Resilience and Responsibility: How Ukrainian Companies Can Adapt to ESG in 2024

In 2024, amid global challenges and transformations, shifts in investor expectations, regulatory updates in the EU, and the impact of war, the adoption of ESG (Environmental, Social, and Governance) principles is becoming increasingly relevant for Ukrainian companies. These trends are driving Ukrainian businesses to rethink their approaches to sustainability and responsibility. Experts Olga Bielkova , Senior Advisor at FTI Consulting , and Marta Halabala , Head of Environmental Protection and Sustainable Development at the law firm Asters , share insights on how Ukrainian companies are adapting to these changes.

Evolution of ESG Approaches in Ukraine

Olga Bielkova notes that initially, ESG approaches in Ukraine were relevant only to the largest corporations involved in natural resources and exports. "At first, most companies in Ukraine perceived these three letters (ESG) as something foreign and not very relevant to Ukrainian realities," she recalls.

What is ESG? It is a set of standards that defines how environmentally conscious, socially responsible, and well-governed a company is. Each component of ESG has its unique specifics:

• Environmental practices: Involve measures to reduce greenhouse gas emissions, efficient use of resources, waste management, and the adoption of environmentally friendly technologies. Companies can reduce energy consumption, use renewable energy sources, and minimize their carbon footprint.
• Social practices: Relate to social relationships and impacts on society. This includes ensuring safe working conditions, community development, support for equality and inclusivity, and human rights protection. Companies can implement employee training programs, improve working conditions, and promote gender balance.
• Corporate governance: Refers to the company's management structure, including transparency in decision-making processes, ethical business practices, and compliance with legal standards. This includes establishing independent boards, adhering to anti-corruption measures, and ensuring regulatory compliance.

Olga Bielkova adds, “Over time, we have all become more aware of ESG not just in terms of form and reporting, but in the substance of the changes needed for companies regarding sustainable development. While the environmental aspect is the most straightforward, social and governance issues cannot be ignored. In Ukraine, particularly during the war, the latter two components have gained additional significance. Sustainable development during wartime may seem like a distant concept, but even in the current energy situation, green technologies are essential for Ukraine's survival as they are adapted for rapid and decentralized generation." She also mentions that Ukrainian consumers and society are becoming more informed and demanding regarding corporate and social responsibility, with an eye toward the future. "Our children are already asking why we don't sort waste," she says.

Insights from European Experience

Marta Halabala shares her experience of training in Ireland, where she observed how a comprehensive ESG strategy could lead to real, measurable outcomes. "An integrated approach to ESG includes environmental, social, and governance aspects," she states. "Immediate application of human rights principles in daily activities highlighted the importance of respecting these rights within corporate frameworks. The firm promotes diversity through mentoring programs and supports both men and women with children by providing additional leave for childcare and health-related issues, such as fertility problems. Besides basic actions like waste sorting, the firm also uses a strategic environmental consulting approach to help clients make long-term sustainable decisions. Their pro bono work also demonstrates the commitment of every employee, from junior lawyers to partners, to participate in projects for the common good."

Back in Ukraine, Marta is actively promoting sustainable development and raising awareness of ESG. She emphasizes that Ukrainian companies face numerous challenges due to war, unpredictable regulatory policies, security issues, and staff shortages. "Despite these and other challenges, implementing ESG practices is crucial for increasing business resilience," Halabala stresses. "It helps companies be more prepared for challenges and adapt to new conditions."

Role of International Investors and Standards

Olga Bielkova highlights the importance of international institutions in implementing ESG practices in Ukraine. "The EU sets very high ESG standards, encouraging other regions to consider these metrics," she notes. "European financial institutions such as the EBRD and IFC also actively promote ESG metrics for investment and lending, influencing Ukrainian companies that seek such cooperation. More systematic consideration of ESG practices and quality reporting on activities and risk assessments open new opportunities for financing Ukrainian businesses through EU support," she emphasizes. "Integrating ESG metrics is becoming a crucial condition for obtaining international investments and capital market access."

Marta Halabala adds that EU regulations, such as the Corporate Sustainability Reporting Directive (CSRD) and the Carbon Border Adjustment Mechanism (CBAM), significantly impact the Ukrainian energy sector. "Compliance with EU standards is essential for accessing international markets and investments," she stresses. "This encourages companies to implement sustainable practices and enhance their competitiveness."

Practical Recommendations for Ukrainian Companies

Olga Bielkova foresees ongoing debates within the Ukrainian government and parliament regarding the acceptable format for ESG implementation. She believes that businesses can and should help legislators responsibly integrate best practices into law, considering the experience of private companies. "This must be done responsibly, without compromising the country's economic stability, which is currently under special conditions, but also without rejecting global trends under the guise of wartime difficulties. This issue will be especially relevant for the energy sector, where all companies, citizens, and the government are seeking energy solutions," she stresses.

Marta Halabala recommends that companies provide training on ESG and sustainable development for leadership and employees, actively exchange experiences with European industry leaders, identify key advantages of implementing ESG, and appoint responsible persons or teams to manage ESG initiatives. "Training and experience sharing are critical for successfully implementing ESG," she states. "Companies should gradually introduce one or several ESG goals to make the process more manageable," she suggests. "Setting achievable goals and gradually expanding ESG initiatives can help businesses adapt without overwhelming their resources. This approach helps companies better understand requirements and adapt to new standards."

Olga Bielkova adds that companies should start with small, manageable ESG projects that can quickly deliver results. A simple approach is to look at what similar companies are doing in different regions worldwide. Most of them describe their activities in the public domain and are happy to share their experiences.

Marta Halabala emphasizes the importance of inclusion in strategic business decisions: "Gender diversity helps make decisions that reflect the needs and interests of various stakeholders. Including women in supervisory boards, executive committees, regulatory bodies, and industry associations ensures that a broader range of views is considered in policy and strategy formation."

Conclusion

In 2024, there is a growing awareness that integrating ESG principles not only enhances companies' reputations in the global market but also contributes to the long-term resilience and competitiveness of Ukrainian businesses. Implementing ESG practices is critically important for Ukrainian companies, especially in the context of war and unpredictable regulatory policies. Leveraging international standards and expert recommendations will help Ukrainian companies adapt to modern challenges and ensure sustainable development.