Partner Article

‘Code red’ for ESG business impact in the Midlands

• 86% of mid-market business leaders consider a strong ESG strategy to be a significant factor in their company’s attractiveness to investors • 82% agree that their social impact has a direct effect on talent retention and attraction • Only 5% of respondents said they felt no pressure from stakeholders on environmental issues • Over a third (35%) have not set a Net Zero Strategy

Businesses in the Midlands face increasing pressure to address environmental, social and governance (ESG) issues but their good intentions need to be backed with more robust planning and better reporting, according to new research from business and financial adviser Grant Thornton UK LLP.

Grant Thornton found that the importance of ESG is widely recognised by the region’s businesses in the year the UN’s keynote climate change conference, COP26, comes to the UK, but the results also highlight significant knowledge gaps around ESG measuring and reporting.

Nearly all of the mid-sized businesses surveyed in the Midlands considered a strong ESG strategy to be a significant factor in their company’s overall value creation (91%); ability to obtain funding (88%); attractiveness to investors (86%).

Mid-market leaders in the region broadly agreed that demonstrating evidence of environmental and social impact directly affects business performance. 72% believe that their environmental performance directly impacts customer buying decisions, while 82% agree that their social impact has a direct effect on talent retention and attraction and 71% think potential ethical issues in their supply chain would pose significant reputational risk to the business.

Growing stakeholder pressure is also driving increased attention on ESG issues. Only 5% of respondents said they felt no pressure at all from stakeholders on environmental issues and just 4% on social issues. For everyone else in the Midlands, investors were identified as being the source of the most pressure for businesses to act in a socially responsible way (36%) while suppliers were found to be the source of the most pressure to achieve Net Zero (37%).

Though ESG is almost universally considered to be a high priority, many of the businesses surveyed are not delivering on fundamental measurement and reporting, with almost half not calculating their carbon emissions for the last year (45). Just over a third of the businesses surveyed have not set a Net Zero strategy (35%) and only half have reported their carbon emissions externally (51%).

The main barriers holding back the mid-market from progressing the ESG agenda, the research finds, is lack of senior management support and a lack of understanding of what is required.

Dave Hillan, Partner and Practice Leader at Grant Thornton UK LLP in the region, said: “This year the importance of making a difference on climate change has been underscored by the UN IPCC report which, world leaders agreed, is nothing less than a ‘code red’ warning for humanity. Our region’s business community clearly recognises the critical need for action and is often enthusiastic about its own efforts. Our results show, however, that many lack direction and do not have a proper understanding of how and where to invest resources that will drive change.

“Robust ESG measurement is no longer a ‘nice to have’. It’s an expectation – of investors, customers and employees – and something all businesses need to address to remain competitive. This goes beyond just environmental indicators – ESG encompasses all aspects of a business, from an organisation’s diversity to its governance procedures, it should present a holistic view of a business’ impact on society and all its stakeholders. Activity needs to be led from the top and it’s important that the Midlands’ business leaders are supported in developing a deeper understanding of their responsibility and the practical actions that need to be taken to embed ESG into their overall business strategy.

“Ultimately, building purpose into your business’ culture and aligning your corporate interactions with those values can bring more of your target market, future talent and potential investors to your door. “

This was posted in Bdaily's Members' News section by Daniel Ash .