The business case for ESG

Chris Brown - Brown & Co

Meeting environmental, social and governance (ESG) goals may be considered a box-ticking exercise by some but is in reality intrinsically linked to commercial performance.

Recent studies consistently find that firms which perform strongly across all three factors of ESG outperform the market, generate greater longer-term value and are more resilient to emerging issues.

Reporting

Certain institutions such as banks, insurers and asset managers have been reporting their ESG metrics for several years, some of them mandatory under listing rules and others voluntarily under other reporting frameworks.

However, there is still much controversy regarding reporting, due to weak regulatory oversight, subjective criteria and a lack of transparency.

For example, in May 2022 Tesla - the manufacturer of electric vehicles - was removed from the S&P 500 ESG index while ExxonMobil - responsible for more than 3,000 oil spills and leaks to date among other controversies - was given a top 10 rating position.

Despite this, there is an appetite among Despite this, there is an appetite among smaller companies to begin the ESG journey, through organisations such as B Lab, by becoming B Corp certified.

Currently, there are around 6,500 B Corps in 89 countries, including 1,200 in the UK, which has the second-highest number of B Corps after the USA. The vast majority are SMEs.

Compared to traditional businesses, B Lab UK data shows that B Corps have faster growth in turnover (27 per cent versus 5 per cent) and employee headcount (14 per cent versus 1 per cent), greater levels of employee retention, and are more successful in securing equity finance (70 per cent vs 56 per cent).

The role of accountants

The vision of the Institute of Chartered Accountants in England and Wales (ICAEW) is that professional accountants enable a world of sustainable economies.

Our key skills sets - problem-solving, critical thinking and analysing and reporting on information from various sources - are a natural fit for ESG.

ICAEW has recently introduced a Sustainability Certificate which equips accountants and other finance professionals with the practical knowledge and skills to integrate sustainability reporting into their organisations.

This will enable finance professionals to confidently partner with sustainability experts to identify climate-related risks and incorporate performance and financial metrics into their risk management, financial planning, and ESG reporting.

Let’s use business as a force for good.

Enjoyed this? Read more from Chris Brown, Brown & Co

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