Is ESG the New Face of Corporate Social Responsibility?

By Alex Beardsley, director at finance facilitator, ABL.

Climate Change is here and it’s happening. In response, governments across the world are looking at ways to make businesses greener and with COP26 — the United Nations’-hosted climate change conference — underway, this topic is attracting increased attention which is sure to filter down and impact all organisations in the near future.

In the build up to, and during the event, environmental, social, and governance (ESG), has been the subject of much conversation, with companies urgently formulating plans to improve their sustainability credentials.

And while there is no doubt that this is a valuable step forward for the environment, the impact upon businesses — and the effort involved — is set to be far-reaching. But with adequate time to prepare and the correct arrangements in place, organisations can achieve their sustainability goals.

Here, Alex Beardsley, director at finance facilitator ABL, details the preparations that firms should be making, advice around funding any changes, and how a move to being carbon neutral can help businesses achieve their objectives.

What can businesses do to achieve their ESG objectives?

In a bid to capitalise on Teresa May’s 2019 pledge that the UK would eradicate its contribution to climate change by 2050, businesses across a number of industries stepped up their efforts to develop a range of green products which will help to do just that.

Electric vehicles have begun replacing company fleets and, subsequently, the installation of charging points has soared. Other organisations, meanwhile, have set about making important changes to their infrastructure – fitting air source heat pumps, choosing sustainably-sourced fixtures and fittings, and reducing wastage.

Although impacted by the Covid-19 pandemic, an uptake in public transport usage will play a crucial role in reducing carbon emissions too – with some companies incentivising this form of communal travel over employees’ privately used vehicles. On the other hand, a decline in face-to-face meetings has lessened the need to visit physical workplaces, which has further reduced the environmental impact for many organisations.

But although the environmental aspect of an ESG has received much attention, there are also social aspects to consider – and positive changes in this area will contribute greatly to a company’s sustainability credentials.

Providing opportunities for employees to take time out of the business to volunteer is one way to enhance this, as is the introduction of an apprenticeship scheme or careers guidance which allows the sharing of knowledge to secure better outcomes for young people. These additional elements can run alongside charity support and fundraising initiatives to result in a well-rounded approach to social governance.

Other areas for focus include company policies around ethical practice, which could be extended to that of the supply chain. Modern slavery is one example of this, which has hit the headlines on a number of occasions throughout the last few years.

By first understanding what issues need tackling within the wider industry that a business operates within, an organisation can put in place a range of ESG objectives and work towards these in priority order.

Funding the drive to sustainability

While each of these modifications will go a long way to delivering an organisation’s ESG objectives, in some cases, making widespread change comes at a cost — with the financial implications becoming a cause for concern for many business owners.

The fact that projects supporting a drive towards sustainability do not, necessarily, improve the profitability of a business can, in many cases, put a strain on the company.

The good news is that the finance industry has launched a number of dedicated ‘green finance’ packages with the aim of aiding individuals and firms in their efforts to reach their sustainability goals. This means that necessary infrastructure changes can be made well ahead of any more mandatory requirements coming into force – which is expected within 18 months.

Products such as ‘green mortgages’ will assist people in investing in sustainably built homes, while supporting builders in the drive to create demand for such properties. The availability of ‘green loans’ will facilitate spending on more efficient solutions for businesses, such as machinery and electric fleets. There are a range of government funded initiatives too, designed to encourage more eco-friendly choices — including renovations to make existing premises more energy efficient.

What’s more, those who illustrate realistic transition plans, can expect additional benefits moving forward. ESG funds, for example, are a form of sustainable investing – with decisions on who receives money based upon how effectively those organisations are meeting specific goals. The underlying principle being that investors are increasingly favouring those who fit with their ethical standards and create a better world and society for all.

Those who don’t push ahead with their efforts to create a more environmentally friendly business, meanwhile, may find themselves subject to penalties or sanctions. For example, those mining for fossil fuels have begun to experience resistance from banks, investors and lenders, who have an obligation to assess the environmental impacts of the work that such businesses are undertaking.

Prepare now and reap the rewards

Those who take steps to achieve their sustainability goals now, will find themselves with more time to make sensible and considered choices around their ESG strategy moving forward. With a host of green finance options available, organisations are able to take advantage of competitive rates and begin to make headway in achieving their ambitions ahead of any legal obligations coming into force.

A host of government initiatives and grants are available to provide support for businesses in priority sectors, and with world leaders having descended upon the UK for November’s COP26 conference, the announcement of additional incentives is expected to be imminent.