Business and Sustainability: ESG – Between Substance and Symbolism

In an increasingly complex and dynamic world, sustainability is no longer a matter of choice—it has become a new foundation of competitiveness. Companies around the globe, including in Serbia, are increasingly recognizing that investing in sustainability is not merely a reputational move, but a path toward long-term value and resilience. Still, a key question remains: is sustainability truly embedded in core business strategies, or is it stuck in the realm of surface-level declarations?

What Does Sustainability Really Mean?

Today, it is imperative for companies to be focused on sustainability, which represents an integral economic, technological, social, and cultural development aligned with the need to protect and improve the environment, enabling present and future generations to meet their needs and improve the quality of life on our planet.” (Radojković, 2012) This further implies that “the concept of sustainable development includes the need to reflect on the desired quality and realistic pace of societal development, as well as the need to balance different social values. It is based on three core principles: 1) ecological sustainability, which ensures that development is compatible with the maintenance of vital ecological processes, biodiversity, and biological resources; 2) social and cultural sustainability, which ensures that development is compatible with the culture and traditional values of human communities and contributes to strengthening their identity; 3) economic sustainability, which ensures that development is economically efficient and that resources are managed in a way that allows future generations to use them successfully.”
(Radojković, 2012)

In practice, the term ESG is widely used to refer to sustainable business, encompassing three key components: 1) Environmental (E), 2) Social (S), and 3) Governance (G). This means that “the term refers to a set of standards that guide corporate policies to align with sustainable development principles in the areas of environmental protection, social responsibility, and corporate governance. Examples of key ESG topics for companies include: 1) E – climate strategy; harmful impacts such as CO2 emissions, water usage, waste, and energy; the environmental impact of products/activities; 2) S – equal opportunities, inclusion and equity; human rights; the social impact of products; supply chain management; 3) G – business ethics, transparency in reporting; non-financial objectives; gender equality in leadership positions.” (UniCredit Bank Serbia, 2023) Environemnt), socijalne (S – Social) i upravljanja (G-Governance). To dalje znači da se „ovaj termin odnosi na skup standarda koji usmeravaju korporativne politike kako bi bile u skladu sa konceptima održivog razvoja u oblastima životne sredine, društvene odgovornosti i korporativnog upravljanja. Primeri ključnih ESG tema za kompanije su: 1) E – klimatska strategija; štetni uticaj: CO2, voda, otpad, energija; uticaj proizvoda/aktivnosti na okolinu; 2) S – jednake mogućnosti, inkluzija i jednakost; ljudska prava; društveni uticaj proizvoda; upravljanje lancem snabdevanja; 3) G – poslovna etika, transparentnost u izveštavanju; nefinansijski ciljevi; ravnopravnost na menadžerskim pozicijama.“(UniCredit bank Srbija, 2023).

Sustainability is not limited to environmental initiatives or ESG reporting; it demands an authentic shift in mindset, decision-making, and the overall relationship between businesses, society, and the environment.

The role of corporate governance (the “G” in the ESG framework) is both crucial and foundational. Without clear and consistent commitment from leadership, sustainability remains an add-on to the existing business model rather than a core principle. Moreover, a company’s culture – its willingness to listen, learn, and grow in dialogue with communities, regulators, and clients – is becoming an increasingly important indicator of its capacity to thrive in the new value-driven economy.

In May 2023, the World Bank, in partnership with the Serbian Chamber of Commerce, hosted a conference titled “Strengthening Corporate Governance in Serbia: Sustainability Reporting and the Expanded Role of Audit Committees.” At the event, attorney Vladimir Hrle, head of the ESG advisory team in Serbia, noted that the absence of adequate structures, processes, and risk management policies is one of the main challenges companies face when preparing non-financial reports.

Republika Srbija je 2019. godine usvajanjem izmena Zakona o računovodstvu The Republic of Serbia introduced sustainability reporting in 2019 through amendments to the Law on Accounting (“Official Gazette of RS”, No. 73/2019 and 44/2021 – other law), requiring disclosure of activities related to environmental protection, social issues, and corporate governance (ESG – Environmental, Social, and Governance).

Since 2019, all large companies with over 500 employees have been obligated to disclose certain non-financial information.

Specifically, under the law, legal entities subject to non-financial reporting are required to include a non-financial statement as part of their annual business report.

This non-financial report must provide information necessary to understand the development, performance, and position of the company, as well as the results of activities relating at minimum to environmental protection, social and labor issues, human rights, anti-corruption efforts, and bribery. A company lacking basic corporate governance structures and mechanisms will not be able to adequately address the demands of non-financial reporting.

