# **1 Introduction**

Environmental, social and governance (ESG) considerations play a key role in companies’ business strategy worldwide. They guide investors, financial institutions, customers and suppliers to understand the capability of companies to produce value for a broad range of stakeholders (not only for companies’ shareholders, but also communities, workers, consumers, the environment, etc.) in a long-term perspective.

Investors are generating an increased and more sophisticated demand for ESG information, but producing such information is generally complex. Disclosure of ESG information by firm is very limited everywhere; it is mainly done by listed companies. However, SMEs not only represent 98% of firms, and 67% of total employment in Europe (Saez-Martinez, 2016) and even more in emerging countries (ILO, 2019), they are also responsible for 60%-70% of pollution globally (Hillary, 2017, and Miller, 2011). Smaller companies, despite a large number of initiatives,<sup>2</sup> have neither legal obligations, resources, nor relevant incentives to put in place systems to give full disclosure of ESG-relevant information. The picture is even more complex in emerging countries, where only a small number of firms is listed, the average company size is smaller, and ESG information is even more limited if not totally absent. For SMEs (typically not covered by ESG rating agencies) and especially for emerging countries, the urgent need for ESG firm-level information and disclosure is in sharp contrast with its scarce availability.

Between 2018 and 2020, the World Bank Group (WBG), the European Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB) fielded the Enterprise Survey (ES) in 41 countries in the Middle East and North Africa (MENA), Southern Europe, Central, Eastern and Southeastern Europe, and Central Asia. More than 28,000 interviews were completed, answered by business owners and top managers. The survey addresses formal (registered) companies with more than 5 employees, in the manufacturing and (selected) services sectors. The ES covers a broad range of business environment topics, including access to finance, innovation, trade participation, and performance measures.

In various aspects, the ES questionnaire is compatible with some components of ESG ratings, even though the ES questionnaire has not been designed following any ESG standards, nor for possible use on any aspects of ESG topics. However, the questionnaire has a number of questions related to the environmental component of ESG in a special Green Economy Module, and useful inputs concerning the firms’ governance and social aspects as well. For this reason, the information derived from the ES can be a precious source of information regarding these topics: looking at the characteristics of ES firms in different macro-regions, sectors, and size classes can improve the understanding of where firms stand in terms of climate transition, social responsibility and sustainability.

Leveraging on the firm-level information of the ES, we built a “Corporate ESG Responsibility” composite indicator, which is an “ESG-type” and “sustainability-type” score, partially inspired by

> 2 On corporate climate governance, for instance, non-binding guidelines and reccomendations were put forward, for instance, by the Task Force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board; by the Network for Greening the Financial System (NGFS); and by the EU Technical Expert Group on Sustainable Finance (TEG, Haralampieva, 2020).

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