ESG Guide: a New Tool for Dedicated and Ambitious Companies

*The interview in Macedonian language, published by Faktor can be found at the bottom of this page.


At the beginning of this year, the Macedonian Stock Exchange presented its ESG Reporting Guide. As an acronym for Environmental, Social and Governance, the ESG Guide refers to reporting on activities related to the environment, social issues and governance. According to Mr. Ivan Shteriev, the Chief Executive Officer of the Macedonian Stock Exchange and member of the AmCham ESG Committee, the ESG Guide is a practical tool for listed companies for disclosures related to ESG standards and enables them to fully comply with the new Corporate Governance Code beginning in 2023. Undoubtedly, other listed and unlisted companies can use the Guide as well, which intends to facilitate this new type of reporting by corporations, as ESG is a relatively new topic in our corporate world.

1. First and foremost, congratulations on the Guide to ESG Reporting, which is a publication that addresses a topic that is not widely recognized in our country in an easily understandable manner, providing an excellent introduction to ESG and what it means for all stakeholders. What can you tell us about the Guide itself? 

Global stock exchanges play a crucial role in promoting sustainable investment by increasing corporations’ understanding and transparency of this topic. Under the auspices of the United Nations, the Macedonian stock exchange has participated in the so-called Sustainable Stock Markets Initiative. This Initiative provides a global forum for conversation between stock exchanges, investors, companies, regulators, and other relevant stakeholders. As a result, the Macedonian Stock Exchange, together with other market operators that are members of this Initiative, is fully committed to promoting the ESG concept and ESG reporting.  

With this in mind, we included a special chapter on ESG issues in the new Corporate Governance Code of the Macedonian Stock Exchange, which was prepared jointly with the Securities Commission and implemented with the support of the European Bank for Reconstruction and Development. 

The Guide provides a clear, uniform, and transparent structure for ESG reporting that is harmonized with European standards in this area and supports good corporate practices for informing investors about environmental, social and governance responsibility. It covers what ESG reporting is and why it is essential, as well as the main international reporting standards and frameworks. At the same time, this Guide includes suggestions for minimal disclosure and a step-by-step approach to ESG reporting, answering the issues of what, why, and how to disclose.

2. What are the reasons that the Macedonian Stock Exchange encourages and supports the adoption of ESG in the corporate sector, and what does this signify for businesses? What differentiates and distinguishes this concept from the concept of social responsibility? 

New challenges are being faced by the world in general and businesses in particular in achieving long-term sustainability. Topics related to the environment, social issues and corporate governance are gaining in significance. Moreover, investors are increasingly incorporating so-called ESG factors into their investment strategies and expecting businesses to report on their ESG practices. Consequently, businesses are becoming more aware of these factors and incorporating them into their organization and decision-making processes.  

Transparency inspires trust in the capital market and in the companies themselves. The Macedonian Stock Exchange endeavors to provide conditions for responsible trading. Knowledge is one of the fundamental requirements for responsible trading, and knowledge depends on information that is comprehensive, complete, timely and transparent to all market participants. With this ESG Guide, we seek to enhance corporate reporting on the environment, social issues, and corporate governance — areas that are gaining greater attention from investors all over the world. 

The application of the ESG concept and the improved performance of enterprises in this aspect have numerous benefits, including higher efficiency, improved risk management, a reduced cost of capital, new business opportunities, a greater reputation, and increased investor interest. The ESG Guide should assist Macedonian companies in being better prepared to respond to the needs imposed by international business relations, as well as the European regulatory standards that are anticipated to be incorporated in the local legislation in the near future.  

What separates and makes the ESG concept different from the concept of corporate social responsibility is that ESG is more comprehensive, but more importantly, it is measurable. Namely, this concept is integrated into the company’s overall organizational process and risk management systems, and it includes the determination of quantitative goals and the application of methods for evaluating the impact of achieving those goals. This concept applies the so-called “double materiality” principle, in which companies are required to first determine, and then disclose how their operations and performance are impacted by ESG risks and opportunities (the so-called “outside-in” perspective) and how they impact the environment and society as a whole (the so-called “inside-out” perspective). 

3. Does the business sector’s adoption of ESG standards and policies outlined in the Guide need specific prerequisites and/or depend on certain factors (such as company size, industry, budget, and the business climate in which the company operates)?

Clearly, resources are required for the incorporation of the ESG concept into the operations of businesses. Hence, factors such as company size and budget have their influence. The company’s characteristics, and industry, as well as the company’s degree of motivation to integrate the ESG concept may influence the choice of ESG reporting framework.  

The motivations behind a company’s decision to implement the ESG concept can vary. Each business has a unique strategy, but there are practically no predetermined requirements. It is mostly about the company’s commitment to implementing the ESG concept. Regulatory efforts as well as investor and other stakeholders’ pressure on companies to adhere to international best practices have a major impact. Most of the time, these pressures serve as the impetus for the ESG implementation process, but they should actually be viewed as an immediate challenge to which companies should answer. 