At the same time, changes in the European Union’s regulatory landscape in 2025 further complicate the situation. The European Commission revised its key corporate reporting policies – most notably the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) – significantly easing requirements for the majority of companies. The reporting threshold has been raised to firms with over 1,000 employees, effectively exempting around 80% of those previously covered. This regulatory rollback, presented as a simplification measure and a boost to competitiveness, has sparked concern among experts and civil society organizations. It reduces the availability of ESG data and undermines efforts toward transparency and accountability. For EU candidate countries like Serbia, this shift raises important questions: should they follow Europe’s path toward deregulation or maintain a stricter course as a strategic response to local sustainability challenges? (Khan, Y. (2025). Europe Waters Down Flagship Climate Accounting Policy. Wall Street Journal) Europe Waters Down Flagship Climate Accounting Policy. Wall Street Journal)?

Sustainable Development in Small and Medium Enterprises: A Path Toward Maturity

When it comes to small and medium-sized enterprises (SMEs) – the backbone of the Serbian economy – the question often arises: are these businesses genuinely pursuing sustainability, or are they merely engaging in greenwashing or social-washing? The truth lies somewhere in between and reflects a broader process of maturation. More importantly – how do entrepreneurs and SMEs understand the concept of sustainability?

For the purposes of this article, a poll was conducted on professional social networks with the question: “What comes to mind when I say sustainability?”

The responses revealed that most SME owners in Serbia still associate sustainability with survival, high costs, or trends disconnected from the real challenges of the domestic market. However, the results also point to clear opportunities for education, tailored support, and practical approaches that present sustainability as a tool for long-term stability and competitiveness – not just another burden. The answers highlight the gap between entrepreneurs’ everyday struggles and the abstract language of development strategies: “That’s for big companies.”

“If the government offered some subsidy or incentive, maybe we’d consider it.”

“Just another trend from the West, and we can’t even cover basic expenses.”

“If it means saving electricity and paper – we already do that, because it’s expensive.”

“Who has time for that with all the clients, paperwork, and running the business?”

 

Although they express skepticism and a sense of overload, these responses point to a clear need to present sustainability as concrete, practical support – not just another task. In the context of small businesses, sustainability must translate into simpler operations, resource savings, and long-term stability to have a real chance of taking root.

It is important to note that awareness of the relevance of sustainability and ESG principles does exist – and it is growing. Many companies are no longer in the phase of denial or resistance – they recognize that sustainable principles have become an unavoidable part of regulatory requirements, and a prerequisite for applying to international donors, funds, and banks. And since the Serbian economy is strongly bank-centric, ESG standards are becoming a tool not only for financial survival but also for growth. Banks demand evidence of responsible business practices, investors expect transparency, and increasingly, clients and customers choose products backed by strong values.

That is the trajectory: from resistance, through formal alignment, to a stage of maturity in which sustainability is no longer just an obligation but a deeper business interest and a compass for long-term development. The SME sector is moving in that direction, and the role of regulatory, educational, and expert support will be crucial to ensure this transition is not merely superficial.

“The importance of small and medium enterprises (SMEs) in integrating ESG principles (environmental, social, and governance standards) is further highlighted in recent empirical research. Kurtanović and Kadušić (2025), in their analysis of ESG adoption in EU candidate countries, identify SMEs as ‘catalysts of sustainability’ – not because they lead in formal compliance, but because they offer a scalable and socially embedded platform for ESG innovation and localized sustainable impact. However, the study also points to systemic barriers limiting the wider application of sustainable practices in the region – primarily regulatory uncertainty, underfunded public support programs, and a lack of ESG-specific training.

A broader approach to ESG reporting is advocated – not merely as a compliance mechanism, but as a strategic tool for long-term value creation, resilience building, and legitimacy. Achieving this vision requires regulatory harmonization, investment in digital transformation, and the professional repositioning of accountants as key actors in integrated, sustainability-oriented reporting.

Empirical data collected in 2024 from 51 small and medium enterprises (SMEs) across five EU candidate countries – Bosnia and Herzegovina, Serbia, Montenegro, Albania, and North Macedonia – offers critical insights into the real-world effects and limitations of ESG integration in transitioning economies. While 65% of surveyed firms reported perceived improvements in operational efficiency after adopting ESG principles, statistical analysis of these self-reports revealed important nuances.

Isolated ESG reporting – without corresponding practices – did not show a statistically significant correlation with measurable improvements in efficiency (p = 0.340), suggesting that mere formal or declarative compliance with ESG requirements does not automatically lead to enhanced business performance. In contrast, when ESG reporting was accompanied by practices that increase transparency – such as structured stakeholder dialogue, third-party data verification, and public disclosure of sustainability performance – the effects became statistically significant. Specifically, companies with a high “transparency index” also demonstrated more successful implementation of environmental management standards such as ISO 14001, with a p-value of 0.015, indicating a strong correlation (Eccles, Ioannou & Serafeim, 2014).

These findings support a growing body of research suggesting that transparency is the key mechanism through which ESG intent is translated into measurable value creation (Friede et al., 2015). In other words, ESG metrics become strategically relevant not when they are merely reported, but when they are validated and made available for public and stakeholder scrutiny.

