ESG trends and benefits

In recent years, there has been a rise in the importance of environmental, social and governance considerations for public listed companies due to an increased awareness of sustainability issues, along with the need for governance accountability. 

The key trends that have emerged provide benefits for business leaders who choose to embed ESG matters into their operations and reporting, resulting in long-term value for stakeholders.

In October 2020, the Financial Reporting Council published a discussion paper outlining their vision of the future of corporate reporting. They stated that it is important for companies to focus not just on financial reporting, but also on non-financial matters. They believe that “...demand has shifted from just thinking about a company’s financial performance and position, to value creation and the wider impact of the activity of a company on society and the environment.”

Addressing climate change issues is a key priority for many countries. The United Nations focuses on this through their 2030 Agenda for Sustainable Development, their Framework Convention on Climate Change (UNFCCC), and the Paris Agreement on climate change. Notably, 12 of their 17 Sustainable Development Goals reference climate change, along with Goal 13 being solely related to climate action. The urgency of this issue is reflected in the words of the United Nations Secretary-General, António Guterres: “2021 is a make-or-break year to confront the global climate emergency.”

The Task Force for Climate-Related Financial Disclosures (TCFD) recently published a report on their recommendations for companies reporting on climate-related financial information. This is to ensure that the effects of climate change will become part of the considerations for business and investment decisions. The UK Government has also announced that all TCFD disclosures will become mandatory for public listed companies by 2025, with many required by 2023. According to a recent Proactive Investors article, 77 of the FTSE 100 companies have implemented the TCFD Framework in their reports.

In addition, the UK Corporate Governance Code 2018 states that a Board needs to focus on social issues, such as engaging with the workforce, and also have a Board diversity policy.

The ongoing Covid-19 pandemic and its impact on the economy and society has reinforced the importance of companies having resilience during these adverse conditions. A recent report from BlackRock linked resilience to ESG, stating that: “Companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions while still benefiting from positive market environments.” [1].

Focusing on employees’ training and development, mental health and wellbeing, along with diversity, inclusion, culture and purpose, can result in a well-trained, focused workforce who are invested in your company’s future. It can also help to attract ESG-minded employees. According to a McKinsey Quarterly article: “A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall.”.

Investors are increasingly focusing on how well a company embeds ESG into their daily operations. A 2020 World Economic Forum publication stated that investor activism will reinforce the ESG trend, especially in light of the Covid-19 pandemic: “...many activist investors will scrutinise closely how companies behaved during the pandemic crisis,”[2]. This is reinforced by a JP Morgan article, which states that: “Investors may also use this [ESG] information to filter companies that aren’t sustainably minded and thus may pose a financial risk.”

Focusing on ESG considerations can provide a competitive advantage for your company. It is often seen as the right thing to do for both people and the planet, and is strengthened by business models focusing on value generated for stakeholders.

Products that are produced in a more environmentally or socially friendly way can demand a higher price point. Research from McKinsey states that customers can be willing to pay extra for ‘greener’ products: “We’ve found that upward of 70 per cent of consumers surveyed on purchases in multiple industries … said they would pay an additional five per cent for a green product if it met the same performance standards as a non-green alternative”.

Recent trends have shown the rise in importance of ESG considerations. Focusing on this can bring both financial and non-financial benefits to your company, and provide long-term value for all of your stakeholders. If you would like to learn more about how we can help you to improve your company’s sustainability proposition, please get in touch. We would love to help. 

[1] BlackRock, Sustainable investing: resilience amid uncertainty

[2] Schwab, Klaus and Malleret, Thierry (2020) Covid-19: The Great Reset. Forum Publishing. P 188.