The significance of environmental and social responsibility in today's world.

Ecological and social engagement

To preserve the environment and strengthen social awareness, regulation and government leadership are needed, along with a unified system of measurement and rewards or penalties...

  • Environmental Protection March 2023
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I love the preserved nature, the smell of clean air, and 'paperless' trends, and I appreciate environments that respect diversity. I'm happy that some initiatives recycle certain materials and save energy consumption. I'm also glad that there are numerous ways I can contribute personally to environmental preservation and the development of socially responsible awareness in others, no matter how small that contribution may be.

Would I make a more significant contribution to all of this if someone rewarded me materially (specifically, financially) for my behaviour? Yes, it's a situation where I could 'profit' by doing what I believe in and what fulfils me.

But what about companies, regardless of their size or location worldwide? Is it easy for them to always work for the common good, or will they only try to do so if it leads to favourable resources, or perhaps even manipulate how they operate to gain the resources needed...?

The answer isn't entirely straightforward or linear.

The popularization of the 'green movement' and principles aimed at achieving environmentally and socially responsible behaviour for companies and individuals has led to an increase in monetary resources in the market that are directed towards promoting the fulfilment of these principles.

Recently, estimates have been made of how much global funding will be for investing in 'responsible' companies and projects. According to an estimate published by Forbes in November last year, so-called ESG (Environmental, Social, Governance) investment funds could amount to $33.9 trillion by 2026. This means that every fifth dollar out of the total available funds could be allocated to 'green' financing. Does this imply that ESG principles, or whatever principles advocate for ecology and social issues, could finally profoundly impact the economy, encouraging a transition to clean energy, stable infrastructure, and social equality? After all, that's a lot of money and could be achieved.

The importance of highlighting environmental and social principles in the economy is evident in the fact that, in addition to the S&P 500 index (which includes 500 of the largest publicly traded companies in the United States), there is also an S&P ESG 500 index. The ESG index encompasses companies that, in addition to being attractive to investors due to their financial performance and business stability, operate by globally recommended environmental and social principles, thus enabling investors to invest responsibly. About 300 companies on the original S&P 500 list also appear on the ESG index, but they rotate. In May of last year, Tesla, Meta, Johnson & Johnson, and Chevron were removed from the list of companies in line with ESG principles. Instead, the list included an energy giant, Phillips 66, and several other companies involved in oil and natural gas collection and processing.

Detailed reports support every change in this list.

Every company expecting additional funds from investors or financial institutions because it aligns with environmental and social principles can 'prove' its compliance on paper.

Every institution that has established desirable principles in environmental protection and human rights recommends how to behave and advises companies on how to create reports.

Are there consequences for a company with a less positive impact on the environment as perceived by an investor who has invested money? Is there a regulator that will sanction unfavourable behaviour by a company that invests funds to expand its business, or is there a mechanism to sanction the investor who has invested money without achieving positive environmental and social outcomes? Not quite.

Much of this concerns individuals' awareness of the need to protect the environment or promote social responsibility. After all, responsible behaviour is often unprofitable, say businesspeople, and environmental and social responsibility principles are only sometimes in line with short-term business goals.

So, what is the situation in Serbia when there are no trillions of dollars to encourage ecological and socially responsible behaviour, there is no standardized measurement of positive/negative environmental and societal impact, and there are no clearly defined incentives or penalties as a consequence of (non)compliance with specific requirements? I don't want to emphasize that this systematic approach is lacking only in Serbia. It's not present globally, either. Metrics for these principles are not standardized anywhere, let alone unified for global application, which is the goal because this is a topic that institutions and states have been addressing for decades worldwide. In Serbia, respecting ecological and socially responsible principles has gained momentum in the last few years, primarily due to financial institutions needing to channel funds to reliable companies. And that's something, but I question whether it's realistic to leave the issue of ecology and social responsibility to the free market. Is it realistic to assume that the free market principles will lead to improvements in these areas? Is it enough to entrust tackling climate change and human rights to profit-oriented companies and institutions that only recommend behaviour models?

I'm still trying to figure that out. I believe more in regulation established by the state and in 'leading by example.' Specifically, ESG or any other principles advocating for ecology and social responsibility are excellent organizational philosophies for business sustainability. Still, they must be given more significance and systematically implemented 'from the top down.' Then, a unified measurement system that results in rewards or penalties needs to be introduced.

Preserving the climate, the environment, and human rights is a global priority, and Serbia is in some way part of that global effort. COVID measures are the most vivid example of the power of state measures. They lasted for a few months and produced results. Dealing with ecology and society requires years of work and long-term rule implementation, so it should be kept to the free market.

Moreover, the free market has been quite turbulent lately, and forecasts say it will only get more unstable. Investors are withdrawing their money or not investing at all. This behaviour has affected 'ESG' and 'non-ESG' funds equally, with 'ESG' funds experiencing a 29% decrease in November of last year compared to January of the same year, which is the first time since these funds were established that such a decrease occurred. The reasons are the war in Ukraine, instability, an impending crisis, fear, and investor mistrust that their money contributes to positive climate change impacts.

There are plenty of fundamental reasons why systematic measures by the state are needed to impact the environment and society positively. For the principles mentioned above related to environmental protection and social responsibility to achieve the desired results, they must be formalized and standardized by the authorities. Some believe that an adequate formalization of principles that will save our planet is the introduction of taxes on products with high carbon emissions. Unfortunately, practice has shown that voluntary regulations based on recommendations alone do not yield sufficient results. What lies 'behind' the introduction of this tax? Time will tell.

I am confident that organized teams of enthusiasts with expertise in introducing and implementing ecological and social principles can contribute to environmental preservation and the respect of societal issues. Suppose this contribution is at the level of companies and institutions in Serbia that will be consulted on why and how to change their business practices. In that case, they will, to a certain extent, contribute to changing the awareness of management and employees and provide training. It is enough to start.

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