In the traditional capitalist model, shareholder return is the only metric to measure business success.
However, the “stakeholder capitalism” concept has been gaining ground for more than several decades now.
Meeting the society’s expectations, caring for the environment, sustainable development are becoming a priority.
In theory, it is all obvious and necessary, but how to:
- measure the value for the company itself from compliance with ESG principles;
- balance the interests of stakeholders, and how strong are the requirements for compliance with sustainable development standards in Ukraine, or can Ukrainian businesses still “afford” not to bother about it?
These issues were addressed within the framework of the “Responsibility to Future Generations” panel.
For me, as an investor, the answer to this question is obvious. Nonetheless, without offering a great deal of theory, I cited three real cases from our work experience.
The first case took place when we met early this year with a large Arab fund and presented them a large-scale infrastructure project in Ukraine. Among other things, our investment team mentioned our other projects and, in particular, the assets that we are developing within our Recycling Solutions Portfolio (processing of industrial waste and by-products, the leader in this area in Ukraine).
And it is these projects allowing companies to turn industrial wastes into new useful products: building materials, drilling and refractories materials, electricity and heat, fertilisers, rare gases and feed additives that sparked the interest of our Arab colleagues.
We realised that they are offered a lot of infrastructure projects, but the ESG-oriented area is significantly underinvested, and they are interested in continuing the dialogue with us in this direction.
The second case was about a decision that the management board of one of our assets brought for approval of the Supervisory Board.
As part of the budget for the next year, the colleagues asked to accept the significant financial costs to move a plantation of wild flowers that grew on our production sites and would be significantly damaged due to their future production use.
According to the law, we had the right to do nothing, although we saw how important it was for our employees and local residents to preserve this natural ecosystem, so we accepted the budget and successfully moved the plantation to another place convenient for the local residents.
The third case involved a $ 11 million greenfield project, under which we were building a medium-sized plant in an industrial zone of one of the Ukrainian cities. After all the approval procedures were successfully completed, the infrastructure was ready to receive the equipment that had already been ordered from Germany, a couple of regional politicians, preparing for the city elections, started promoting themselves, criticising the project, stirring up the people and holding events to stop the plant launch.
And their activities could have ended successfully for them, and we would have lost the capital invested in the project, if we had not approached the project beforehand, taking into account all the necessary ESG principles.
We have built the newest, production-efficient, environmentally friendly plant in Europe by purchasing first-class German equipment, which made the plant absolutely clean and more environmentally friendly than the similar plants in Switzerland and Germany.
And we could easily prove it to any stakeholders by:
- organising their visit to similar plants operating in Switzerland and Germany;
- showing all the documents related to the plant being built;
- letting stakeholders into the plant, for them to inspect and understand the production/environmental aspects;
- making information from emission sensors available to the public on the Internet, so that plant emissions/their absence can be seen to anyone interested in this info.
Compliance with ESG principles not only appeared right from a human/civil point of view in this investment project, but also helped to manage the risks that would otherwise destroy the project.
Thus, ESG is neither a publicity move nor a hype for those who have been working on the horizon for 3 or more years in their projects, but a critical feature of a successful business.
And perhaps, a good dress is a card of invitation, but the compliance or non-compliance with ESG principles is a card of recommendation.
The next facet of a successful organisation is in the plane of sustainable development, which depends on the quality of relations with different groups of stakeholders.
When preparing for the panel, I paid attention to the fact that there is a discussion about whether it is correct to translate the English term “sustainable development” as “устойчивое развитие”.
According to the Wikipedia, the definition of “устойчивое развитие” means sustainable, continuous growth.
While in European languages, the following words are translated as follows: sustainable – sustained, viable; environmentally sound, ensuring that future needs are taken into account; development – progress, growth, improvement, evolution, presentation, disclosure, result, enterprise, cultivated land, elaboration, production.
I chose a short formulation implying that the essence of sustainable development is to ensure that the development of the current generation does not run counter to the interests of future generations. It is a rather multifaceted and complex process, which is aptly illustrated by a slide attached to this article.
For the time being, we can determine on our own which part everyone of us is ready to comply with.
The law regulates this area in a very fragmentary manner.
The pandemic has intensified this focus, highlighting the importance of factors such as employee health and well-being, epidemiological audits and safety protocols, and business continuity, but these are just some of them.