Businesses and consumers are now more likely to consider a company’s ESG performance before deciding to buy their products or services. This means that an ESG strategy is vital for all companies, irrespective of their size. Should companies dedicate additional resources to ESG reporting as the world becomes more climate-conscious?
As the UK Government’s focus turns to the environment and ethics, it follows that there is now legislation regarding ESG strategy reporting for bigger corporations. While this primarily relates to listed companies, bigger private companies also come under these new rules. It seems inevitable that this will eventually trickle down to small businesses.
Therefore, those implementing ESG ahead of time will be future-proofing their reports. They will also broadcast their social and environmental credentials to a broader audience.
What Are The Reporting Requirements For ESG
The International Sustainability Standards Board has published clear guidance on how larger companies must report their ESG strategy. Although not officially implemented yet, the UK Government has stated that it plans to incorporate this into its existing framework.
Instead of following this guidance precisely, businesses can use it as a starting point to develop ideas on how to improve their reporting to showcase their ESG performance. Businesses should take inspiration from the existing regulations for larger organisations to plan with more clarity.
Planning Ahead For The Future
Businesses considering reporting on ESG for the first time should seek guidance from an audit professional, especially one that has a deep understanding of the business and its market.
As they can help safeguard their investments, investors now view ESG strategies as more of a “must have” than a “should have”.
What is the first step towards ESG?
Putting in place a robust ESG strategy should be the first step for a business. It is critical that everyone in the business is aware of the strategy and that decision makers make good on their commitments.
While countless small businesses have invested resources into positive environmental and social activities, by putting these into an ESG strategy they create a commitment, against which they can be measured.
What are the positives of an ESG strategy?
There are many benefits to implementing an ESG strategy into a business’s corporate reporting, such as winning more work.
This is because it is now normal for businesses to check a company’s ESG strategy before working with them. Another positive to having an ESG strategy in place is that it can lead to increased engagement with key stakeholders.
Attracting And Retaining Employees
When looking at which business to work at, potential employees are looking more and more at a business’s ESG strategy. Therefore, publicly displaying that strategy can help distinguish your brand in the competitive job market, especially when there is a countrywide struggle to attract and retain talent.
Key Elements To Consider
A narrative overview is a key element that businesses should include in their ESG report. It allows them to explain their overall approach and the changes they are taking to improve their performance in this area.
Another key element is KPI metrics that show year-on-year trends, as they enable the report to demonstrate the positive impact that the ESG strategy is having on a business.
Example KPIs include the following:
- Details of supplier payment terms
- Details of a business’s carbon emissions
- Details of a business’s energy consumption
- Percentage of gender / racial or ethnic group representation for management and employees
- Pay equity by gender for similar roles
- Amount of material recycled, composted and processed as waste energy
- Annual total compensation ratio of CEO to the median for all employees
Conclusion
For many companies, social and environmental awareness has become a critical factor in their brand identity. Because of this, businesses must show their enthusiasm to do what is right and go even further by making a formal policy that highlights their ESG performance simply and appealingly.
If your business is considering starting ESG reporting, contact James Hadfield, Audit Partner at Menzies LLP, on [email protected].
Offering the full range of accountancy services, Menzies is headquartered in London (with a network of offices across Surrey, Hampshire and Cardiff), and has a global reach through the HLB network. Described as the ‘best performing firm outside of the top 10’ by Accountancy Magazine, Menzies has over 500 employees and an annual turnover of more than £50m. Menzies is a member of HLB International, a global advisory and accounting network.
An award-winning firm, Menzies was 2022 Finalists at the Tax Tolley Awards for: ‘Best Business Tax Team’; ‘Best Employer in Tax’; ‘Best Specialist Tax Team’ (Innovation & R&D); ‘Best Regional Tax Team’. The firm also won the title of ‘Corporate Restructuring & Insolvency Team of the Year’ at the Credit Awards 2022 for the second year in a row and was ranked 6th in the Accountancy Age Mid-tier Power Index 2022. Menzies won the ‘Diversity and Inclusion Award’ at the Tri Awards 2022.
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