Five ESG 'top tips' for businesses in the UK and EU
Published on 19th Oct 2023
New regulatory requirements go beyond corporate reporting, involve governance and supply chains, and offer opportunities
Environment, social and governance (ESG) measures and the wider "green" agenda continues to be a topic of discussion for many UK and EU businesses. A few years ago, companies were still grappling with what ESG is; now the focus is on what businesses need to do to comply. Across the pond, political positioning has meant that the climate agenda is less well accepted and, consequently, there is a distinctly different approach by US businesses on what needs to be done and the level of urgency.
Tip #1: understand the extent of the change that is coming
All businesses, but particularly those with some form of EU presence or activity, need to understand the amount of new and changing regulation that is being introduced as part of the EU Green Deal. Whether you sell widgets or services, the regulatory changes will have a significant impact on the way you do business. Get on the front foot by understanding the new laws that are coming in and how they apply to you. We are regularly being asked to support in-house legal teams with horizon scanning to help manage this.
Tip #2: ESG requirements go well beyond corporate reporting
There is a tendency to interpret ESG requirements as simply a corporate reporting obligation. However, the impact of the regulatory obligations is much broader and it is a mistake to simply assign "ESG" as a job for the finance team. Consider setting up cross-functional project teams to review, prioritise and implement the new requirements for your business – every function in your business will have a part to play.
Tip #3: the role of the senior team and board
Incorporate ESG into your governance and compliance systems by ensuring that it is integrated into your existing systems. Regulators are expecting to see all the principles of good corporate governance: board oversight with regular reporting, clear systems and procedures and active monitoring. Consider setting up a separate ESG sub-committee that reports into the board and pulls together all of the activity across the business. Include the different aspects of ESG on your risk register and use this to help you prioritise which areas you need to focus on for implementation.
Tip #4: supply chain
The new legislation around ESG requires businesses to understand their supply chains in for more depth than is currently the case. Mapping out your supply chain, reviewing and updating your contractual terms, asking for details about who "supplies to your supplier" and reviewing your supplier manuals should be a top priority for all businesses. Many businesses will need to be explaining and justifying how their supply chain is managed to satisfy deforestation due-diligence statements to customers, corporate reporting, modern-slavery statements, substantiation for green claims or to respond to requests from regulators.
Tip #5: look for the opportunities
Although there are increased obligations on business to meet new green legislation, there is also a significant opportunity for businesses that are proactive in their compliance approach. We are seeing a new market opportunity for repaired and refurbished products, for example. Businesses will also be selected for their "green" credentials – this is already an important criteria for many procurement teams – and contracts will be terminated for those who are not in compliance. Now is the right time to seize the opportunity!
A version of this article was first published in Business Leader.