- ESG considerations: why is this important for your business?
ESG considerations: why is this important for your business?
ESG considerations: why is this important for your business?29th July 2021 - Published by Kuits Corporate team
From climate change to diversity, Environmental, Social and Governance (ESG) considerations are increasingly at the fore-front for businesses and society alike. ESG, also known as Corporate Social Responsibility (CSR), refers to a business’s behaviour and its impact on society and the planet. The legal and regulatory landscape is changing and the pressure to focus on ESG has grown exponentially, particularly in the last couple of years.
What is ESG?
ESG’s three central elements are:
1. Environmental: how a business deals with environmental challenges such as water usage and waste production and how well it is looking after the environment around it.
2. Social: how well the business treats customers, workers, other stakeholders and the wider community.
3. Governance: shareholder and board governance including issues such as executive compensation, equality and anti-corruption.
ESG is good for business
Focussing on having a positive impact on the world and measuring and reporting on how well the business’ ESG performance in areas such as fair trade, poverty, the environment, human rights, philanthropy and transparency compares to others is becoming increasingly important. The reasons for this include:
- It’s the law: ESG matters are increasingly incorporated into legal requirements that businesses must comply with, including pay gap reporting and ensuring that supply chains are slavery free. Whilst many legal requirements are relevant only for publicly listed companies or larger organisations, many apply to all businesses including anti-bribery laws and the legal requirement for company directors to act in the way that would promote the success of the company for the benefit of its members as a whole and in doing so to have regard to other factors, including other “stakeholder” groups such as employees, suppliers, customers and others, and the long term consequences of their decisions.
- ESG conscious stakeholders: businesses need to react to expectations of ESG conscious stakeholders such as consumers or potential employees who are more likely to evaluate ESG credentials to decide if they want to work with a business.
- Financial rewards: businesses may increase and protect their value by developing a socially responsible reputation and cultivating an ESG focussed culture which could give a competitive edge and attract customers and a talented workforce.
- Attracting investment: there is a growing trend of ESG factors becoming significantly more important to investment decisions. Institutional investors are subject to the UK Stewardship Code of good practice which currently has a greater focus on ESG matters (including climate change) than ever before and institutional investors are increasingly making it clear they expect companies to take a proactive approach to ESG.
How to incorporate ESG into your business
Many businesses already engage in a positive way with the community and its stakeholders, and with the potential benefits of an ESG focus clear, you can improve your ESG credentials by:
- Incorporating ESG practices into your business: both legally required policies and procedures and those that the business chooses to implement.
- Implementing an ESG strategy: a written ESG plan setting out values and objectives and how these will be incorporated into the businesses’ day-to-day operations is a tangible way to prioritise and monitor ESG objectives and hold the business to account.
- Employee engagement: “buy-in” from the workforce and ambassadors for the ESG strategy will be crucial to its success. Effective communication with and training of employees will be key to achieving employee engagement.
- Reporting: you will want to ensure ESG achievements are communicated to stakeholders. This could be achieved in many ways, ranging from a dedicated page on the website to a detailed published report that could be independently verified by experts.
Get in touch with a Corporate advisor today
Kuits can guide you through ESG legal obligations and processes applicable to your business or an investment process being undertaken by your business. If you would like more information on this, please contact Corporate Partner Helen Mather on 0161 838 8183 or email email@example.com.