The abbreviation ESG no longer scares companies. Without sustainability, they won’t succeed in a competitive market.

It wasn’t long ago that a survey by the Ipsos agency revealed a significant lack of knowledge among representatives of small and medium-sized Czech businesses about what the abbreviation ESG means or what it represents. The combination of the English words environmental, social, and governance was often seen as a threat—especially due to the mandatory reporting on these aspects of business to the state and the European Union. However, participants of the Sustainable Forum highlighted the growing debate around regulation among shareholders, employees, and customers as the driving force behind a shift in perception.

Sustainable Forum

Although slowly, ESG is becoming a part of doing business. “Sustainability is an important topic and holds great significance for all business entities—in the Czech Republic, in Europe, and globally. We encounter it every day,” said Eva Svobodová, CEO of the Czech Association of Small and Medium-Sized Enterprises and Crafts (AMSP ČR). The forum was held on the occasion of the presentation of the sustainability ranking by the magazine Ekonom, organized in cooperation with its partners.

The EU Corporate Sustainability Reporting Directive (CSRD), which governs rules on social and environmental information, has applied since this year to large companies with more than 250 employees and turnover exceeding one billion CZK. However, it also affects smaller businesses. “Already half of them know what it means and are dealing with it,” added Svobodová. According to her, it is no longer a red flag that, just a year ago, stirred strong emotions due to the added administrative burden that companies lacked the personnel to manage.

Not everyone has fully embraced ESG. “Many small companies are not thrilled, but they’re being forced into it. Even though they don’t have legal obligations, they’re part of supply chains and large companies are demanding they report and calculate their carbon footprint,” Svobodová continued. There’s also a degree of superficiality in how ESG is approached—many firms emphasize ecology even when their environmental impact is minimal.

Job Applicants Are Asking Questions

The awareness that businesses cannot compete without a responsible approach is spreading even among smaller entrepreneurs. They realize they must move toward sustainability and invest in it. On the other hand, succeeding in the market also demands investments in digitalization, innovation, new technologies, or employee education. Svobodová knows this well: “There will always be a need to find balance to keep the business competitive.”

Edita Šilhánová, Chair of the Board of the Association for Sustainable Business, said companies often worry unnecessarily that they “aren’t ESG-compliant.” Yet many of them already meet the relevant criteria without realizing it. “When we do an ESG scan or inventory in a company, it’s always a big—and pleasant—surprise to find that they already do many things naturally or simply because legislation requires them,” added Šilhánová, who is also a partner at COM.SE Consulting.

Sustainable Forum 2024

In her speech, she addressed the need to demystify the term ESG. “I’m convinced that it’s simply the duty of a responsible manager taken to the next level compared to what we were used to,” Šilhánová explained. She described experiences especially with manufacturing companies, where natural sustainability outcomes have resulted from efforts to streamline production in environmentally friendly ways.

Jan Šipan, Sales Director for PPG (a paint and coatings supplier) in the Czech Republic, confirmed this. According to him, these efforts stem from customer demands. “As buildings are now constructed with certain parameters in mind, the paints used must meet those same standards—such as in terms of carbon footprint,” said the representative of the group that owns brands like Primalex and Balakryl.

He also confirmed that over the past five years, interest in ESG topics has increased significantly among job applicants. “Before COVID, I don’t recall anyone asking about the company environment, how we handle these issues, or what interpersonal relationships are like. Today, it’s completely standard,” Šipan said.

He also highlighted the importance of locality. “When we have a kaolin mine in Kaznějov and a paint factory next door in Břasy, we’re in an ideal position to be a natural supplier. We emphasize to customers that they should demand Czech-made paints, which have a minimal carbon footprint. If they buy even our paint that travels halfway across the world—even if it’s made sustainably—the footprint is still there,” he added.

Primacy of Good Governance

Jan Sůra, partner at the law firm Portos, generalized that ESG must become the core of business. “If a company wants to function effectively on the market, it naturally has to do everything it can to be sustainable. It’s simply a necessity to survive in today’s business environment,” said Sůra. He stressed the need for balance and also a hierarchy between the three components of ESG.

Many companies put most of their emphasis on environmental efforts. “I’ve always believed that governance, meaning proper and responsible management, is the concept that should be placed above all the others,” the lawyer said, explaining that if a company’s leadership fails to manage processes correctly, it won’t handle the environmental or CSR (corporate social responsibility) aspects properly either—nor the core business itself.

In his part of the forum, the discussion returned to the Czech business sector’s general approach to ESG. According to Sůra, many companies show a superficial attitude: they focus on the environmental aspects of their operations even when their actual or potential environmental impact is negligible.

“The key is to ask: Why am I dealing with sustainability from my business perspective? Do I want to survive in the market? Do I need it for better financing? Is it required by my suppliers? Is someone demanding it of me—maybe a bank? Do I want to qualify for a subsidy?” he suggested to those facing the task of ESG compliance.

You can read the full article on the portal ekonom.cz (13. 6. 2024)

We at PORTOS also focus on the topic of ESG, including within the framework of the ESG Solution +.

Sustainable business is a complex issue that permeates all activities of a company—both internally and externally. It cannot be addressed in isolation or from only one perspective.

Sustainability is not a new topic; it simply brings together principles and rules that have developed over time. Companies are not starting from scratch—they already have management systems, ethical standards, engage in charitable activities, have CSR strategies, and act responsibly towards the environment.

Yet more than 70% of companies have no sustainability strategy at all. And only 8% have changed their business model as part of their ESG strategy. Just 25% have future plans in this area. And yet, a clear and coherent sustainability strategy is the key to unlocking many doors—from financing to new markets.