ESG – something new, something borrowed, something…green* 

Marriage is usually voluntary – it is the union of two people, but also a contract that establishes the obligations of their relationship. Similarly, the flirtation between sustainable development policies and regulations is now formalized. Europe and the whole world have set specific climate goals or as the Paris Agreement states: “limiting the increase in temperature to 1.5 degrees above pre-industrial levels”. And since the change in attitudes is slower than what the European institutions had in mind, they have turned their heads to business. This is how ESG was created – the tools with which companies must achieve the goals of the green transition.

ESG is not a new concept but rather a borrowed one. Actually, these are the practices that we used to call sustainable policies, but more clearly defined. The impact of business on the climate has been a hot topic for years. Large corporations started setting the tone as early as one decade ago, and even longer. Back then, it was a matter of prestige and image – “look at what we’re doing to limit our carbon emissions, we’re saving the planet”. Today, there are already many questions about the altruistic actions of industry big shots, so their work is regulated through ESG requirements. Sustainable development and global standards, with the support of politicians, have been able to develop to the point where there are a bunch of ratings and standards. This way they evaluate companies based on their actions toward the environment, people, and communities.

ESG is basically – Environmental, Social, and Corporate Governance reporting. Public discourse on the subject has initially emphasized on E, but the environmental accentuation is only one aspect of the whole topic. The social and corporate aspects are often forgotten or neglected because they affect a company’s internal processes, and how the company manages and balances them, making them more difficult to discuss. For example, electricity and fuel bills are more immediately understandable compared to why the number of women and men in management positions is exactly what it is, or how many women have been promoted to managers over the past year.

Capital markets have turned out to be the “GO” button for change – they now not only demand companies’ financial results but also how they were achieved. It is accepted that the successful management of a business and its sustainability depend on it. At this point, ESG regulations affect the largest companies listed. This is just the beginning and there is already an ongoing discussion regarding reporting for medium and smaller businesses. In 2024, the European Corporate Sustainability Reporting Directive (CSRD), which will be responsible for reporting, comes into play. Businesses outside its scope will be encouraged to follow a set of standards, which could be considered as a preparation for their inclusion later. The good news, in this case, is that companies already collect a significant part of the data for the needs of their business. Thus, without suspecting it, many companies are already working towards the new agenda: monitoring their carbon emissions, striving towards energy deficiency, and providing traceable care for their employees.  

How does the process of measurement happen? The impact of a business on the environment is a broad concept. This includes both direct and indirect impacts. For example, if you produce toys, you are directly responsible for whether and how much emissions your production will generate, which is quite logical. ESG requirements also look at everything indirectly related to your business – the fuel spent for delivery and supply, even the footprint of your partners who make the details for your toys. Our society today accepts that you are responsible for choosing your partners.

It is easier to explain this with examples. After 15 years in the industry, we have many. Recently, Sofia Airport became the first Bulgarian airport to earn the highest level of accreditation for carbon emissions management. Such certification is not simply wall adornment, globally there are only a few airports with such accreditations, and at the same time, their traffic is very high. Or the mining industry which is pointed at and deliberately vilified. Thanks to the right guidance and action, Dundee Precious Metals (DPM) has been ranked among the top 15 mining companies in the world by ESG criteria. It is no exaggeration that they have achieved so much that the air in their mines is often cleaner than that in some Bulgarian cities.

Let’s be honest – we are consultants, and we look at things from the inside. We can say that there is still no overall clarity behind the regulations. It is one thing to say “let’s change” but quite another to outline what the world will look like after the change. When the vision for this transformation is not shared, people cannot imagine what they are striving for. And then the requirements resemble coercion. On that account, businesses look at ESG policies in a different way – depending on how the leader sees things. This is best noticeable in G or corporate governance. The ice is thin – a good leader must be in integrity within himself. In this case, why would somebody dictate what is acceptable for his company, if there is a well-established culture, there are clear principles, and people prosper? The regulations define good management as the equal number of men and women, their equal chances to grow in the company, and any potential acts of discrimination being met and sanctioned. At the same time, successful leaders know that good management is to choose what the important questions related to people’s well-being, are. They know that such questions must be resolved with employees and must be in alliance with the company’s culture in order to share and preserve it. This is supported by policies based on these questions, or in other words the views of management on them. Many companies have yet to structure policies based on these questions before managing and reporting them. At the same time the lack of good governance cannot compensate for the application of regulations. It is a matter of leadership – how leaders organize and manage policies, processes, and people. This stands at its core, although it is of equal importance with the others. Putting this into practice will require a very thorough look at leaders’ perspectives and practices. Only then will all requirements make sense.

S or the social aspect provides great opportunities. Initially, companies think of donations and sponsorships. However, the ability to clearly demonstrate the benefits of having a business is far more crucial. The direct connection between the 4 mining and metallurgical companies and the socioeconomic prosperity of Central Bulgaria is a great example. Look at any ranking of the municipalities in Bulgaria and you will see at least a few of the 8 municipalities there at the top positions. Starting from the average salary, direct private investments, gross added value, employment and income per capita, the coefficient of financial stability of municipal budgets, the share of own revenues, revenues from EU projects, and reaching soft indicators such as the average grade from matriculation in school, events related to sports and culture, access to health care, communications, establishments, and financial services – towns and villages in Central Bulgaria reach the quality of life of the biggest cities in the country. It only takes finding the right way and metrics to show the connection between a business and its results.

It is a common myth that mining interferes with tourism and agriculture. On the contrary, these sectors take advantage of investments in infrastructure and services, as well as the population growth and incomes from mining. For example, the municipality of Panagyurishte has very large organically certified areas – it is no surprise that the “Bulgarian Bioproducts Association” was established there. Asarel-Medet’s investments in the construction of Kamengrad Hotel and the vault of the Golden Treasure of Panaguyrishte are other examples that attracted many new visitors. The income from the tourist tax is growing and reaches much higher levels than “famous” destinations such as Trun and Belogradchik. The same company invested in a new hospital which ranked Panaguyrishte in the top 5 cities with the best access to healthcare in Bulgaria.

Having moved out of the voluntary world and into regulation, ESG has many limits. However, it can be more than an obstacle, as long as we use it right. Veterans like us won’t tell you: “Do this or do that.” They will guide you on how to do it in agreement with your strategy, processes, and specifics of your business. In the end, the idea behind sustainability is to create value for customers that will stand the test of time and make them choose your service over and over again.

* In Western culture, it is accepted that during the wedding the bride has to wear something new, something borrowed, and something blue, so that the marriage will be long and happy.

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