Building a Framework for Sustainability and ESG

BBJ: Although you are Budapest-based, you work regionally and globally. When it comes to corporate environmental, social and governance awareness, how far ahead or behind the curve is Hungary?

Gábor Hegyi: Western European and U.S. companies are currently more advanced in introducing and operating transparent ESG policies. However, even they face enormous challenges to make their operations more sustainable. The critical issue is how to establish a healthy balance between profitability and sustainability, how to shift from shareholder capitalism to stakeholder capitalism, where all stakeholders (including employees, customers and investors) can benefit, and goals like fighting poverty or reaching net zero are possible. As for Hungary, I see a significant change in corporate attitudes toward ESG and sustainability. More Hungarian managers have realized that going sustainable will be the new business as usual. In recent years, an increasing number of Hungarian companies have developed their sustainability strategies and introduced solid and transparent ESG standards and policies. Hungarian companies trade with Western European and U.S. partners, many are part of extended supply chains, and if they want to remain competitive, they can’t miss the boat. Investors, banks, business partners, and even customers watch for ESG factors and demand much more compliance with ESG standards, which Hungarian companies should meet to avoid losing markets and business opportunities.

BBJ: Is the field driven more by legislative (whether EU or national) or corporate agendas?

Paul Mackintosh: Both, but the balance varies at different levels. The EU Corporate Sustainability Reporting Directive (CSRD) has been called a game changer. It won’t initially affect smaller companies (as many are in Hungary), but its effects will feed through, not least because many major MNCs and banks are pushing their own ESG policies and refusing to work with or fund non-compliant companies.

Paul Mackintosh, senior advisor at Capital Communications

BBJ: Does the cynicism engendered by greenwashing present a threat or an opportunity for brand-building?

GH: It is definitely an opportunity. Our Impact Branding service helps management to avoid greenwashing and become more transparent instead, building trust based on facts among crucial company stakeholders. As a corporate and financial PR agency, we understand boardroom mentality very well. With Impact Branding, we support management in creating a well-established ESG framework at the company, building a brand, and effectively communicating sustainable efforts and achievements both inside and outside the company. We are talking about a framework, not simply an ESG strategy, because it should be fully integrated throughout the organization in order to make it part of the company’s DNA. In this case, it will not be possible for the company to run into greenwashing problems simply because its own set of rules will not let it happen. Sooner or later, trust will replace cynicism in most cases.

The main reason we are focusing on Geneva and planning to open an office there is simply because Geneva is a key hub for sustainability and sustainable finance. As we have become part of the Geneva sustainability community, we can offer state-of-the-art solutions to our clients, should they be in Hungary, Europe, or elsewhere.

BBJ: It used to be said there was deep public suspicion in Hungary around corporate and social responsibility. Has that transferred to ESG?

GH: That’s been the case everywhere, not just in Hungary, but it’s slowly changing now thanks to some good examples from major companies. Hopefully, ESG will avoid most of the past suspicion towards CSR. ESG is much broader than CSR, covering all company activities, from operations to HR. This is a huge difference, so with a sound ESG framework, companies can build trust among their stakeholders and the public and avoid suspicion. Obviously, this will take time. This is why we base our Impact Branding approach on solid, measurable ESG improvements.

BBJ: How much of your business comes to you (i.e., companies asking for your help), and how much do you have to be proactive? Do you see signs this is changing?

PM: We do have to be proactive because many smaller businesses, especially, still need to be educated, and the data-based nature of our Impact Branding service needs to be explained. But we do see this changing as more businesses are having to adapt.

BBJ: Is the argument that sustainable businesses also offer investors commercial benefits won by now, or is that still a battle playing out across corporate boardrooms?

PM: It’s still being argued, not least because situations differ in different businesses. But with the whole economic, financial, and regulatory landscape moving that way, the drawbacks of not being sustainable are fast outweighing any possible advantage.

BBJ: What do you think the next great trend in sustainability and ESG will be?

PM: Convergence in ESG standards will likely be the next big breakthrough. With the EU CSRD, the FASB, the SASB, and the rating agencies all heading for the same goal, we can expect a future where ESG ratings drive a company’s performance just as their agency ratings do now. We based Impact Branding on precise, provable measurements to overcome skepticism around greenwashing, and now the whole market is arriving at that destination.

GH: When it comes to sustainability, investors would certainly welcome a more unified measurement and reporting system, enabling them to make faster and better investment decisions.

This article was first published in the Budapest Business Journal print issue of February 10, 2023.