The short answer is, it depends.
Mostly on the size of your business and the industry you operate in.
ESG is essentially a framework for companies to measure and manage their impact on the environment, society, and their own governance practices. It’s been a hot topic among investors over the last few years, with many of the world’s largest asset managers and hedge funds increasingly incorporating ESG principles into their portfolios.
If your business is a large organisation in the financial services sector, it’s obviously more likely you’ll be subject to regulations around ESG disclosures than a small design agency that works with retail businesses.
But what does this mean for the average small/medium business owner or entrepreneur?
While large-scale investors use ESG principles to evaluate companies and make investment decisions, it’s not necessarily something the average person needs to worry about.
However, just because you don’t need to worry about ESG for investment purposes doesn’t mean you can’t use it for your own benefit as a business leader. It’s not a bad idea to consider where you can glean useful insights from some of the broader concepts within the environmental, social, and governance “buckets” that can help make your business more socially responsible and environmentally conscious – especially in industries like hospitality where sustainability is becoming more and more important.
By implementing some responsible practices into your business from the start, you’ll not only create a better working environment for your employees but may also differentiate yourself from competitors and attract customers that care about the same thing you do.
After all, wanting to do your bit for the planet is never a bad thing.
Who is ESG mandatory for?
Despite the various bits of climate-related legislation for those with operations in the UK and Europe, mandatory reporting is currently only limited to publicly listed companies and behemoths with over 500 million (pounds or euros) in annual revenue or over 500 employees.
Aside from the billion-dollar companies operating in California that need to report their greenhouse gas emissions, the US Securities and Exchange Commission (SEC) hasn’t yet got round to putting any other ESG reporting requirements in place for the US – but it’s on its way for publicly listed companies by 2024 (as it should be, given that the US is the second-highest contributor to global pollution).
Outside of the aforementioned jurisdictions, Asian countries are leading the way with mandatory ESG reporting requirements for publicly listed companies, especially in other top global polluting countries like India and Japan. Even China has already introduced reporting recommendations, with at least 1,000 listed companies voluntarily publishing annual ESG reports as of mid-2020.
As the dust settles on COP 27, expect more countries to follow in their footsteps soon.
Whether any such information will actually make any difference to the bottom line is debatable, especially given that small and medium-sized businesses make up the majority of enterprises in most countries – but it’s still important to keep an eye on things as the years go by.
Any other benefits of caring about ESG?
Aside from the fact it’s good for business to care about these issues, it’s also worth remembering that consumers are increasingly choosing to buy from businesses that support a cause they really care about.
The days of greenwashing are on their way out – customers want to see proof you’re doing what you say you’re doing. That means your customer base is more likely to choose you if they see you’re walking the walk and talking the talk for your sustainability efforts. This is why things like ethical sourcing and ethical supply chains are becoming more important for businesses operating in sectors where trust is key.
It’s also why many businesses are incorporating social responsibility into their corporate cultures. For example, fashion designers can source materials locally to cut down on emissions from transport and use environmentally friendly dyes and materials in clothing collections. If you’re a digital marketing agency, you can implement more sustainable practices like recycling or reducing your carbon footprint by insisting on virtual meetings. Every little helps!
In some industries, an “environmentally friendly” label could be the difference between you winning business and losing it altogether.
So, really, why not get on board?