ESG has become popular in the business world in recent years, spawning an ESG advisory sector along with it. But it’s not just a fad or a buzzword to throw out to woo customers (at least, ESG reporting shouldn’t be used like that). It’s a serious part of corporate governance that can help companies propel them towards a sustainable future.

What is ESG?

ESG is a key part of sustainable development in the corporate world. Sustainable development is, as the UN itself defines it, “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

There are three key aspects to ESG: environmental, social, and governance.

Environmental
Companies that are committed to the principle of sustainable development recognise the role they play in environmental degradation and climate change – but more importantly that they can change their activities to minimise or even reverse the damage that operating a business inevitably sometimes causes.

This will include reviewing things like your carbon emissions, energy efficiency, waste management, and procurement practices.

Social
Some people say that the sole reason a company exists is to satisfy its shareholders. Companies with an ESG-focus, however, say that they have a responsibility to meet the needs of its employees and local community. They may therefore prioritise fair labour practices, promote diversity in the workplace, work with charities, and contribute to their local communities.

Governance
Governance is all about the structure and oversight of corporate governance, including board composition, executive compensation, risk management, and transparency. Strong governance practices are essential for ensuring accountability, integrity, and ethical behaviour within an organisation.

How ESG can help with long-term business success and investor relations

Embracing ESG principles is a good strategy if you want to nurture long-term business success and promote strong ties with your investors. Here’s how:

• Competitive advantage: Investors are becoming increasingly environmentally and socially conscious. If you can differentiate yourself with a strong ESG score, you might begin to see the number and type of investors you want.
• Risk mitigation: ESG-focused companies are better equipped to manage risks related to regulatory compliance, reputational damage, and operational disruptions.
• Long-term value creation: A 2015 meta-study of 2,250 published academic studies by Friede et al. found that ESG correlated positively with corporate financial performance in 62.6% of cases. Only 10% of cases were negatively correlated, and the remainder were neutral. That’s good evidence that ESG-focused businesses tend to outperform their peers over the long term.

How accountants can help implement ESG strategies

Accountants can play a crucial role in helping clients implement ESG strategies effectively:

• Data collection and analysis: ESG strategies first require you to collect and analyse relevant data so you can assess current performance and identify areas for improvement. Accountants can help with this and track progress over time.
• Compliance and reporting: Accountants can help ensure that a business is compliant with ESG regulations and reporting requirements.
• Risk management: Accountants are particularly good at identifying and mitigating ESG-related risks that may impact a company’s reputation, performance, and long-term viability.
• Strategy development: Accountants can work closely with management to develop comprehensive ESG strategies. They can provide valuable insights and recommendations based on financial analysis and industry best practices, helping businesses set achievable goals and priorities.

ESG reporting requirements

Large companies must include a non-financial information statement which covers ESG matters. This applies to all UK public companies and large private companies with at least 250 employees and either:

• a turnover of more than £36 million or
• a balance sheet total of more than £18 million.

While that comfortably excludes small business, it does not mean we won’t be affected, in a number of ways:

• You may be in a large company’s supply chain – perhaps through a customer if not directly. The large company will need to cascade its reporting down the supply chain in order to complete its own disclosures.
• Public sector, corporates and others increasingly ask for ESG information as part of their tendering or supplier approval process. If you want to work with them, you’ll need to be able to comply.
• Reporting requirements for large companies are likely to apply to the rest of us, sooner or later. Getting ahead of the game will ease the transition when it comes and crucially will give you a competitive advantage in the meantime.

Our ESG advisory services

As accountants, we understand the importance of ESG considerations in today’s business landscape. We offer comprehensive ESG advisory services to help businesses integrate sustainability into their operations effectively.

From data collection and analysis to compliance and reporting, risk management, and strategy development, we provide tailored solutions that align with your business goals and values.

Let Artisan Accounts help you navigate the complexities of ESG and drive long-term success for your business. Talk to us about our ESG advisory services.