4. Does our country have the necessary “infrastructure” for businesses to become ESG-compliant  (adequate knowledge, legal framework, circumstances, specific incentives, international/governmental support)? 

Regarding the “infrastructure” of the ESG in North Macedonia, it can be said that it is in its initial phase, but it is anticipated that it will be updated swiftly. Adoption of a new regulatory framework for the markets of financial instruments and for the transparency of securities issuers is on our agenda for compliance with the European law. The EU is the leading organization in the world in terms of promoting and implementing ESG standards. European solutions in the sphere of ESG are expected to be normatively incorporated.   The recently adopted Strategy for the Development of the Capital Market in the Republic of North Macedonia raised the issue of green investments in securities and their fiscal incentives, as well as the possibility of issuing emission quotas as financial instruments. In the coming period, opportunities for investing in long-term green initiatives will be bolstered by decreasing their investment costs. Fiscal incentives of this plan are reflected in the tax laws of various developed countries. “Green taxation” has already been announced by the Government with the Tax System Reform Strategy.  If progress is made in this area, the Macedonian Stock Exchange is prepared to develop a dedicated category for the so-called “green market,” which would additionally give greater recognition to such financial instruments as well as for both issuers and investors. 

The ESG concept is a key focus of many international organizations, and the most recent trend is to support the development of digital tools to improve ESG reporting and knowledge exchange on ESG issues. The Macedonian Stock Exchange is currently actively working for inclusion in several such regional projects. 

5. What is the starting point for businesses looking to implement this concept? How is the entire process carried out, and does it have a beginning and an end, or is it a continuous, ongoing process? 

ESG implementation is a continuous and long-term process that requires ESG factors and risks management. The need for an integrated strategy stems from the fact that sustainable development of the organization is impossible if the consequences of ESG factors are not adequately addressed. The starting point in the implementation of this concept and having an integrated approach to ESG risk management is companies to identify all stakeholders for whom their ESG reporting will be intended. Then, an evaluation of importance should be performed i.e., a material analysis to determine which ESG factors are relevant to the company and its stakeholders in order to develop a strategy for ESG risk management. The list of activities to become ESG-compliant is extensive and varies according to the characteristics of each company. Anyways, they take place on a continuous basis, i.e., ESG implementation basically means a modus vivendi for companies striving for sustainability. 

Proactive ESG risk management allows companies to stay abreast of the latest trends and regulations and make more sound investment planning decisions.  Implementing environmental management systems for more efficient use of water and energy and reduced waste production is not only beneficial for the environment, but also for the final company’s financial results. For many industries, energy is among the largest operating costs, which means that greater energy efficiency can help reduce costs. Additionally, good human capital management may enhance employee motivation and productivity. Companies who view the ESG concept as an important process search for adequate business solutions and supply/value chain partners. Typically, this involves integrating ESG standards into formal procurement policies and bidding processes. Suppliers who can fulfill these standards will be better positioned and have a competitive advantage in regard to their competitors. Strong ESG performance may also improve personnel’s perceptions of the company and impact its ability to attract and retain competent employees. Financial institutions are becoming increasingly aware that financial metrics alone are insufficient for determining a company’s risk profile and value creation potential. Access to capital in general, and the cost of financing in particular, may be impacted by the company’s potential future exposure to ESG risks and its management of those risks. 

6. What is the representation of ESG-compliant companies in our country compared to the Balkans, as well as the EU? Are there any projections regarding its future expansion, development and speed? 

North Macedonia already has companies that have developed their own ESG strategies and are currently implementing them. However, it is still too early to discuss ESG-compliant companies and to make regional or European-level comparisons. Definitely, what can be expected is a more intensive development of this concept and a wider spread of the ESG business philosophy among the business sector, as a prerequisite for the number of ESG compliant companies to continue to grow in the medium and long term. 

Regarding the largest listed companies, measuring the compliance of our blue chips with ESG standards will be possible only after the end of the next year, given that the Macedonian Stock Exchange will, at the request of several companies, start the mandatory application of the new Corporate Governance Code in 2023. In the meanwhile, monitoring methods for compliance with the new Code and their reporting on environmental, social, and governance issues are being developed. Consequently, the ESG compliance of this group of publicly traded firms will be completely transparent in the very near future. 

Although ESG is a relatively new concept in our country, it is gaining importance among Macedonian businesses and local investors. In the past period, while actively communicating with listed companies about the new Code and ESG Guide, we could notice that despite being at the beginning of their ESG journey, they have incorporated sustainable operations and the transition to a sustainable, environmentally friendly and socially inclusive economy in their strategic directions and agendas. 

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