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What should local businesses do to Prepare for ESG and the "green agenda". 16.07.24

This material is prepared to inform stakeholders in accordance with item 8 of the "Roadmap for Stimulating and Promoting the Application of environmental, social, and governance (ESG) Principles for 2024. "

ESG, or "environmental,social, and governance, " is a concept that has been developed and recognized in the US and European countries since the late 1970s. The ESG concept represents a set of standards used to assess a company’s impact on the environment and society, and has played an important role in investment decision-making over the years. The ESG concept was first introduced in the report "Who Cares Wins, "published in 2004 by the UN Global Compact, thereby making the term ESG widely recognized and officially accepted. The report describes how ESG factors can be integrated into a company’s operations and explains that the concept is divided into three main components: environmental, social development, and governance (or corporate governance).

The parties to the United Nations Framework Convention on Climate Change (COP) are countries, and the main goal of the conference is to influence the business sector of these countries. In this sense, COP29 is also a "homework assignment " for Azerbaijani businesses in implementing ESG activities. To achieve the goals of this conference and the national "green agenda " it is necessary to create effective business synergy between the state and business. The role of ESG principles, such as responsible environmental practices, high social responsibility, quality corporate governance, business ethics, and a focus on business culture, is immense in achieving global and national sustainable goals. Businesses occupy a central place in the "society - business – state"triangle, as they are the main actors in the implementation of state policy and the development of appropriate tools in the country.

Local enterprises must have a clear vision of their activities for at least for the next five years so as to achieve sustainable development goals and the "green agenda",as well as accurately determine their priorities.

To this end, local companies should today:

-first and foremost, conduct an ESG diagnosis and audit of their business;

-define an ESG strategy and goals aimed at the sustainable development of their business;

-develop an internal set of rules and policies;

-create ESG roadmaps for the implementation of ESG policies;

-establish and implement an ESG reporting system.

Adherence to ESG principles not only directly affects the company’s financial condition and its investment attractiveness, opening up new opportunities and advantages, but also brings important "social dividends," such as:

-increasing trust in the company from investors and clients who are ready to work with responsible and sustainable brands in the market;

-reducing long-term production costs— not only improving the company’s financial position but also significantly greening and improving the global economy.

-attracting a large number of investors and clients, strengthening the brand and the company’s reputation;

-the company’s commitment to ESG principles directly influences its investment appeal. According to experts, more than 80 trillion dollars are currently invested with consideration of ESG, and modern investors publicly declare that they will not invest in assets with low ESG ratings.

Note: In Azerbaijan, for the broad promotion of ESG, combining the efforts of the public and private sectors, and forming a conceptual vision and its implementation, on September 30, 2022, a working committee "Corporate governance, investments, and corporate social responsibility " was created under the Commission on Business Environment and International Ratings. Within this committee, a subgroup on "environmental, social, and corporate governance standards " was established. The subgroup is led by the Small and Medium Business Development Agency (KOBİA). It includes representatives from about 20 organizations and institutions representing the public, private, and non-profit sectors.

Leyla Sadykhova

Chief Manager for Legal Issues, Sustainability, and ESG at "PWC Azerbaijan a member of the Commission on Business Environment and International Ratings of the Republic of Azerbaijan in the field of Environmental, social, and corporate governance (ESG).