New research** from leading business and financial adviser Grant Thornton UK LLP has found that attention on ESG is incredibly high amongst mid-market business leaders in the UK, but also highlights a knowledge gap amongst senior management resulting in a lack of action towards measuring and reporting performance evaluation criteria around environmental and social impact.
Nearly all (90%) of the 601 UK mid-sized businesses surveyed considered a strong ESG strategy to be a significant factor in their company’s:
- Overall value creation (92%)
- Ability to obtain funding (91%)
- Attractiveness to investors (90%)
Mid-market leaders broadly agreed that demonstrating evidence of environmental and social impact directly affects business performance.
Three quarters of respondents agreed that their environmental performance directly impacts customer buying decisions (76%), that their social impact has a direct impact on talent retention and attraction (78%) and that potential ethical issues in their supply chain would pose significant reputational risk to the business (74%).
Growing stakeholder pressure is driving increased attention on ESG issues. Only 3% of respondents said they felt no pressure at all from stakeholders on environmental and social issues. For the remaining 97%, the most pressure relating to ESG comes from investors (36%), customers (34%) and competitors (33%).
Though ESG is almost universally considered to be a high priority, many of the businesses surveyed are not delivering on fundamental measurement and reporting, with over one third having not calculated their carbon emissions for the last year (36%). Only half of the businesses surveyed were found to have set a net zero strategy (51%) or reported their carbon emissions externally (52%).
The main barrier holding back the mid-market from progressing the ESG agenda, the research finds, is lack of senior management support. This is followed closely by lack of understanding of what is required and lack of resource.
Dave Munton, head of UK markets and clients, Grant Thornton UK LLP, commented: “ESG reporting continues to increase in importance for all businesses as all stakeholders, from investors to employees, demand increased transparency around an organisations’ impact. But while the mid-market clearly recognises the critical nature of this agenda and are enthusiastic about their own efforts, these results show that many businesses lack direction and do not have a proper understanding of how and where to invest resources that will drive change.
“Over-enthusiasm about environmental and social impact could lead to an authenticity crisis, resulting in the misleading of stakeholders about ESG strengths. Measurement is fundamental. To understand where to focus, change requires true understanding of a business’s current impact and continual monitoring and reporting. This goes beyond just environmental indicators – ESG encompasses all aspects of a business, from an organisation’s diversity to its governance procedures, it should present a holistic view of a business’ impact on society and all its stakeholders.
“ESG is a complex and evolving issue, and businesses have had much disruption and radical change to contend with over the last couple of years, but it’s an agenda that only going to grow in importance. With increased regulation and growing stakeholder expectations, activity needs to be led from the top. It’s important that business leaders are supported in developing a deeper understanding of their responsibility and the practical actions that need to be taken to embed ESG into their overall business strategy.”