07 Feb 2022

The “S” in ESG

“Business, after all, is nothing more than a bunch of human relationships.”

Lee Iacocca

Whenever people talk about Environmental, Social & Governance (’’ESG’’), the environmental part always seems to draw all the attention.  The importance of the “S” element is often neglected.  However, it looks like COVID-19 along with the Great Resignation phenomenon have changed that, making social issues increasingly relevant.

The “S” stands for the social part of the ESG concept and simply put, it deals with businesses’ relations with employees, suppliers, customers, and communities in which it operates.  Basically, the “S” is all about the way businesses treat and value people and the impact that companies have on society.  The Great Resignation in the US and Europe reveals that, on one hand, employees are becoming far less tolerant of employers’ non-adherence to widely accepted standards, and on the other hand, employers must be mindful of the needs of their employees to remain competitive in this area.

“S” in the EU

As a leader in the field, the EU requires large companies to report on the way they operate and manage social challenges.  The Non-Financial Reporting Directive (’’NFRD’’) lays down the rules on how companies should report on the social aspects of their operations.

When reporting on social issues in the non-financial report, companies are advised to include some of the following information: actions taken to ensure gender equality, implementation of fundamental conventions of the International Labor Organization, working conditions, social dialogue, observance of the right of workers to be informed and consulted, to form or join trade unions, health and safety at work and the dialogue with local communities, and/or the actions taken to ensure their protection and the development.

Additionally, the EU published accompanying, non-mandatory Guidelines, to help companies map and disclose information about the environmental and social aspects of their businesses.  Companies may decide to use European or national guidelines depending on their business environment.

However, the EU decided to postpone social issues in the ongoing development of the ESG Taxonomy. This does not mean nevertheless, that the EU neglects social issues, but only that global warming is a pressing matter whereas social issues have already been treated existing regulation.

“S” in the Republic of Serbia

In Serbia, the concept of social responsibility in the business sector started emerging after the year 2000. It came along with the influx of foreign companies in Serbia which brought their established CSR policies and practices. Even though CSR cannot be equated with ESG, the concept changed the way businesses communities.

In 2012, the government adopted a Strategy for Social Development and Promotion of Responsible Businesses in the Republic of Serbia for the period between 2010 to 2015.  The strategy does not contain a definition of CSR, rather, following the example of the European Commission, it only describes the various aspects of CSR.  The strategy defines three objectives: promotion of the CSR concept, development of CSR practices and creating incentives and legal obligations that will ensure the development of an environment that favors CSR.

Non-financial reporting according to the Serbian Accounting Act also recognizes social responsibility and social issues as an element of non-financial reporting. Accordingly, the relevant companies report on their activities dedicated to, inter alia, social issues and human resources as well as the application of human rights.

Serbian legislation is aligned with some EU regulations on discrimination, the prevention of harassment and social security.  All of these are essential parts of the social responsibility concept. First, the Labor Act regulates citizens’ labor rights, the minimum wage, protection from unlawful dismissal, rights to forming and joining labor unions, the protection of parenthood rights, the right to sick leave and so on. Naturally, the laws on social protection and social contributions come in pair with the labor law. The Mobbing Act,  in effect since 2010, is another act worth mentioning since it was the first act to prevent mobbing in Serbia. Furthermore, the Discrimination Act established a normative framework for banning discrimination against any person based on their personal characteristics, regardless of whether the discrimination was direct or indirect. Additionally, it is important to emphasize that in 2021, the Gender Equality Act was adopted, regulating the policy measures for achieving and improving gender equality, gender-related policy acts and their monitoring, the institutional framework for achieving gender equality, securing application of the law, and other issues of importance for achieving and promoting gender equality.

Is the “S” regulated enough?

“S” mirrors the ESG in terms of existing and emerging regulations. Regulation setting the minimal standards already largely exists, but ESG entails an ethical obligation to always strive to do more.  Although the EU has not set the “S” as a priority so far (probably due to the protection that the “S” enjoys through labor or discrimination regulation, the existence of the European Court of Human Rights, as well as the alarming climate change), we still expect that it will soon be the focus of the EU institutions.  Serbia is certainly adopting EU standards through the accession process, so we are keeping eyes wide open on the development of ESG in the EU, especially as their impact will be seen in Serbia very soon.


Nemanja Sladaković, Milica Novaković, Teodora Ristić