ESG or sustainability as an opportunity
24 April 2023
ESG is an evaluation framework of three areas of corporate governance that looks at how environmentally friendly a company is, how people are treated and how the company is managed.
What are the pillars of ESG?
- Environmental - includes standards that focus on the impact of a company's activities on the environment and the risks that arise from it. These include, for example, mitigating or adapting to climate change, managing waste or promoting biodiversity.
- Social - includes standards that focus on the people in companies and the risks arising from them within the company's "ecosystem". These include, for example, equal opportunities, safety, human rights, data protection and occupational health.
- Governance - includes standards that relate directly to the reporting entity itself. It sets out reporting criteria on the composition of the company's senior management or procedures to prevent and detect unethical or corrupt behaviour.
For a company to understand and realise its full ESG potential, it is advisable to first set the right ESG strategy. This is a long-term plan of action to mitigate risks and move the company forward in sustainability to be competitive and attractive to investors, employees and customers.
The right ESG strategy and sustainable activities open up new financing opportunities for companies, strengthen relationships with investors, customers and employees, and help to attract new ones.
What positive effects can responsible business bring to companies?
ESG is a concept that brings together different pieces that provide a picture of a company's overall level of responsibility from different perspectives. Some of them we have known for many years, such as OSH or data protection. Environmental topics such as carbon footprint, biodiversity impacts or waste management are not entirely new either. But ESG also introduces new obligations for companies and comes with a number of legislative innovations - guidelines, criteria and mandatory reporting.
Although it is to some extent a legislative and "civic" obligation, ESG can also be seen as an opportunity to improve one's chances in business, the financial market and the labour market.
Responsible business also brings with it many positive effects:
Why a company should take an interest in ESG issues
- For more than 50% of Czechs, corporate social responsibility can influence their purchasing decisions; up to 65% of Czechs are willing to pay extra for a socially responsible product*
Labour market advantage
- Up to 78% of people care whether their employer is socially responsible, including up to 94% of current university graduates**
- Large companies assess the sustainability of their subcontractors - preference for sustainability
- The banking sector required to give preference to lending to sustainable companies
*Ipsos 2019, **Ipsos2020
What are the specific benefits of an ESG-compliant company?
- The ability to do business sustainably will increasingly affect the ability to obtain financing
- Most banks are prepared to provide some form of preferential financing if the ESG parameters are met
- Banks will be looking at how a company is performing in terms of sustainability, including for the mandatory assessment of the sustainability of its loan portfolio
- The loan pricing advantage ranges from 0.2 to 0.4 percentage points per annum, with the optimal combination of green financing with subsidies
- Legislative proposals are currently being discussed to make the use of EU resources conditional or favourable on meeting sustainability criteria (subsidies, contracts)
- Higher attractiveness of the company for investors (bonds, shares)