Environmental, social and governance (ESG) frameworks are quickly becoming a key part of a business’s overall business strategy.
ESG disclosures are reports that provide environmental, social and corporate governance data to key stakeholders. The purpose of the disclosure is to give insight into a company’s ESG activities through a consistent and clear reporting structure.
ESG disclosures are used by a range of stakeholders, including:
- Investors and lenders who use ESG data to guide responsible investment decisions
- Employees may use ESG data to assess company culture
- Customers consider ESG criteria when purchasing products and services.
Here we look at why it is so important and what it can mean for you and your clients.
What is ESG?
ESG disclosures increase transparency around company strategy and progress toward targets. They also offer a framework for action for businesses, which helps build a robust ESG strategy and drive continuous improvement.
Environmental factors covered by ESG relate to a company’s impact on the environment, such as through water and waste management, greenhouse gas generation and impact on biodiversity. Businesses should gather quantifiable data related to these environmental topics, such as their energy consumption and carbon footprint.
Social factors cover a company’s treatment of employees, customers, communities and supply chain. Again, businesses are encouraged to gather and report quantifiable and comparable data related to relevant social metrics.
Governance factors relate to those around decision-making, such as internal management practices, policies and controls that govern how a company operates.
Why is ESG important?
ESG promotes multi-stakeholder cooperation in addressing global challenges by encouraging investment in sustainable development. It drives innovation and creates opportunities that generate long-term sustainable value for the future of the global economy. ESG has become revenue-critical as investors and stakeholders require businesses to disclose how environmental, social, and governance issues – including risks and opportunities – can impact an organisation’s long-term performance.
Having a structured ESG foundation can help improve customer loyalty, improve overall financial performance, and help make operations more sustainable.
The CFA states that for investment professionals, ESG investing has become an increasingly important part of the investment process and gives a fuller understanding of the companies in which they choose to invest in. Companies are increasingly making disclosures in their annual report or in standalone sustainability reports. Many large or listed organisations are required to produce mandatory ESG disclosures, for example, climate-related disclosures that are mandated by the Financial Conduct Authority (FCA) e.g., the Task Force on Climate-related Financial Disclosures (TCFD) or required by the UK Government e.g., Streamlined Energy and Carbon Reporting (SECR).
As well as external pressures to comply with ESG reporting, there is also pressure internally in workforces. Research by MarshMcLennan shows that by 2029, the Millennial and Gen Z generations will make up 72% of the world’s workforce, compared to 52% in 2019. Future generations place a greater importance on environmental and social concerns and expect more from employers on these issues. By implementing ESG practices into the core of your business, this will help boost staff culture and morale and the company’s employability.
Why should your business care about ESG?
There are many benefits to producing ESG disclosures and developing an ESG strategy:
- Improving operational efficiency, by reducing costs and waste
- Increasing competitive advantage
- Building long-term business viability
- Protecting and building upon brand reputation
- Responding to regulatory constraints and opportunities
What does it mean for you and your clients?
Having transparent ESG disclosures in your business, implementing climate change risk management frameworks and compiling ESG data, such as greenhouse gas emissions data, is becoming increasingly important for your clients.
Many investors and customers use ESG data to enable insights into investment performance, client demands, product strategies and other ethical topics. Customers are more regularly taking into consideration an organisation’s ESG reporting before purchasing products or services. ESG disclosures are increasingly required during tender processes – both the UK Government and NHS require disclosure of a carbon reduction plan from anyone bidding for projects over a certain size, through Procurement Policy Note 06/21. Therefore, not having thorough and transparent ESG data is putting companies at risk of losing business.
How does energy data play a key part?
Energy data is often the foundation of environmental ESG data and is a requirement of many mandatory ESG disclosures. A lack of consistent and transparent ESG data will impact an ESG report’s reliability and open businesses up to greenwashing claims. In addition, detailed and transparent data allows progress against ESG targets to be demonstrated.
Gathering detailed energy data will allow the quantification of a variety of ESG metrics and the setting of ESG targets, such as emission reduction and net-zero targets.
How can SystemsLink help?
SystemsLink’s UK-leading software can help ensure energy data collection is robust and streamlined.
At SystemsLink, we help public and private sector businesses with their energy management and monitoring services so they can report on their energy goals.
We can collect, store and present all the energy information you need to make informed decisions and produce accurate ESG reports.
Get in touch with our experts
To find out more about how SystemsLink can support your organisation’s energy management, give us a call on 01234 988 855 or send an email to sales@systems-link.com.
