ESG: From Challenges to Opportunities

Achieving sustainable development goals (SDGs) requires collective action by all sectors in society, and the role of business has become more crucial than ever in driving this transformative change. Incorporating the ESG framework helps companies rethink their values and align business strategies with the sustainable development goals.

January 16, 2024
Photo credit: UN photos
Environmental, Social and Corporate Governance (ESG) is a model of sustainable business development that is based on responsible attitude towards the environment, high social responsibility, and good governance.

Until recently, profit was considered a key indicator of business success. Today, investors, regulators, suppliers, and customers are increasingly paying closer attention to how sustainable organizations’ operations are. 

While it is widely accepted that companies should lower their negative impact on environment through decreasing greenhouse emissions or limiting water and air pollution, the ESG framework takes a holistic view that sustainability extends beyond just environmental issues. Thus, the social pillar takes into consideration whether a company ensures fair labor practices, promotes diversity and inclusion in the workplace, and sources their resources ethically. At the same time, the governance pillar refers to how an organization is managed, promoting transparency, accountability, shareholder rights, and board diversity.

ESG has emerged as the leading standard for non-financial reporting among large international companies worldwide. Investors see compliance with ESG standards not just as an ethical aspect but also as a demonstration of its resilience to potential risks and ability to ensure sustainable financial growth in the long term. Thus, ESG is becoming a prerequisite for businesses that are interested in entering international markets or attracting foreign investment.  

Although introducing non-financial reporting requires significant organizational change, it opens a whole set of new opportunities, generating long-term revenue, expansion to promising markets, and reduction in costs:

  • First, ESG is a useful framework for companies to measure their impact on the environment, communities they operate in, or society at large and set up new business goals that would balance profits with a deeper purpose of sustainable development.

  • Second, ESG-standards strengthen organizations’ resilience to non-financial risks threatening business continuity such as climate change, migration, and disrupting technologies. That is because early knowledge of potential risks provides more time to adapt and develop cost-mitigating strategies.  

  • Third, ESG opens new marketing opportunities for businesses and helps take the relationship between a producer and a consumer to a new level. Addressing environmental, social, and governance issues can be used to position the organization as a responsible business with a positive social impact. For example, a footwear manufacturer may promote that their shoes are produced from sustainable materials like recycled tires or hemp. It is possible that over time, a business's contribution to environmental and social issues will become equally or more important to consumers than the quality of a product or service itself.

  • Lastly, improving social standing and business reputation through ESG-practices may attract and retain talent, as many people are increasingly paying attention to employer’s values and corporate culture when choosing a workplace.

For consumers, ESG-ranking may serve as a metric to evaluate company’s business practices, its openness to addressing environmental and social issues, and then make a decision that is in alignment with their values.  

For governments, more widespread ESG-reporting by private companies helps better measure private financial contribution to the achievement of SDGs. When there is a synergy in classification and SDGs information flows between the government and business, it is easier to plan public SDGs budget and direct funding to the sectors where they are most needed.  

ESG in Belarus

The trend for ESG-reporting is growing in Belarus as well. The need for gradual transition to public non-financial reporting is emphasized in the National Strategy for Sustainable Development of the Republic of Belarus until 2035. The Concept for the development of non-financial reporting and an Action Plan for its implementation is also included in the State Program on Public Finance Management and Financial Market Regulation for the period until 2025.  

The Country Program of the UNDP in Belarus for 2021–2025 highlights economic development based on the principles of green and inclusive growth as one of the priority areas. UNDP promotes Belarus' transition to a green and circular economy and encourages the environmental and social responsibility of business.

Both at the global and national levels, UNDP is working on a range of innovative solutions that can drive systemic change for ESG. Among them is the creation of Integrated National Financing Frameworks (INFFs) to synchronize national financial strategies with sustainable development strategies. Additionally, UNDP promotes new business models, green and social initiatives, digitalization, and innovations in small and medium-sized enterprises.

ESG-challenges and possible solutions

In most countries, adherence to ESG standards is non-binding and does not have a clear legal framework. In the corporate sector of Belarus, the application of ESG-practices and strategies is uneven and unstructured. They are mainly used by companies working with foreign partners and financial organizations. Other organizations often lack awareness of ESG and the positive impact these standards could have on business development or face difficulties in introducing non-financial reporting. Moreover, the lack of comprehensive information about strategies and tools hinders acceptance of ESG as a standard business practice.

In 2023, UNDP in Belarus conducted a study on the current state and application of environmental, social and governance standards by Belarusian enterprises in various sectors of the economy. It showed that Belarusian companies have a fragmented understanding of ESG and know little about ways to adopt ESG-standards. The companies surveyed mainly focus on those ESG-components that are regulated by law and are mandatory for reporting.

Based on the results of the study, project experts have developed Guidelines on Improving the Legal Regulation of Environmental, Social, and Corporate Governance Standards (ESG) in Belarus.  

The Document lays out a set of recommendations to improve the application of ESG- standards:

Under environmental pillar, it is proposed to develop a carbon regulation system through the introduction of mandatory reporting on greenhouse gas emissions by the largest emitters. Additionally, the experts recommend to develop policies and strategies on promoting circular economy in the country.

The social component of ESG should consider the interests and needs of vulnerable groups. The legal framework should create new opportunities for inclusive employment, promote continuous learning, and ensure equal opportunities for men and women.

In the area of corporate governance, an effective measure could be the adoption of a legal act regulating the disclosure of non-financial information by organizations, as well as requirement for investment business plans to consider ESG-factors. In addition, the ESG Guidelines emphasize the need for raising awareness of ESG among senior managers to encourage adoption of non-financial reporting.

On 22 November 2023, the International ESG Conference was held in Minsk to form a common vision of the ESG development in Belarus. It attracted the attention of government officials, large and medium enterprises, consulting firms and researchers, highlighting the importance of innovative partnerships for joining capabilities, knowledge, and resources.

By all accounts, ESG-reporting can be beneficial for business. On the one hand, it tells a bigger story about the organization: what it stands for, its accomplishments, and vision for the future. More than a chore, impact reporting is an opportunity to better engage with customers, employees, investors, and other stakeholders. Ultimately, companies committed to ESG contribute to solving global problems, making the world more sustainable and fairer for everyone.