Czech SIF leads the way on ESG integration in CEE

CEO Julian Toth discusses the challenges and opportunities of integrating sustainability in CEE markets, and why it requires a different approach from Western Europe.

Central and Eastern Europe has traditionally been seen as a laggard on sustainable finance, particularly when it comes to the investment world. Yet there are signs this could be changing.

The inaugural CEE Sustainable Finance Summit, which took place in Prague in May, saw the launch of the Czech Sustainable Investment Forum (SIF), one of the first entities to attempt to formally establish sustainability in the region.

Julian Toth, executive director at Czech SIF and COO at the International Sustainable Finance Centre, told Responsible Investor of plans to broaden the organisation’s scope in the near future.

“We’re looking to potentially integrate Slovakia into the SIF, making it a Czech and Slovak SIF, given the close connection between the two countries and how a lot of financial institutions are present and connected across both Czechia and Slovakia,” he said.

The Czech SIF is one of the first sustainable investment forums to launch in the CEE region, following the inauguration of RomSIF in Romania in 2021.

“Originally, we thought we’d model the Czech SIF on another European SIF, but we quickly abandoned the idea because it is a completely different context, market and location,” said Toth. “Sustainability is not integrated in society’s mentality in the same way that it is in the West. Very few firms are connected to it and integrate it in their business model.”

He noted that the main focus for Czech companies is building economic prosperity, which meant that the SIF model and practice needs to be tailored to suit local demands, needs and mindsets.

While Czech SIF is still relatively young, it has already started to garner interest from local market players.

“It is still in its early stages, but we were pleased with the high demand and interest from local investors,” said Toth. “In one of our sessions, we had around 20 different financial institutions attend and actively participate in the discussion.”

He added that the initiative has been well-received by investors, who have found it a useful resource on sustainable finance and are using it as a guide for incorporating ESG into their businesses.

Getting back to basics

The Czech SIF has taken a practical approach to addressing sustainability issues with local companies. The organisation’s founders have held working groups to establish how financial institutions can help their portfolio companies be more sustainable, what ESG means and how to navigate it.

“We try to be very concrete and practical, because ESG is a fairly new topic to some stakeholders, and some people are still unsure about the benefits of sustainability in business,” said Toth.

“Discussing topics like climate data and social indicators, which have particular concepts and acronyms, needs a step-by-step approach for firms that are new to sustainability. This just reinforces the argument that we need more standardisation, clarity and simplicity in order to avoid an overwhelming amount of ESG initiatives.”

The SIF has undergone several revisions, with initial plans to focus on sustainable finance regulation, in keeping with other European SIF models, being abandoned.

“This is a big focus for some of the more established SIFs across Europe because of their size and international members, such as BlackRock and Sustainalytics, as well as their role in the Brussels decision-making process,” said Toth. “Big entities, especially in the West, care about policy and wish to actively influence it.

“However, in the local market, while policy and compliance are still important, we see greater focus and interest in practical integration of ESG in investment management.”

Toth stressed, however, that Czech companies are not completely new to incorporating ESG practices into their investment and due diligence processes.

“We’ve found that some funds are integrating ESG in their decisions without even realising it,” he said. “To them, it is just considered ‘common business sense’, but they have not correctly reported their approaches and activities. If you make the business and risk management case for success and competitiveness, companies are automatically more motivated to report on their sustainability measures.”

Looking ahead to 2023, the SIF is hoping to continue its progress on sustainable finance in the region, with plans to lead more working groups in the new year and further establish its role in the Czech financial market.

“We’ll be leading a working group in January which will focus on regulation and implementation, while also looking at the impact of ESG policies,” said Toth.