT

Serbia to announce auctions for renewable energy power plants

NEXT

NEXT

Energy most important for economic development

NEXT

NEXT

Action Plan for Implementation of Digitalisation Programme in Health System

NEXT

NEXT

Oracle Corporation opens regional centre in Serbia