Czech companies are sustainable, but don't know how to take advantage of it, says lawyer Sůra

Czech companies are virtually unrepresented in Brussels. "I always say that either we work with the system, or we let it dictate to us," says lawyer Jan Sůra, describing the future of domestic companies in connection with sustainable investing.

The widely mentioned term ESG is becoming the norm for most businesses in the Czech Republic. Besides reporting data about company operations, its goal is also to uphold social norms and improve the functioning of the state as a whole.

“It took us about a year and a half to develop our own system for collecting data and evaluating it. Our aim is to teach companies to work with it naturally—just as no one is surprised anymore that companies publish annual reports,” says Jan Sůra from the law firm Císař, Češka, Smutný.

ESG stands for Environmental, Social, and Governance, but here it seems only the first gets mentioned, and for many, it’s a scary topic. Why? It’s true that environmental issues are often synonymous with ESG, and the other two components are often forgotten—probably because environmental protection is the easiest to understand and trendy.

But that doesn’t mean our or European legislation neglects them. Debates about which letter should matter more are misguided. ESG is an indivisible whole. Personally, I prefer the term “responsible business.”

Which is basically the letter G, right?

It’s encompassed under governance—responsible company management. Without this, you can’t oversee impacts on the environment or society. So ESG is the key to managing your company better and more efficiently. That’s its main benefit. On the other hand, companies tend to simplify things. Over time, we see them competing over who has the lowest carbon footprint—even those you wouldn’t expect.

Like?

Non-manufacturing companies, IT firms, or banks. They sell their properties and headquarters to reduce their carbon footprint. On paper, it might work. In reality, it solves nothing—the emissions of the building are just accounted for by someone else.

Companies should focus on what they can genuinely and naturally contribute to responsible business. From a responsible business perspective, I’d expect a bank to offer a socially disadvantaged family a mortgage interest rate that’s a percentage point lower.

Is that starting to happen?

At first glance, it may seem large corporations have ESG sorted and small companies ignore it. Often the opposite is true. Multinationals often flounder and then just buy a patch of forest somewhere in Africa.

Take a local agricultural cooperative. They must invest in new technologies and efficient production. They cannot devastate the land they cultivate—they must farm it for decades to come. Nor can they behave irresponsibly toward employees because those employees are their neighbors. If they don’t provide the best service to customers, they’ll leave for competitors.

The farmer might not use the term ESG but has long followed its principles. We now teach such companies how to work effectively with the new legal environment and turn administrative obligations into competitive advantages.

So everyone should do what they know best...

Exactly. For industrial firms, it’s clear they should modernize operations and reduce environmental impact. But overall, I see great potential in the social area—toward employees and the broader community the company belongs to. We already see that the state is hitting real limits—not just financial but also in what it can manage.

In what areas does it hit limits?

Our education and healthcare systems struggle. Infrastructure development is slow and complicated. I personally see the key in more private sector involvement in areas historically managed exclusively by the state. That’s also ESG.

The state is responsible to voters—they can replace politicians. But dealing with a draconian company board is harder. Isn’t there a danger of corporate dominance? Governments already struggle with multinational giants...

ESG’s goal is to make corporations realize they cannot operate in isolation—they must consider their surroundings and actively participate in society. It’s also about greater employee and public involvement in corporate governance.

You are part of a major Czech law firm. How do you see your role as a lawyer?

Today, a lawyer is a strategic adviser in a complex, rapidly changing environment. Our goal is to help clients navigate the legal system and regulations as efficiently as possible and operate within them.

The legal profession has evolved from static and isolated to a dynamic navigator. The complex issues we deal with now lawyers didn’t face ten years ago.

Everyone talks about opportunities, but isn’t this a dead end? The European Commission always sets ambitious goals but then brakes or changes course. That’s not very predictable for businesses, is it?

ESG is highly political and reflects Europe’s current direction. The EU has two main tools to enforce policies and goals: regulation and funding.

ESG combines both. It includes European policies on climate, consumer protection, and competition, and defines priority areas for funding in coming years.

If we don’t like European policies, we must try to change them. But if we lack power, ESG can be seen as a map showing where attention and major funds will go. That’s actually quite predictable—we just need to know how to read it.

So you’re basically saying we shouldn’t demonize Brussels?

The ESG regulation as introduced by the EU mainly involves data collection and reporting. I understand that for smaller businesses it’s a new bureaucratic burden. But the fact is ESG is here and probably here to stay.

So companies must adapt?

We help clients operate effectively in a competitive environment. European regulation will soon affect all companies. Everyone will bear similar burdens and have the same duties.

Those who prepare earlier gain competitive advantage and improve their business ahead of time. They get better access to European and private funding or move more effectively within big supply chains. And it’s a powerful marketing tool—those who can well describe their sustainable business have the edge today.

In the East, where the ESG trend originates, social responsibility is emphasized much more. But Asian nations are more collectivist, while Europeans are individualistic. Aren’t we forcing one society’s rules on another that’s very different?

I believe genuine social responsibility is inherent in our culture. The Czech Savings Bank built the Rudolfinum in the 19th century. Tomáš Baťa’s business was ESG of its time. He cared well for his environment and community—building schools, housing, and infrastructure. He took on roles people expected from the state, and it worked.

That doesn’t mean we should uncritically accept all ESG regulation. Mostly, these are European directives, and we must adapt local laws. It’s up to our legislators to make it work and help our businesses. We must not blindly adopt rules that don’t work.

So there’s no threat of the often mentioned Brussels diktat here?

We shouldn’t confuse Brussels diktat with national disengagement. We are part of a multinational system and it’s like ESG—either we let something be dictated, or we work effectively with the system. I work in Brussels and know Czech companies are practically unrepresented there, no one is in contact with European institutions, and we lack significant administrative positions. If we change that, no diktat will threaten us.

The full interview is available at idnes.cz (January 3, 2024)