/2024-10-31
Column in “Ekonomichna Pravda”: Ukraine on the Path to the EU. How ESG is Changing the Rules of the Game

What benefits will companies gain by implementing EU governance principles?

Russia’s invasion has delivered a devastating blow to the Ukrainian economy.

In 2022, Ukraine experienced a 29.2% drop in GDP, and over 14.6 million Ukrainians will require humanitarian aid in 2024. Despite efforts to stabilize the situation in 2023–2024, ongoing missile attacks have kept conditions extremely challenging.

According to the Ministry of Economy, the key unresolved issues remain high security risks and the consequences of damage to the energy infrastructure.

The restoration of the energy sector will require significant time and resources, which, as forecasts suggest, could hinder the pace of production recovery. Additionally, logistical challenges and a difficult labor market remain pressing concerns.

It is already evident that economic recovery will require not only substantial financial injections and international assistance but also a transformation of the economic model, the identification of new growth drivers, and the establishment of resilient ecosystems capable of adapting to tough conditions while fostering growth. Implementing modern, proven practices will be crucial.

One of the key elements in this process is the adoption of ESG principles and social impact strategies by businesses. These practices will not only aid in economic recovery but also be critically important for progress toward EU membership.

ESG stands for Environmental, Social, and Governance — qualitative and quantitative indicators by which a business’s impact on the environment, society, and corporate governance is assessed. Many perceive ESG as solely environmental, but it encompasses much more: ESG reflects not only a positive impact on the planet but also care for employees, inclusivity, and contributions to societal development.

The integration of ESG standards allows companies to reduce risks, increase efficiency, grow capitalization, enhance their reputation, and lower borrowing costs. The numbers speak for themselves: by 2026, ESG-oriented institutional investments are expected to reach $33.9 trillion.

Europe leads the ESG investment market, holding 83% of all ESG assets. For Ukraine, which is striving for EU integration, it is essential to comply with ESG standards, as the EU imposes high environmental and social responsibility standards on its members.

To rebuild Ukraine’s economy, attracting investment is vital. Currently, no major financial institution (such as the EBRD, World Bank, IFC, or the U.S. International Development Finance Corporation) even considers applications that lack specific ESG targets.

This also applies to commercial banks. Companies with ESG-compliant reporting may qualify for reduced interest rates on loans.

Businesses that embed sustainability and ESG into their strategy and operations will not only contribute to creating a better world but also position themselves as leaders in their sectors.

This approach will help Ukrainian companies attract investment and open new prospects in highly competitive markets. Moreover, it will positively impact the economic, social, and environmental development of the country.

Social impact refers to the positive changes businesses bring to society, combining profit-making with the resolution of social challenges. Examples include job creation, employment for vulnerable groups, support for local communities, and environmental projects.

Impact businesses use market mechanisms to address social problems, reinvesting profits into expanding their initiatives and building a more sustainable future. For businesses, social impact represents not only social responsibility but also new growth and development opportunities.

For more information, visit: https://www.epravda.com.ua/columns/2024/10/25/721000/