ESG standards: From the form that hides the essence to the tools of manipulation

Nevertheless, there is lot of confusion when it comes to ESG reporting. So much so, that many analysts call it a compass without direction, and part of the reason is found in non-standardized methodology. In 2021, the audit firm Ernst & Young estimated that the number of ESG regulations and standards has doubled in the past five years, with more than 600 regulations being in effect globally.

Our interviewee points out that despite the lack of a universal standards, there are widely accepted methodologies for sustainability reporting and approaches pertaining to individual questions such as carbon emissions.

– One of the largely accepted methodologies, currently widely in use in international companies, and also in companies in Serbia, is the GRI approach. In light of new regulatory requirements in the EU, it is expected that the new EU Sustainability Reporting Standards (ESRS) will contribute significantly to standardizing ESG reports. It should be noted that even though the indicators that the companies evaluate and monitor can be measured in different ways, there is a certain universal agreement in application of the basic principles of reporting and communication as relates to sustainability, Miskovic says.

However, there are still examples that show that the said universal agreement isn`t present everywhere. Apart from the aforementioned example of Coca Cola which Sustainalytics ranks as a medium risk company, whereas Refinitiv gives it an excellent score of 80, there is an obvious difference with many other companies as well. For instance, Johnson&Johnson has a medium risk rating according to Sustainalytics but a high score of 88 according to Refinitiv.

One of the biggest complaints is that the standards are based on the data that companies themselves provide, which aren`t always precise and complete. The suspicions about transparency and good intentions grew after The Economist magazine published a research on the 20 biggest ESG funds which shows that each fund holds investments in fossil-fuel producers, and many have invested in oil production, coal mining and gambling, alcohol and tobacco industry.

Manipulative green marketing

All these inconsistencies and ambiguities are a fertile ground for false green advertising. One of the major representatives of fast fashion, H&M, has a low rating of 15,7 points according to Sustainalytics and a good score of 75 according to Refinitiv. The brend has, however, faced many accusations and even lawsuits for greenwashing, and it isn`t the only brand this has happened to. “Eco”,“green” and “zero waste” labels are on everything, from clothes to cosmetic products.

– Advertising products as “green”, “eco” or “carbon neutral” can mislead consumers into thinking they are supporting good practices with their choices, even though the study conducted in the EU countries confirmed that in a great number of cases these claims are vague, incomplete or unfounded – in other words, scientifically supported. As far as this is concerned, we can only expect new regulatory interventions which will stipulate the conditions under which those claims can be used in advertising, Miskovic states.

According to her, if a company doesn`t want to fundamentally improve its operations, it would mean it hasn`t identified its biggest positive and negative impact concerning ESG factors or the risks and possibilities these factors bring with them and that it lacks well-defined goals and performance indicators.

– In that case, any environmental or social awareness campaigns may be characterized as insincere or manipulative advertising to which the public is extremely sensitive due to previous bad experiences.

Profit or ESG – (False) dilemma

Another problem with ESG standards are investors` expectations. Two years ago, Emmanuel Faber, the CEO of Danone, resigned because of the mounting pressure from investors, where one investor made a suggestion that Faber “hasn`t succeeded to establish a balance between creating value and sustainability”. Therefore, many are of the opinion that Faber was punished because he made the company more environmentally conscious.

The “profit or ESG” dilemma is still present among those companies that are often afraid they will lose the competition to less rigorous countries, such as China, if they focus too much on ESG standards. But, if the company doesn`t put enough focus on ESG, it risks losing the support of its employees, customers and investors, which is why this balance is very important.

– ESG rating, like non-financial reporting, was established to complement financial data with relevant information that allows for better assessment of the business condition and perspective of a company, especially where investors are concerned. ESG ratings, together with ESG reporting, help investors to understand priorities of a company and long-time risks it might encounter in the future. Therefore, they are primarily intended for investors, because they, first and foremost, examine the way a company manages risks concerning ESG factors, our interviewee explains.

Nevertheless, these standards can implicitly help customers choose a product or a service. Research shows that customers are putting more and more accent on companies` environmental and social responsibility.

– It is also important for society in general , for consumers and citizens, what kind of impact a company makes. That is why, the EU, for example, insists on the principle of “double materiality” which means that matters relevant to the company are determined in the sense of being a risk to business and the impact that a company has on a community. The fact is that other interested parties have started paying attention and are assessing companies through the prism of their ESG performances, by using various sources of information, Miskovic says.

Mandatory EU sustainability reporting standards

The “double materiality” principle is the backbone of the new EU Corporate Sustainability Reporting Directive which will go into effect in 2025 replacing the Non-Financial Reporting Directive from 2014. The new directive will cover approximately 50,000 companies compared to the present 11,700 companies under the old directive. One of the new rules is that the companies will have to report according to the European Sustainability Reporting Standards (ESRS) which should be adopted by June 30, 2023 and the set of standards for specific sectors should be adopted by 2024.



The ESRS encompasses 12 draft standards, two of which cover the general demands and the ten other focus on specific ESG issues, such as climate change, pollution, water resources, biodiversity, use of resources and circular economy, workers, affected communities, consumers and business conduct.

It is still unclear whether these standards will be mandatory for entities that operate in the EU but are based outside EU, like Serbian companies are. At the moment, there are very few differences between multinational companies that do business in Serbia and local enterprises.

– The fact is that multinational companies have greater access to knowledge and experience that comes from their headquarters in the developed markets but also, that local context of each market has its specificities. In addition, successful domestic mostly export-oriented companies or those which are a part of large chains of multinational companies are often subject to various inspections so they have, over time, developed quite advanced practices concerning specific ESG criteria and continue to do so, Miskovic points out.

According to her, in order for a company to use all of its potential, avoid possible risks and strive to lessen the negative impact of its activities on the environment and community, it is crucial to grasp the whole picture and the way these issues are addresses in addition to the technical knowledge about certain ESG issues. This is where management plays a key role, both in domestic and multinational companies as well.

– It is not so easy to come to the point where ESG factors become an integral part of business strategies and goals, where there is coordination and synergy between different sectors and domains and what gets communicated to the public. In this respect, Responsible Business Forum pays special attention to empowering managers to address this issues appropriately. We have a series of courses and workshops on these topics planned for this year, Miskovic notes.

Will ChatGPT write reports in the future?

Concurrently with the news on adopting unique standards comes the story that in the future, ChatGPT will be writing ESG reports. ChatGPT did say that it can write ESG reports for any company in the world with the constraint that it needs relevant information on business operations and access to financial documents and relevant reports.

– After I collect all information necessary, I will analyze them and assess the ESG score, identify areas that can be improved and give recommendations on how to improve sustainable practices, ChatGPT says.

Experts from this field say that it is almost certain that ChatGPT will have a role in gathering and analyzing the data, but, for now, it should only be treated as an assistant. Jobs are still guaranteed in this field, analysts claim, noting that writing reports is part art and part science and that the role of sustainability professionals is to inspire organizations, whereas artificial intelligence will never be able to do that.

Marija Dedic