April 28, 2023
Photo: UNDP Uzbekistan

Let me start with the point as SDGs and ESG are closely related and reinforcing. Both SDGs and ESG matter today, to all, businesses including.

Sustainable Development Goals (SDGs), adopted in 2015, provide a universal framework for sustainability and development. They strive to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. In essence, SDGs call that development must balance social, economic, and environmental sustainability.

On the other hand, ESG (standing for Environmental, Social, and Governance), a term that is used in business and finance, refer to a company’s performance in three key factors. The first is its impacts on the environment, its treatment of employees and investors, and its overall good governance practices. 

ESG is in fact a rating system used by companies to measure their environmental, social, and governance credentials, which matters to their stakeholders, particularly the investors. 

In terms of values that ESG brings to companies – there is now pressure on companies to prioritize social goods when making decisions about their operations. We also see the ground and growing demand for transparency from consumers and stakeholders. That is where ESG data can help them measure and monitor their sustainability KPIs. It has been also well-proven that the adoption of responsible environmental and social policies is key to succeeding in the long run. 

Until now, ESG reporting has been mandated for publicly traded companies, and not looked at much by middle-market or lower-middle-market companies. This is now changing. What used to be a “nice to have” is now a must-have. It won’t be long before the Security Exchange bodies will require public companies to clean up their supply chains. For SMEs, ESG may not be a hot topic now; but once SME grows and requires more capital or aims to work with global companies, it will face ESG requirements. 

Sustainability will also be tied to financing opportunities. 

So, again - the global sustainability agenda and its internalization by the private sector through ESG are closely aligned, and the demand for it is increasing, now is a good time to get ESG started for business sectors.

These are well-substantiated statements; we are all aware of that. The question is how that lands and relates for Uzbekistan.

Uzbekistan’s strong commitment to SDGs is acknowledged; the goals were nationalized back in 2018, institutional infrastructure to monitor the progress was set, and a bold reform agenda is rolled out. As part of it, the country also made a strong commitment to transit to a green economy, to ensure that Uzbekistan’s change is balanced in ecological, social, governmental, and economic terms. 

As globally is the case, the country also faces an increasing need to finance its development ambition, which cannot be met without the contribution of also the private sector. The Development Finance Assessment (DFA) for Uzbekistan that UNDP of 2020 pointed that Uzbekistan needed at least an additional annual investment of USD 6 billion to meet the nationalized SDGs. Later, this figure increased: IMF estimated that the external shock and impact of COVID-19 require additional financing of about USD 4 billion or 7 per cent of GDP. 

We have to be clear that we do not talk about the private sector closing this financial gap. Rather, the private sector can supplement the public climate change policies by scoping/identifying economic opportunities associated with climate change actions. And thus, simultaneously lead to the advanced implementation of the policy, solid private sector performance and public, global good and interest. 

For example, the medium-term outcome of the ESG agenda for Uzbekistan’s business from accelerated green growth and practices can be: better integration into the global green value chains, or application of business practices compliant with the internationally recognised human rights and international environmental standards.

So, clear is the necessity of bringing on board the private sector and aligning its actions with suitability principles in Uzbekistan. 

However, despite the notable progress in the reform process - the environmental, social and governance framework is fairly new in the country, especially for businesses. 

We observe that ESG rhetoric is often limited to the performance of the public sector (SOE) and is sometimes viewed as an impediment to business or a need for additional regulatory compliance. 

There are also very encouraging examples of self-initiated ESG practices, or at least readiness to do so. I can mention at one experience of UNDP when we called the private sector to join a public good campaign. The response was enthusiastic, very much in line with the fabric of Uzbek society. 

We believe that there is a need, interest, momentum and probably readiness to internalize ESG within the private sector in Uzbekistan. That would require: 

  1. Advanced understanding of the ESG in general, but also 

  2. Development of an overall, national ESG framework, to guide the private sector action along the national green development agenda

  3. Development of private sectors’ capacity to comply with ESG standards and principles as well as impact measurement and management (IMM) requirements. ESG capacities and practices in the (at the moment biggest part of the real economy) – SOEs, as starting point, notwithstanding the criticality to start building the SMEs’ ESG awareness and capability. 

  4. Better ESG data and its management to showcase how this tool can be effectively utilized in the pursuit of investment attraction and business development. 

  5. Sustainability-labelled financial securities and market is another important part. A national green taxonomy would serve for identifying and incentivising activities that are green or sustainable, as well as an ESG reporting framework.

  6. Of course, continued dialogue on the internalization of ESGs between the government stakeholders. 

  7. UNDP has been also promoting globally SDG Impact Standards – which goes one step further and helps measure the actual impact of ESG practice (a management practice standard similar to ISO standards) that can be used for that purpose.

UNDP stands ready to contribute to and support such a comprehensive effort.