Environmental, social and governance (ESG)

To shape your ESG strategy, you need to identify the priorities most relevant to your organisation. These decisions will be based on both stakeholder expectations and your view of the importance of these areas to the success of your business. Actions should be embedded into your wider business strategy and systems used to monitor progress. Your ESG strategy should be aligned to your purpose and become part of your culture, including engaging current and prospective employees, potential investors and customers.

Climate change and Net Zero is a major market issue, and regulators and standard setters are aligning around common reporting standards as agents of change.

In response, we are seeing mandatory climate-related reporting for larger sized businesses, funding targeted to tackle climate change and organisations of all sizes being required to transition to a low carbon footprint as a condition of doing business.

Having a climate strategy is no longer just the right thing to do, it is a necessary consideration when meeting regulations and stakeholder expectations. Excluding this area from an ESG strategy could have costly repercussions.

When deciding where to work, considering whether an organisation is inclusive and purpose-led with strong values around ESG can be key in many people's decision-making process. Thinking strategically about factors such as inclusion and diversity and labour standards, as well as attracting and retaining talent, can help keep yourself as an employer of choice.

For organisations seeking to lead on the ESG agenda, human capital considerations are board issues.

Supply chain sustainability and security can be core risk considerations for organisations, particularly where critical aspects of the supply chain are based overseas. Ethical risks are heightened as the complexity and geographic reach of a supply chain increases and transparency reduces.

Physical climate risks, modern slavery & working conditions, geopolitical risks, sanctions, bribery & corruption, trade compliance & export controls, access to and the sustainable use of natural resources or changes to the focus of taxation are all key considerations as governments look to green taxation to encourage sustainable change within their economies

You need to ensure that suppliers and partners involved in your supply chain are transparent, adhering to good international practice and legislation, and that you have early visibility of potential cost increases.

Read our latest insight on where mid-market businesses are focusing their efforts for an ethical, sustainable and secure supply chain.

For some organisations, tax policy will itself be a driver behind ESG-related business change.

Taxes on the use or production of commodities and products viewed as having negative externalities, such as carbon, non-recyclable waste and plastics, are increasing globally. For other organisations, tax considerations are part of the broader ESG agenda but can add or erode value depending on how proactive an organisation is.

Non-compliance leads not only to costs in dealing with tax authorities but also potentially significant reputational damage with stakeholders and customers.

A growing number of borrowers and sponsors are seeking to access ESG-linked financing.

This encourages companies to enhance their ESG commitments, allowing them to achieve better pricing on their loans or bonds.

As ESG momentum is building for the midmarket, businesses must pay attention to their ESG credentials to maintain cost-effective access to capital, potentially as soon as their next financing round.

Ensuring ESG awareness is embedded into everyday decision-making through governance frameworks, leadership, and culture can be a challenging transformation, but is a priority for an effective sustainability strategy.

Integrating ESG strategies and approaches into governance frameworks will build confidence, instil trust and ensure an in-depth understanding that flows from the board throughout your organisation.

Critical components of sustainable business practice include decision-making frameworks, control and risk practices, culture, board leadership, remuneration structures, reporting and stakeholder impact. Disclosures provide a window onto leadership capabilities and awareness of ESG risks and opportunities.

With increasing changes in regulatory requirements and stakeholder demands, risk management is integral to the delivery of an ESG strategy. ESG risk management will safeguard your business operationally and financially, protecting your reputation and the interests of key stakeholders.

Due to the complex nature of ESG information it can often be not complete, accurate or relevant. Using or reporting information which is inaccurate or unrepresentative could lead to accusations of greenwashing.

Assurance of ESG data will give you confidence in your ESG information and credibility to stakeholders.