ESG Business Principles Important both for Banks and for Investors

Your Business One Step Ahead of Everyone Else’s

October 10, 2023
Pexels/Yan Krukau


Small and medium enterprises (SMEs) in Serbia face numerous challenges in their business: on the one hand, they try to remain competitive, while on the other, they attempt to increase the value of their products, especially those intended for export. Simultaneously, SMEs increasingly understand the importance of socially responsible operations and the benefits they bring, and they are ready to invest in sustainable businesses and projects. Apart from the fact that sustainable business becomes a legally stipulated obligation for these enterprises, it is also an important step towards improving their corporate image and reputation and advancing their business.

Banks, as well as investors, also pay attention to the harmonisation with the ESG criteria and gladly invest in projects by such enterprises. Responsible companies thus have much easier access to financing, as they attract investors who focus on sustainable and responsible investments and clearly defined ESG strategies and goals.

“In addition to funding, banks play yet another very important role – the counselling one, which should by no means be neglected. Experience in working with different industries, as well as the performance of extensive analyses based on large-scale databases and the creation of methodologies and predictive models with the aim of identifying potential risks and their minimization, are all very important for the clients to be able to plan their business better,” says Mateja Dičić, Director of the Sector for Dealing with Large Clients of the AIK Bank. “On the other hand, responsible business does not imply only that the client adheres to the legally stipulated provisions but also takes care that their business is sustainable, with sustainability being directed to all its segments – from the care of suppliers and employees to socially responsible actions that additionally strengthen links with the community in which the enterprise operates. The clients operating according to these principles open a wider space for receiving loans under favourable conditions,” adds Dičić.

It is important to note that the demands of legislators and of financial institutions concerning ESG principles are not identical, as it all depends on the region, industry, and level of the company’s development. Also, when small and medium enterprises apply for loans and wish to show their dedication to the ESG criteria, there are certain business practices that are usually expected of them, depending on their field of operation, that concern their attitude towards all stakeholders – suppliers, clients, end users, respect for deadlines, good treatment of employees, etc.

Small and medium enterprises that harmonise their business with the ESG criteria are perceived by banks and potential investors as the “enterprises of the future”. These are the enterprises that base their strategy on decreasing the amount of material in their products, minimising energy and raw material consumption in production, designing products with a longer shelf life or time of use, and producing products that are repairable and recyclable.

By harmonising their businesses with the ESG criteria and thus advancing them, companies become more competitive in the market while also becoming more resistant to climate change. Dičić emphasises that the “economic” factor is probably easier to perceive today than ever before, since we face an increase in the prices of energy due to the global geo-political situation. The enterprises that have begun to timely implement the circular model operation, either by producing their own energy or by introducing saving measures, are now in a much more favourable position.

“One should not neglect natural disasters, which we unfortunately witness with an increasing frequency and which result from climate change, so from an economic point of view, one must also take into account this variable when creating business plans and planning growth,” concludes Dičić.

Companies should actively consider the implementation of the “net zero” concept of business in a manner that is in accordance with the clients’ demands and the interests of the company's owners, employees, and other stakeholders. Also, in modern business, smart consumption of resources becomes imperative, as does waste and waste water management. It is necessary to perceive all the changes not as a cost but as an opportunity to innovate one’s production, making its carbon footprint much smaller. Climate changes are impossible to avoid, but behaviours and adjustments thereto could be controlled. Changes in operation, as well as timely consideration of potential damage through property insurance, may alleviate the consequences of natural changes.

SMEs may present their dedication to adhering to the ESG principles through their annual ESG reports, where they could present their impact on the natural and social environment and the manner in which they manage their organisation. In these reports, companies publish the qualitative and quantitative results as well as comparisons between their achieved performances and the previously defined ESG risks, opportunities, and strategies.

In order to support small and medium enterprises in Serbia to advance their businesses, the United Nations Development Programme (UNDP) has organised training entitled “ESG Practitioner” in partnership with the Development Agency of Serbia and the Smart Collective. These trainings are implemented as a part of the project “Promotion of Sustainable Investment”, which UNDP implements in partnership with the Government of the Republic of Serbia and with the support of the United Nations Peace and Development Trust Fund (UNPDF) and the UN Department of Economic and Social Affairs.