Putting the ‘E’ into ESG for 2023
January 18, 2023
With 2022 being a record-breaking year for weather extremes in the UK and globally, and the start of 2023 appearing to follow the same pattern, the need to decarbonise and focus on our environmental efforts is at the top of the agenda.
It is not just down to governments though to act and make key decisions in the race to net zero. According to research by the Department for Business, Energy & Industrial Strategy, businesses accounted for 18% of all UK greenhouse gas emissions in 2020, and surprisingly, nearly half of all businesses reported not implementing any actions to reduce their emissions.
As awareness of the risks and impacts of climate change grows and the urgency to act intensifies, it is time for companies to get serious. But what actions can they take?
Over the last few years, more and more businesses have turned their attention to ESG. Short for Environmental, Social and Governance, ESG is a set of standards measuring a business’s impact on society, the environment and how transparent and accountable it is.
ESG is a fast-growing sector of finance, with Bloomberg reporting that global ESG assets are on track to exceed $53 trillion by 2025. However, there is room for every business to improve its offering, not least because a strong ESG proposition correlates with higher equity returns.
The ‘E’ in ESG is a key place for businesses to focus their attention, or indeed even begin improving. The environmental criteria includes the energy a company consumes, the waste it discharges, as well as the resources it needs – so regardless of the sector a business operates in, there are always ways to be more sustainable.
What are some straightforward steps to take? From simple efforts such as switching to recyclable materials and energy-saving technology such as smart LED lighting, motion sensors, or thermostats, to longer-term planning initiatives, such as having a circular economy programme for zero waste or engaging in sustainable partnerships – these can all help contribute to improve a company’s ESG proposition and appeal to investors.
Emphasising the ‘E’ does not mean neglecting the ‘S’ and ‘G’
While placing an emphasis on the environmental criteria in ESG is important, the aftermath of the pandemic has also brought to the fore the ‘S’ and ‘G.’ Many employees, consumers, and investors are now raising their expectations about a company’s social and governance policies as well.
This means organisations not only meeting expectations on social responsibility and complying with reporting and legal requirements. It also means being able to clearly demonstrate that they take social factors seriously and voluntarily adopt what is considered good practice.
Through placing a heightened focus on environmental efforts in a bid to meet climate pledges, the ball should not be dropped on social and governance policies as they are also tightly regulated. An integrated approach is key as should a business have a ‘blind spot’ in any of the three ESG areas, they risk leaving themselves exposed to reputational damage or even regulatory fines.
Why it all matters
Research shows that investors are aligning their portfolios toward better ESG performance and are starting to view ESG issues as fundamental to the performance of all investments. According to Gartner, 91% of banks monitor ESG, with 67% screening their loan portfolios for ESG risks: highlighting ESG performance is an important consideration for stakeholders and this is only likely to grow.
With rising inflation and energy prices, the cost-of-living crisis, and industrial action, this year is certainly set to bring many challenges for business leaders to navigate. But environmental efforts should not slip down the agenda.
After many criticised delegates for moving at a glacial pace and falling short of a sufficient response to the climate crisis following COP27, it is clear 2023 will be another critical year for our planet, and businesses should not neglect their ESG performance.
By putting the ‘E’ into ESG this year, while still paying attention to the ‘S’ and ‘G’, businesses can ensure they are not only contributing to a better planet but also helping to strengthen their reputation and brand appeal among consumers – and critically, investors – which will boost returns and profitability overall.
Read more about FINN Partners’ sustainability sector here