Petr Michal: The better a company’s ESG strategy is, the more valuable it becomes.

I keep meeting more and more entrepreneurs and business owners who are interested in ESG — that is, environmental, social, and governance — a form of investing that, besides financial profit, also takes into account sustainability and social impact. They want to be environmentally friendly, socially responsible, and have transparent and efficient management and processes within their companies so that their business meets the high demands of the 21st century. However, the existence of this new principle of corporate operation and the importance of these three letters for modern business remain unknown to many people.

A survey conducted by NMS Research for Raiffeisenbank in the second half of August this year showed that only three percent of respondents were familiar with the ESG acronym. However, after learning more about its meaning, their perception of ESG was positive: half of the respondents stated that sustainable business is an important and current topic.

ESG has actually influenced corporate governance for a long time. The policy behind these three letters is not an idea of the European Union, as some might initially think. It is a long-established approach to business that is gradually gaining more attention worldwide and evolving from individual actions and efforts into a comprehensive policy with clearer rules and boundaries.

Looking back historically, we can say that the ESG policy started very simply — as an effort for corporations to behave decently towards others, but also towards themselves. Entrepreneurs, especially in Western Europe and the USA, gradually began to ask why and how to be considerate of the country in which we live and that allows us to conduct free business? How to set healthy, efficient, and appropriate corporate governance rules so that the company is trustworthy towards potential creditors, business partners, and public authorities? How to establish everyday operational rules so that employees are satisfied and customers return for a quality product? And how significant is the support of cultural projects, charity, or other CSR activities in the region for the stability and long-term positive perception of the company by the wider public?

These are not empty questions or clichés, but rather clear principles with a value and ethical foundation. If Czech entrepreneurs also answer these, they will have no problem coping with the individual ESG criteria and advancing their business.

Many ESG obligations are often the same duties entrepreneurs have been adhering to for some time, but they perceive them more as an unwritten ethical code and follow their intuition rather than a clearly defined rule required by the state. One might even say, with some exaggeration, that entrepreneurs and companies have already had and practiced ESG for a long time, they just didn’t know it. However, their projects and business plans must professionalize in this regard and align more closely with the requirements of banks, the European Commission, and the state.

A proper understanding and grasp of ESG must happen as soon as possible. The principles of ESG are now being demanded more and more strictly. It is not primarily about regulation but rather about meeting financial sector requirements, which some might see as an attack on business freedom. The opposite is true — from my own experience and regular communication with entrepreneurs, I know that the better developed a company’s ESG strategy is, and the clearer and more comprehensible it communicates it to the public, the more valuable the company is. It gains better access to loans and public subsidies, is viewed positively by shareholders, business partners, and employees, and becomes more attractive to potential buyers.

In short, it is about making the business comprehensively sustainable and resilient to potential risks. I am convinced that every business today must be based on these principles.

Petr Michal

Written for the E15 daily newspaper