Mervet Kägu: ESG in Estonia – Stakeholder Expectations are Still Evolving, yet Rising

Article published in AmCham Estonia’s Vision Magazine 2024

The Green Transition is expected to change our lives to the same extent that the Digital Revolution did in the 1990s or the Industri­al Revolution long before that.

Green Transition manifests itself through ESG, which stands for Environmental, Social, and Governance. ESG is a framework for managing a company’s impact on the environment, its relation­ships with society, and the quality of its corporate governance practices. ESG is designed to emphasise the importance of balanc­ing profit, people, and the planet within a business.

Nowadays it is difficult to find a conference that does not entail a discussion or mention of the terms ‘sustainability’ or “ESG.” ESG is quickly moving from conference halls to a daily function for many companies worldwide, including in Estonia.

In Estonia, stakeholder expectations for corporate ESG are still evolving, yet rising. Some companies are already incorporating ESG into their daily business decisions, as they understand its val­ue. Along with stakeholder expectations, regulatory scrutiny is also rapidly increasing, showing a dramatic increase in ESG require­ments worldwide, especially within the European Union.

The EU has taken a leading role in driving the United Nations Sus­tainable Development Goals (UN SDGs) through its European Green Deal. The Green Deal is the region’s response to depleting natural resources and the global climate and biodiversity crisis.

It sets out ambitious plans to transform the EU into a modern, re­source-efficient, and competitive economy. It also introduces new laws that entail new responsibilities for sustainability – something new for companies to get used to and comply with in a systematic manner throughout their business operations.

As of today, the key EU legislation pushing the ESG agenda com­prise: the Corporate Sustainability Reporting Directive, the Eu­ropean Sustainability Reporting Standards, the Taxonomy Regu­lation, and the Corporate Sustainability Due Diligence Directive that introduces new due diligence and reporting requirements that directly (or indirectly) affect all organizations and their value chains. Currently, financial market participants, large companies, and listed companies are in the regulatory limelight – but the scope is widening quickly.

These new rules may seem complex initially, due to unfamiliar technical and legal terminology; but their purpose is to support businesses in making sustainable decisions, gaining a competitive advantage, and meeting stakeholder expectations. As Peter Druck­er famously said, “You cannot manage what you cannot measure.”

ESG is on its way to fast becoming a basic corporate hygiene fac­tor for companies, largely due to the growing scrutiny from both stakeholders and regulatory bodies. Yet, there’s a shortage of aware­ness, leadership, resources, and expertise in leveraging ESG for competitive advantage instead of perceiving it as a mere bureau­cratic requirement by the EU.

ESG is frequently delegated to PR, HR, legal, or compliance teams, while neglecting the need for holistic integration throughout a company. ESG in essence is who companies are – their thoughts, values, and actions. Without seeing the value of embedding ESG into your company’s business model, it will inevitably always be a mere compliance exercise. Companies could benefit from learning from peers, consulting ESG professionals, and seeking internation­al talent to catch up with this evolving landscape.

Thankfully, numerous professional service firms, including CO­BALT, NGOs, think tanks, and universities in Estonia assist com­panies in ESG integration. Initiatives like Responsible Business Forum Estonia and Green Tiger provide practical insights for sus­tainability topics.

Estonia’s small yet dynamic, and digitally advanced profile makes it an excellent testing ground for deploying innovative business mod­els, such as impact entrepreneurship, a circular economy, clean tech­ nology, and sustainable agriculture solutions. These prove in prac­tice that balancing profits, people, and the planet is indeed possible.