I recently read that the number of manufacturing firms setting ESG targets had jumped nearly 50% and since 2021 roughly two-thirds of businesses are building ESG into their procurement processes. Yet 4 out of 10 businesses are not aware how suppliers perform against their ESG targets.
The main pressure on SMEs comes from larger customers and suppliers who have made public ESG and Net Zero commitments. Equally 71% of investors want to make a positive social impact through their investment policies. Consumers are ultimately dictating the landscape – 76% plan to stop buying from companies that treat the environment poorly, while 88% will be more loyal to businesses that support social and environmental initiatives.
Whilst businesses of all sizes make ever greater commitments to minimise environmental impact, these must be delivered against a backdrop of the highest level of transparency and integrity. An ESG strategy is a marketing strategy, portraying a positive image, building brand loyalty and exemplifying the role of ESG in long term value creation. This value creation goes beyond product or services being a measure of employee welfare, your contribution to the circular economy and community causes.
Can’t Manage what you can’t Measure
Of the 17 United Nations sustainable goals, attention gravitates to No13 – Climate Action. Within this, Scope 1 are most easily measurable, representing those emissions that the company makes direct. Scope 2 revolves around energy usage, then we have Scope 3 emissions including upstream and downstream supply chain emissions, where the company has an indirect relationship.
For many businesses, measuring emissions looms as a big data challenge which comes with more cost for a business that lacks expertise and internal resource to meet the standards. The number of ESG reporting provisions issued by government bodies has grown by 75% in the last 4 years – compliance and certification are no longer a nice to do!
Accountants are no strangers to complex data and stringent reporting requirements, increasingly it falls to them to establish robust data collection practices and apply a reporting framework to businesses that integrate ESG reporting as part of their digital transformation. As strategic allies, accountants can play a pivotal role in ensuring the quality and consistency of reporting, addressing cross-border comparability across key ESG factors.
ESG strategies will become the new financial strategies and quickly manifest themselves as more than managing energy costs more effectively. Company Directors have a duty to act with care, skill and diligence; potentially it will fall to accountants (who prove that businesses are what they say they are) to help shape the organisational policy necessary to report ESG decisions and outcomes.
One thing is for certain, the modern consumer supports businesses that align with their values therefore ESG will be constantly evolving to meet the Next Gen’s social awareness expectations.
To kickstart your company’s ESG journey, complete the Dafferns ESG Diagnostic to ascertain any gaps in your ESG planning.
Simon Cossey is Dafferns’ Business Development Consultant and part of our Strategic Advisory team.
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