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8 November 2021

European corporate insight – ESG

Source: Andersen Global

Is there any specific ESG guideline and/or application in your jurisdiction? Any soft and hard laws?

Ukrainian legislation imposes numerous requirements on companies in the sphere of ESG. Businesses that have an impact on land, flora and fauna, pollution and waste management must obtain environmental and safety permits from various governmental and local authorities for their operations. Usually, such permits require periodic renewal or review of their conditions as well as ongoing monitoring and compliance reporting. Social requirements such as working conditions and health and safety are also heavily regulated and may be considered as pro-worker. For instance, all Ukrainian companies with hired personnel must enter into and maintain collective bargaining agreements. There are detailed corporate governance requirements which differ based on the legal form of the company, but also contain specific rules for certain groups of entities (e.g. banks). As an example, the majority of Ukrainian joint stock companies (with a few exceptions such as private JSCs with less than 10 shareholders) must implement a two-tier board system – management and supervisory boards.

In contrast to detailed ESG rules and regulations applicable to Ukrainian companies, there are currently no hard laws that require investors to account for ESG while making investments. However, this vacuum can be filled in soon at least in respect of Ukrainian banks. The Ukrainian Central Bank has recently announced the development of ESG standards in cooperation with the International Finance Corporation.

As far as soft laws are concerned, ESG topics have been reflected recently in the revised version of the Core Code of Corporate Governance approved in 2020 by the National Securities and Stock Market Commission (the NSSMC), the Ukrainian securities regulator. Developed together with international experts, this Code aims to set a benchmark in corporate governance for all Ukrainian companies, although the primary addressees of the Code are joint stock companies that have or plan to have their shares listed on a stock exchange. It is the first time that ESG is mentioned in the Code since its first version issued in 2003 and a subsequent revision in 2014. Compliance with the Code is not mandatory, but it is strongly recommended by the NSSMC to the companies under its oversight.

The Code pays attention to ESG development in various aspects, including setting of ESG goals for a company, division of responsibilities between management bodies of a company in the sphere of ESG and ESG reporting. The NSSMC expects that the Code will become a national standard for corporate governance in Ukraine. Given that there are plans to further develop the Code to tailor it to specific players (such as state-owned enterprises) and topics (e.g. anti-corruption), ESG requirements may also be expected to evolve together with the acknowledgement of their role on the path to sustainable development.

Are there any ESG benchmark companies have to adapt to if they want to be able to attract investors?

There is no universally accepted ESG benchmark for Ukrainian companies that want to attract professional investors. However, we observe that development finance institutions (DFIs) active in Ukraine have their own sets of ESG requirements. As a result, borrowers and projects seeking financing from DFIs must comply with their respective ESG requirements. Driven by DFIs, Ukrainian banks also tend to implement a similar approach to ESG in their financings.

Are there particular incentives or benefits depending the financing method used?

The impact of ESG criteria on decision making and structuring of transactions is not currently clear. At the same time, since ESG requirements are present in all financing projects of DFIs in Ukraine, they appear to be an essential part of those transactions.


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