How will ESG criteria application in the EU from 2024 affect Serbia?

The last year's news about the EU's adoption of Directive on in-depth analysis of corporate sustainability was a major topic in the public, and now the entry into force of this document is approaching, being scheduled for the beginning of 2024. The directive defines more than 20 requirements related to the prohibition of human rights violations and more than 10 requirements related to environmental impact.

- In the coming period, NALED plans to work directly with companies to raise awareness of the importance of non-financial reporting and the use of ESG criteria. ESG as a concept means that the success and reputation of a certain company is evaluated not only according to financial criteria, but also according to how it affects the environment (E-environment), what are the social aspects and effects of business (S - social) and management culture (G - governance) - says Vladislav Cvetković, president of NALED's Board of Directors in front of PwC, and adds that European companies will be obliged to analyze the social and environmental impacts of their partners in global supply chains, which will affect domestic suppliers.

ESG criteria, as he states, are not universal in the true sense of the word. There are a number of different frameworks that can be used to define the criteria against which ESG performance is measured, disclosed and evaluated.

He points out that this is especially important for small and medium-sized enterprises (SMEs) from Serbia that want to have access to the European market and become part of the supply chains of large companies. When selecting local suppliers, they carry out so-called "Due Diligence" or an in-depth analysis of the application of ESG criteria. It is expected that foreign banks will also conduct such analyzes when deciding on the granting of loans and guarantees.

Investors invested $51 billion in ESG-impact funds in 2020, which more than doubled investment in projects that were verified against ESG criteria within a year. The long-term benefits of improving ESG are also obvious to companies - according to a PwC survey, 92% of business respondents agree that companies committed to implementing ESG policies will outperform competitors that do not. Finding a balance between investing in growth and investing in ESG goals is the biggest challenge, executives say.

Apart from companies, the application and verification of ESG criteria is also important for truthful reporting to citizens about the work and the impact that the economy has on its environment. Research by the European Commission has shown that almost half (42%) of company websites contain information that is incorrect or that may mislead consumers about the company's impact on the environment.

To prepare for the upcoming changes, companies will need to revise existing strategies, policies and objectives as soon as possible in order to define new ESG action plans with measurable short-term and long-term goals and indicators of success. This step may include a review and redefinition of the company's core values, as well as a possible change in the business model.

Although it is a set of non-financial factors, ESG can create long-term profits for companies by reducing costs, increasing productivity and sources of financing, but also by building a positive image, our interlocutor notes. And this is not only important for the private sector, but also for local governments and the public sector.

- As we have ESG criteria by which, among other things, we evaluate e.g. The "desirability" of a company as an employer and the local communities and what they offer will not only be a favorable business climate for investments, but also good conditions for life and a healthy environment. Precisely those environments that are inclusive and tolerant, energy independent, that provide access to healthy food and water, will be meeting places of life, innovation and entrepreneurship - concludes Cvetković.

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