What are ESGs and how do they affect me?
Sustainability and environmental issues have been hot topics for a while now and, if you’ve been wondering if these affect your business at all, you might be aware of the ESG (Environment, Social and Governance) initiative.
Currently Environmental, Social and Governance (‘ESG’) requirements are not wrapped up in a single piece of legislation, and there may be no legal requirement for your business to make any specific changes in how you work. ESG does, however, remain a useful way for your business to show how well it’s doing in three core areas:
- Environmental – things like causes of pollution, greenhouse gas emissions, carbon emissions etc.
- Social – Data security, mental health, inclusion and community relations are some of the topics covered in this category.
- Governance – this category deals with issues like recruitment best practices, management structure, political contributions and employee relations.
It’s likely that legal provisions will be put in place here in the UK (as has already happened with the approval of the Sustainable Financial Disclosure Regulation (SFDR) in the EU’s Financial sector). While they tend to apply to larger businesses first (often rolling out to the biggest, then flowing down to smaller organisations), they may reach you in a few years.
Does this apply to my business?
Most of the current ESG disclosure requirements come from the UK Corporate Governance Code, the Companies Act and the FCA Disclosure Guidance and Transparency Rules. They consist of broad provisions which apply to all sectors, although you may not yet be formally required to report under them, depending on the size of your business.
It will then be up to each individual business to determine how to turn those broad provisions into more specific tailored credentials, which will then have to be explained properly to the public. Even if you’re not obliged to do so, you may find it helpful for a number of reasons.
You may find yourself asked about your ESG performance if you’re bidding to provide your products or services to a bigger company. This is particularly likely if your client is providing a turnkey solution to Government, where ESG performance is increasingly an important consideration for selection of suppliers.
Legal requirements aside, you may wish to demonstrate how socially responsible, sustainable and environmentally friendly your business is. A strong ESG performance will be an important indicator of how resilient a company will be in the long term. You may find that your clients, investors and potential new hires will be looking at businesses which can show strong ESG awareness, and demonstrate the qualities that make a company a sound investment and a great place to work.
What should I do now?
To start with, it’s a good idea to carry out an ESG risk assessment to determine how well you’re performing in each of the three areas listed above, and then to set up some ESG goals for your business.
Short term goals might include things like finding ways to reduce your carbon footprint, improve recycling, minimising waste and other efficiency improvements. You might also want to look at organising opportunities for your team to contribute to community events (a great team-building opportunity, as well as meeting your Corporate Social Responsibility obligations!).
During this process it might make sense to apply for the relevant ISO certification, if this can realistically be achieved in the course of your other efforts – which will also benefit your sales and marketing efforts.
What if I need help?
Devant will continue to monitor any new developments in this area, but in the meantime, if you have any questions or need help with ESG compliance and policy preparation please do not hesitate to contact us.