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12.07.2021Environmental, Social, and Governance (ESG) Standards for Boards of Directors: Necessity, Privilege, or Obligation

On July 8, 2021, the Corporate Governance Professional Association, in cooperation with the International Finance Corporation (IFC), a member of the World Bank Group, and the CSR Ukraine Center, held a round table “Environmental, Social, and Governance (ESG) Standards for Boards of Directors: Necessity, Privilege, or Obligation”. It was a discussion of ESG (Environmental, Social and Governance) standards implementation in Ukrainian companies and the role of supervisory boards in this process.

 

Stakeholders and regulators are increasingly focusing on the environmental and social impacts of companies and monitoring ESG performance. Boards that view ESG solely as a risk-prevention measure often do not fully appreciate that adherence to ESG principles and standards can improve performance in the long term. Boards must demonstrate their ability to understand climate and related social risks and opportunities for their business.

 

The event was moderated by Maryna Saprykina, Chairman of the Board of the CSR Ukraine Center.

 

Speakers and participants included:

  • Boris Janjalia, Corporate Governance Officer, IFC’s Integrated Environmental, Social and Governance (ESG) Standards Program in Europe and Central Asia,
  • Oleksandr Okuniev, Chairman of the CGPA Management Board,,

  • Peter Zashev, Associate Professor at Stockholm School of Economics in Riga, Director of corporate training programs at Hanken School of Economics (Finland), Board Member of Alu-Releco International (Finland),

  • Maksym Libanov, member of the National Securities and Stock Market Commission of Ukraine,

  • Andriy Kravets, Chairman of the Management Board of Ukrgazbank,

  • Arsen Makarchuk, Director of the Strategy and Development Department of the National Bank of Ukraine.

Boris Janjalia remarked that the event’s subject matter is very timely for the Ukrainian private sector, as ESG principles have already become a part of the corporate life of many progressive companies throughout the world. According to B. Janjalia, these standards are necessary to support the competitiveness of private companies and greater access to financing.

Oleksandr Okuniev said that the board members have to look forward; directors must foresee the future and lead the company forward. Companies are in a social environment and have to take into account all aspects of social life.

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Peter Zashev said that, for him, applying ESG standards is a philosophy of life. During his presentation, he tried to answer three questions: why and for whom ESG is essential, what leadership dilemmas ESG standards provoke, and what to do about it all. The conclusion is that all stakeholders need ESG if society is to care about its future.

 

Andriy Kravets noted that the implementation of ESG in the bank began with introducing governance standards, which was the beginning of significant changes in Ukrgazbank back in 2015. It was then that it was decided to start a completely new stage of development – the direction of “green” banking. The Bank became a pioneer of “green banking” in Ukraine and Eastern Europe. The International Finance Corporation (IFC) became a partner in this project. Kravets pointed out that ESG standards are an obligation and necessity for companies that want to run a modern business and develop dynamically. For the bank, the introduction of ESG standards has become a stimulus for lending to small and medium-sized enterprises, which is now very well developed.

Maksym Libanov noted that after approval of the Corporate Governance Code, the first supplement to the Code would be an appendix that will disclose standards for implementing and disclosing ESG principles by Ukrainian companies. Thanks to IFC’s cooperation and support, the Commission succeeded in developing such a supplement to the Code. The next step will be preparing a scorecard of information disclosure by companies on ESG criteria, which will be a certain standard that all companies should look up to. The issue of environmental and social is unavoidable for the companies, the interest of investors in projects involving environmental and social issues is increasing.

 

Arsen Makarchuk said that the ESG issue is on the agenda of the National Bank of Ukraine (hereinafter – the NBU). The challenges and needs of customers make NBU to be a driving force in this direction. The National Bank will present the strategy for green banking development to the general public in autumn 2021. After that, the standards of sustainable financing will be elaborated and taken into account by the banks. Over the next few years, it is planned to develop requirements for the reflection of ESG aspects in the corporate governance of banks and the disclosure of information by banks. Also, the NBU plans to create standards of ESG-risks assessment by banks and their accounting in work.

 

The representatives of both regulators agreed that explanatory work is a must, especially in adapting ESG standards in companies’ work.

All participants of the discussion agreed that the implementation of ESG standards is not a regulatory requirement but a market requirement.

The event was attended by members of the supervisory boards, members of the boards of private and public companies, representatives of government agencies, and international organizations.

 

During the event, an interactive survey was conducted among the participants of the discussion. Two questions were asked at the beginning and at the end of the event: “Do you know what ESG criteria are?” and “In your opinion, are ESG criteria relevant for Ukraine?”

  

The event was held in cooperation with the IFC’s Integrated Environmental, Social and Governance (ESG) Standards Program in Europe and Central Asia, implemented jointly with the Swiss State Secretariat for Economic Affairs SECO. The goal of the Program is to encourage and assist companies in adopting best corporate governance practices, contributing to their ability to attract sustainable investments.

Video from event