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From Trend to Necessity: ESG Policies Crucial for Business Strategy

Joshua Holden Senior Consultant 15/02/2023

For investors and customers alike, environmental, social and governance (ESG) values are increasingly growing in importance. Recent data from our UK Business Tracker (surveying 1,000+ UK businesses) tells us that medium and large UK businesses (250+ employees) are leading the charge and implementing ESG policies as a key component of their strategy. Whereas the impact of ESG is less pronounced for smaller businesses (0-249 employees), it looks set to grow.

What commitments are businesses making?

Nearly two-thirds (64%) of medium and large businesses viewed ESG as a key component of their business strategy last month. In comparison, less than a third of small businesses (31%) felt the same. Notably, the resources required to have an internal ESG team are less attainable for small businesses than for medium and large businesses, and therefore ESG will hold lesser importance to the business strategy of these smaller enterprises.

 

 

The importance of ESG in business strategies has led to ESG-themed policies for many UK businesses. Such policies include: signing up to specific environmental credentials (i.e., B Corp, Green Mark, BREEAM), making wider financial strategy greener (i.e., pensions and investments, wider financial support) or reporting and publishing gender or ethnicity pay gap information.

Half (49%) of medium and large businesses have already implemented policies, whereas only one in five (17%) small businesses have done the same.

 

 

The most common element for a business’s ESG policy is the Environment, with nearly four in five (78%) of businesses who have implemented an ESG policy including an Environment policy. Further to this, over two-thirds of businesses with implemented ESG policies include Social (67%) or Governance (69%) elements.

Looking to the future, most (63%) UK businesses have either implemented an ESG policy or have plans to in the future. The importance of ESG for larger businesses is clear, but the impact is spreading to small businesses too.

Though these policies show customers a statement of intent, the promises are left empty without the appropriate actions made to back them up. In the world of social media, the backlash when accused of greenwashing can have serious ramifications for the reputation of the business and the trust of its customers.

Businesses are turning to actions before policies

Fortunately, our data shows that businesses are reacting to the importance of ESG with clear strategic actions, and a lesser extent, policies. 7 in 10 UK businesses have put their money where their mouth is: implementing at least one action towards ESG in the last twelve months.

 

 

Notably, medium and large businesses are again leading the charge, with nearly all (95%) rolling out ESG actions. This is even though over half (55%) of these businesses had initially slowed or reversed their focus on ESG following wider market events of the last years (global pandemic, war in Ukraine, and the cost-of-living crisis).

What ESG actions are businesses taking?

Similarly to policies on ESG, businesses are most likely to focus on environmental actions (60%), compared to social (42%) or governance (36%).

 

 

Four in five (80%) medium and large businesses have taken an action towards the environment, and two-thirds or more have taken actions towards social (72%) or governance (67%) values.

Concerning environmental actions, the most common initiative is using more environmentally friendly ‘green’ products/materials. A third of small (32%) and medium and large businesses (34%) have taken this action over the last twelve months.

When it comes to social policies, providing employee training and supporting employee safety and well-being is the most common action. Nearly half (44%) of medium and large businesses have implemented this in the last year, however, only one in five (18%) small businesses have done the same.

Finally, on governance, the most common action is the introduction of measures ensuring business leaders and managers are accountable for risk and performance management. Over a quarter (28%) of medium and large businesses have taken this action (compared to 11% of small businesses).

 

A strong start despite the challenges

With businesses reacting to the importance of ESG with actions over policies, this suggests ESG is not merely a hygiene factor for investors influencing large companies, but a set of issues which businesses are increasingly pushing from within.

With businesses continuing to take action last year despite the wider market setbacks, the signs for ESG going forward remain strong despite the UK’s current economic uncertainty.

We will continue to track attitudes and responses to ESG via our Business Tracker, to see if this positive trend continues in the future.

For more information about our UK Business Tracker please download our rate card or get in touch with one of our business experts here

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