ESG has replaced Corporate Social Responsibility. It is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce as well as the community at large.
ESG (Environmental, Social and Governance) while developing business opportunities and encompasses the following, below is a working list:
Environmental: pollution, waste, water, natural resource management, land use and deforestation, energy and climate change.
Social: customer satisfaction, data protection, privacy, health and safety, human rights, modern slavery, stakeholder and community engagement, employee relations, conflict zones and conflict minerals.
Governance: managing on a transparent basis with shareholder and employee involvement, anti-bribery an d corruption, anti-money laundering, executive pay, the gender pay gap, Diversity and Inclusion, board composition, conflicts of interest, political contributions, whistle blower programmes.
ESG is about ethics and it is not inconsistent with growth and profitability and will be attractive to certain categories of investors.
Pressure from investors is led by issues such as time for the environment and social equity and the view that ESG compliance is good business practice. When funders look at pitch decks, they have in mind ESG as encompassing critical factors.
Companies are experiencing increase in pressure from investors, employees, customers and other stakeholders to increase transparency on sustainable and social responsibility by ESG reporting.
Companies need to be transparent about their activities and that must be dealt with in their accounts if they are a listed company or if a private company that has a turnover of £36m+. However, it is good practice for private limited liability companies to voluntarily address ESG in their Accounts.
Transparency means the market is better informed about companies and their behaviour. That impacts upon the issue of investment because lack of regard for ESG can affect a company’s reputation.
Consumers need to trust companies and that means that companies need to be proactive, keep the market regularly informed about their activities, show how they manage operations and the impact they have on the communities in which they operate.
ESG is a necessary part of any company and its growth. It is essential that management addresses the issue of ESG as a question of not only complying with legislation but also embedding it as part of its policies, governance, values and beliefs that find practical expression in how a company conducts its business.
Investors, Employees and Buyers
When looking at potential investments, investors will consider a company’s ESG as well as long term risk, opportunities and financial performance. Customers and employees may well evaluate a company’s impact in ESG terms to decide if they want to work for or buy from a particular company.
How to create an ESG programme
ESG is an integral part of a company taking serious steps to build its corporate reputation and create a strong base for engaging employees, shareholders and stakeholders.
You can create your own ESG Management Framework. There are various tools available but you know your business best and how you want it to perform in relation to ESG which after all is a practical way of enhancing your company’s reputation as a company for which people want to work and to build a better picture of your company and its ESG rating.
Reporting on ESG in your financial results can benefit your company by presenting a sustainability story that is aligned to your business strategy and financial performance. To do that you will need to:
· Identify stakeholders impacted by and impacting on your company.
· Formulate your ESG issues, performance matrix, targets, initiatives and frameworks.
· Communicate how your ESG Management Framework and reporting aligns with your business strategy.
· Report using your ESG Management Framework to achieve continual improvement by understanding sustainability issues that affect your business.
The actions in your ESG Management Framework must be specific, practical and transparent and the message in your financial report should be focused of your target audience. Reporting ESG with your financial results can benefit your company by having a sustainable narrative that is aligned to your company’s business strategy.
There is the opportunity to be imaginative without detracting from your company’s performance, for example SMEs can collaborate with Social Enterprises on projects such as educational sponsorship programmes, the provision of fresh water in countries where it is needed to improve lives and the environment in which they live.
If you have a query, please contact Lynne.