Environmental, Social and Governance

Step back only a handful of years and the term ‘ESG’ (Environmental, Social and Governance) was a relatively unknown phrase in the day-to-day running and future business plans of UK SMEs, let alone something even considered to be reported in their annual accounts.

Fast forward to 2021 and almost every business has been touched in some way by the COVID-19 pandemic.  A revolution in working practices, the mass furlough of staff, restriction in travel and changes in spending habits have all seen both positive and negative impacts in nearly every sector of the UK economy. 

Notwithstanding the devastating death-toll and impact on our NHS, nearly every business I have spoken with in the last 6 months has reviewed the pandemic as one of the toughest moments in economic history.  However, at the same time, most have also seen an up-side in the flexibility of home working, the value to them of their devoted employees and the reducing environmental impact which can be achieved.

We ourselves here at MHA Moore & Smalley have saved in the region of 2 million sheets of paper and hundreds of thousands of miles staff travel in the last 12 months.  These are statistics which have opened our eyes to the environmental impact of our own business and something we wish to focus on and continue long into the future.

ESG is something which has been a hot topic for investors for a number of years, reportable by listed corporate entities only.  However, more recently it has now become mandatory for large un-listed Companies to report their environmental and social impact in their financial statements and, by 2025, this will likely be mandatory across the UK economy.

ESG can be broken down in to three areas and applies to all businesses, from the smallest to the largest and covers everything from how you treat employees, your supply chain, how you use and manage data, right through to your environmental credentials:

Environmental – consideration of the natural world

  • Climate change and Carbon emissions
  • Sustainability and energy efficiency
  • Waste management

Social – consideration of people and relationships

  • Gender and Diversity
  • Human Rights and employment standards
  • Consumer Protection
  • Data Protection
  • Community relations

Corporate Governance – the standards for running a Company

  • Board composition
  • Bribery and Corruption
  • Executive Compensation
  • Political contributions

Each industry will have different ESG implications – a chemical manufacturer will have a higher environmental impact than a law firm with 300+ employees, which will have a much greater social impact.  A solid policy for ESG, in any size of business, leaves its employees, suppliers, auditors and other stakeholders such as bankers or shareholders with a greater confidence level in the management and running of the organisation.  Those businesses looking for sale or investment soon should consider reviewing their policies and procedures over ESG as these are key areas becoming more relevant during the Due Diligence process.

There is no better time than now, as we hopefully near the end of the final lockdown restrictions, for every business to consider and take some simple steps to continue the progress made over the last 12 months in environmental and social sustainability:

  • Can paperless documents continue to be sent to customers?
  • Do you need to return to pre-pandemic levels of travel when video calls are the norm?
  • Can local suppliers continue to be used rather than shipping in from further afield?
  • Can staff maintain flexible working and the better work-life-balance it brings?
  • Can remote working allow for recruitment of a more diverse and equal workforce?

We are assisting our clients more and more in all the above and are holding our next North West Finance Directors’ Network Webinars during June and July on this exact subject, with advice from key industry figures.  Click on the location link below to book your place.

North West