Sustainability – Making smart decisions today for tomorrow's benefit 
What is ESG? ESG (Environmental, Social and Governance) has become the recognised term for the standards businesses use to operate in a sustainable and socially responsible way.
Richard Baker, Audit & Assurance Partner at national audit, tax, advisory and risk firm Crowe in Reading, looks at what ESG matters to businesses.
Frequently, people talk about ESG in the context of environmental considerations: waste, pollution, energy and the like. It is in the DNA of businesses, particularly those involved in production, to minimise waste and energy usage so they remain competitive in their markets. Pollution is more difficult to control as it depends on the technology available for generating energy, producing goods, and reducing energy usage.
| Net zero – an ambitious global challenge
The UK has committed to becoming ‘net zero’ by 2050. This essentially means that greenhouse gas emissions are in perfect balance with greenhouse gases removed from the atmosphere.
When President Kennedy made his famous moon speech in 1962, he said “We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard; because that goal will serve to organise and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win, and the others, too.”
It is easy to set a target for something to happen in almost 30 years’ time – ‘net zero’ is so ambitious that it will require a similar determination to the moon project across the globe. This will involve governments, businesses, individuals, and technologies that have not yet been invented. The radical actions required over the coming decades will impact businesses as well as our daily lives.
| What are the benefits to business?
The main areas of benefit include:
- developing and maintaining a strong, trusted brand and reputation; both in absolute terms and relative to peers
- attracting and motivating talent; increasingly, current and potential employees are expecting their employers to have a strong ESG-related purpose and strategy that fits with their values
- greater productivity, reduced costs, improved resilience and lower regulatory intervention
- opportunities for growth and innovation; for example, through new or tailored products and improved competitive position
- optimised investments, and better access to capital. We are now seeing increased challenge for business around their approach to ESG, including by mainstream banks providing finance.
Although they may be difficult to measure, studies now consistently show that a clear and coherent approach to ESG, and climate change in particular, can help companies be successful over the long-term.
| Reporting
Large and listed companies are now required to publish data on their carbon emissions within their financial statements. I expect that this will filter down to SMEs in due course, as standards harmonise and become established. The theory is that measuring and reporting will focus minds on actions to reduce the emission of carbon, as well as allowing this to be scrutinised by third parties.
Focusing on disclosure alone is the wrong approach and tends to lead to ‘greenwashing’ – focusing on strategy and a transition plan enables progress to be made which in turn gives a good story to tell.
For many SMEs, the challenge is how these big issues can be tackled in an achievable way. This starts by embedding ESG into the business and its strategy.
We are on our own net zero journey. Crowe has committed to set near-term company-wide emission reductions in line with climate science with the SBTi.
We think it’s important that we walk the talk in line with what we advise our clients to do. Is Net Zero on your agenda?
To start the conversation on how we can help your business, please get in touch with Richard Baker on 0118 959 7222 or email [email protected]
