APPLICATION OF ESG PRINCIPLES IN INTERNATIONAL FINANCIAL AFFAIRS
APPLICATION OF ESG PRINCIPLES IN INTERNATIONAL FINANCIAL AFFAIRS

Summary/Abstract: Sustainable financing represents making investment decisions that take into account environmental, social and governance (ESG) factors of economic activities or projects, which leads to long-term investments in that direction. ESG standards are a set of standards that harmonize business with the concepts of sustainable development in the areas of the environment, social responsibility and corporate governance. The integration of ESG standards into the financial sector involves the adoption of policies and practices that take into account the impact of financial activity on the environment, communities and corporate governance. In recent years, the EU has adopted a number of regulations in order to direct financial capital towards a more sustainable economy. Apart from regulatory compliance, there are several other reasons why ESG factors should be taken into account when making investment decisions, the most important of which are: risk, demand and sustainability. Namely, climate change, deterioration of social relations, pollution of the natural environment, etc. carry with them certain risks for financial operations. In particular, the risk of reducing natural resources, the risk of broken supply chains and the risk of an uneducated workforce should be highlighted. An additional danger that comes with not adopting ESG values is related to the damage to the company’s image, because consumers trust companies that cherish the values of responsible business more. ESG reporting is one of the types of non-financial reporting in which a certain company creates and publishes reports on its own impact on the environment (environmental), social environment (social), as well as on the management method applied in the company (governance). Information published in this way can be taken into account by all interested participants in the financial markets, business partners or suppliers when assessing the company’s impact on the parameters of sustainable development. This type of reporting not only includes qualitative and quantitative measurements related to the environment, surrounding and management method, but also a comparison of the company’s achieved performance with previously defined ESG risks, strategies and opportunities. The aim of this paper is to clarify the basic ESG principles in financial operations and the structure of the report, and to point out the advantages of investors who have adopted ESG principles, but also the challenges that still exist in connection with financial operations based on ESG principles.

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