Three key systemic barriers were consistently identified across all analyzed countries:

• Lack of ESG-specific training (72%): Most SMEs cited insufficient internal knowledge and the absence of structured professional development programs as the main obstacles to ESG implementation. This aligns with UNCTAD’s (2020) findings, which emphasize that skill and knowledge gaps remain critical barriers in developing economies.
• Technological limitations (59%): A significant portion of companies reported that their current accounting systems were not capable of integrating ESG data. Most were unable to align with international frameworks such as GRI or SASB, let alone manage data in real time.
• Financial constraints (46%): Nearly half of respondents stated they lacked the resources to invest in ESG reporting tools, third-party audits, or sustainability consultants – indicating a vicious cycle of regulatory pressure and limited means.

The implications of these findings are far-reaching. Although ESG integration is increasingly recognized as a driver of long-term competitiveness, SMEs remain structurally deprived of access to the institutional and technological infrastructure necessary for a full transition to sustainable business. These vulnerabilities are further exacerbated in transitional economies, where regulatory capacity, market incentives, and institutional trust are still under development (World Bank, 2021; Kurtanović & Kadušić, 2025). – Merisa Kurtanović, PhD Candidate, University of Sarajevo

 

One of the key dilemmas facing Serbian companies is when sustainability becomes a strategic business decision – and when it remains an ethical dilemma. Are there incentives, standards, or public expectations that reward sustainable behavior?

The answer is increasingly found in understanding ESG not as a bureaucratic framework but as a tool for innovation and business improvement. ESG approaches enable better risk management, open access to responsible investors, and – critically – strengthen trust among internal and external stakeholders and communities. But to harness that potential, businesses must have the knowledge, capacity, and courage to question established practices.

In recent years, ESG and sustainability have risen to the top of both national and corporate agendas. Today, it is nearly impossible to apply for public tenders, grants, or international funding without encountering ESG questionnaires, environmental impact assessments, or evaluations of a project’s social contribution. The Development Fund, the Serbian Development Agency, ministries, and local governments are increasingly subsidizing initiatives that incorporate sustainable practices.

Beyond financial incentives, there is also growing access to educational and professional programs: from short ESG marketing courses and ESG communication schools to the introduction of dedicated academic courses and modules – such as ESG in Business, Responsible Management, and Green Finance. New study programs and certifications are emerging in response to rising demand and shifting market needs.

No sector remains untouched – from mining to IT, all industries and every part of an organization – from production, finance, and supply chain to marketing and communications – are being called upon to understand and implement sustainable practices. ESG criteria are now just as relevant for private enterprises as they are in publicly funded or internationally supported projects. A sustainable approach has become the new “operational norm.”

Still, a critical question arises: does all this lead to meaningful understanding and transformation of business models? Or is sustainability still reduced to checking ESG boxes in documents and submitting the bare minimum in reports?

It is concerning that, in many cases, ESG is perceived as an administrative obligation rather than a strategic framework. This raises the risk of ESG becoming stuck in a loop of performative formalities – shifting from something “nice to have” to a “must have,” but without a real commitment to operational integration. The issue of maturity becomes even more important: without a proper understanding of what ESG truly represents – as a tool for better performance, social impact, and risk management – the entire system risks remaining locked in a cycle of superficial compliance.

The path to maturity requires more than institutional use of ESG terminology – it requires a shift in mindset, capacity-building within companies, and the development of cross-sector knowledge and support infrastructure. Only then can ESG become the foundation of responsible and long- term business success, rather than just a passing trend driven by forms and reporting obligations.

Collaboration with Academia and the Community: An Untapped Opportunity

We arrive at perhaps the most critical turning point: is the business sector ready to recognize collaboration as a driver of development? Through cooperation between businesses, academia, and civil society – via dialogue and mutual learning – new development models could emerge: more sustainable, more inclusive, and more viable in the long run.

There can be no truly sustainable business without cross-sector collaboration. This requires sharing knowledge, learning from other sectors, and moving away from the notion that every company must find solutions on its own.

If we truly believe that sustainability is not a sector but an approach, then the question facing all of us – whether we come from business, academia, politics, or civil society – is: what are we willing to share, and what are we ready to learn?

Good intentions alone are not enough for sustainable development. We need tools, shared standards, and above all – a willingness to take responsibility and collaborate. The businesses that understand this are already building not only market success, but also trust, resilience, and purpose – the values that will make all the difference in the world of tomorrow.

 

 

"This material was published with the financial support of the European Union. The content is the sole responsibility of the Association for Cooperation and Sustainable Development and does not necessarily reflect the views of the European Union. The project is implemented within the project 'EU Resource Centre for Civil Society in Serbia,' led by the Belgrade Open School in partnership with the civil society organisations: Novi Sad School of Journalism, ENECA, Užice Child Rights Centre, Nova Planning Practice, Safe Paths, Young Farmers of Serbia, and the international partner, Friedrich Ebert Stiftung. The project is supported by the European Union and will run from 2023 to 2026."