It is hard to ignore the huge push towards saving our environment. As many people have rightly noted, change on an impactful scale will only come from the government in the form of legislation. Whilst many wish to be sustainable and environmentally friendly, without legal ramifications, change will be slow.
Research has clearly shown that the younger generations are looking for more than just transactional relationships with the businesses they work for and use. They want to know that the businesses they are involved with are doing their part to help in the climate struggle. However, it is not just the younger generation which this applies to. A recent report showed that 70% of the UK want their money to make a positive difference. Becoming environmentally friendly can be a huge marketing tool for businesses that do it right and can even save them money.
There are so many things that can be done to become more environmentally friendly such as:
- Installing movement sensors in lights
- Switching to green energy suppliers
- Using sustainable suppliers for everything
In the wake of COP26, we are starting to see pledges from governments worldwide on how they will aid in this issue that impacts everyone. The Chancellor has recently announced the requirements and standards that the UK expects their businesses to adhere to. What are the new legal requirements for the environment, and what changes can businesses make now?
New requirements in the UK
The Chancellor has recently announced that some businesses will be mandated to publicly disclose climate-related financial information. This is in an attempt to ensure that businesses really consider their environmental impact. From April 2022, it is expected that 1,300 of the largest registered companies will be obliged to disclose their climate-related financial information. Initially, it will affect most of the largest publicly listed companies. It will also impact private companies with over £500mln turnover and 500+ employees.
The move is in line with the net-zero Strategy and aims to make the UK’s financial system the greenest, and therefore the most attractive, in the world. It will make the UK the first G20 country to impose a mandatory obligation on their largest businesses, and it is a welcome sight. The rules, although not finalised, are set to come into force in April of 2022.
The new obligations are aimed at helping businesses and investors understand the financial impacts of their climate change exposure, whilst helping to ‘green-up’ the economy. Businesses will have to clearly set out the environmental impact of all activities that it finances/are involved with. Businesses will also have to justify any environmental and sustainability claims that they make. In addition, they must set out their own net-zero transition plans.
Why this important for SMEs
This is only set to affect large businesses at this stage. However, it is expected that employees, investors and other stakeholders will not want to work with a business that is shying away from its responsibilities. Therefore, it is recommended that all businesses are aware of the new regulations. It is also not implausible that this will be expanded to smaller businesses in due course. It is also worth noting that asset managers will be required to show how they include sustainability in their investment strategies. That will allow their own stakeholders/customers to make informed decisions about who they want to invest in. So, if you are looking for investment, it may be wise to act fast. We expect to see due diligence enquiries increase in areas such as sustainability and the environmental impact of your business.
The new rules aim to combat “greenwashing”. This is where firms make misleading claims about their environmental commitments and hold businesses to account to ensure they are moving in the right direction.
Following a public consultation, the specifics, including the reporting obligations and penalties for non-compliance, will be developed shortly.
What can a business do?
Businesses must look at the problem holistically. There is not much merit in focusing on one single issue and ignoring the rest. Businesses must make as many changes as possible and understand the overlap of the many environmental, social and sustainable issues they face.
We are already seeing a large increase in businesses applying to register as a B-Corp company via B-Lab. B-Lab is an initiative to benchmark businesses focused on sustainability. It is currently considered as a ‘gold standard’ for sustainable, ethical and environmentally focused enterprises. There is currently over a six-month waiting list for consideration, and we expect this to increase significantly following COP-26.
If your business is serious about its environmental commitments, you are implored to look at your existing suppliers, the contracts you have in place with them and their own environmental impact. Should you be unhappy with their impact on the environment and/or their internal practices, it is time to move or renegotiate. This will allow you to keep your environmental impact untarnished, and this will look attractive to your stakeholders.
You could approach your suppliers and ask them:
- To provide sustainable alternatives;
- To review their environmental policies (and request evidence that they adhere to it); and
- To identify and mitigate their own environmental risks.
You should, of course, have policies in place to reflect your environmental standpoint. You should ensure you have recourse should a supplier or other business partner fall short of your expectations. This can be incorporated into new policies and can be negotiated within existing contracts. Many businesses are keen to show their willingness to help the environment, so will be open to the idea. Those going through B-Corp certification are required to amend their company’s constitution to enshrine the commitments being made.
Many businesses are now showing their internal and external stakeholders their commitment to environmental change through environmental policies. This document can be internal and/or displayed on your website that sets out your commitment to support the sustainable community. It will serve as a helpful reminder to every one of their obligations and is a focal point for people/businesses wishing to engage with you.
The environmental crisis is becoming impossible to ignore. Many suppliers will soon be forced to stop working with environmentally unfriendly organisations. Research has shown that customers are looking more and more to sustainable businesses. Change is needed, and it is often a complex minefield. However, with the right support, businesses can benefit from the change. Audit your documents, processes and suppliers. What is your corporate responsibility strategy?
Here at ACLF, we are extremely proud of doing our bit wherever we can, and we welcome new change with open arms. We moved to be paperless some time ago, which is no easy feat for a law firm. We are constantly on the lookout for how we can improve. If you need any help with your obligations or if you need assistance implementing some of the above suggestions, redrafting policies, going through the B-Corp process or renegotiating contracts, please reach out to our experienced and (environmentally proactive) team for a chat.
Karen Holden is the Managing Director & Founder of A City Law Firm who practise both commercial law and litigation, having been admitted to the roll in 2005. If you require further advice or assistance, please do not hesitate to contact [email protected]
A City Law Firm Limited is a leading entrepreneurial law firm in the city of London, with a dynamic and diverse team of lawyers. It was awarded most innovative law firm, London 2016 and Business Law firm 2017. They specialise in start-up business law, the tech industry, IP and investment.