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Some aspects - particularly those which fall under the “E” – often appear in the news and in updates from regulators, so perhaps feel more tangible. The “S” and “G” elements are just as important, however.
In this insight we break down the basics to help you understand what’s meant by “ESG” and discuss some key questions for businesses starting to think about their own approach.
What this will mean for your business specifically will very much depend on its nature but, broadly, ESG is an umbrella term for a range of environmental, social and governance factors which can be built into a business and used by employees, shareholders, customers, investors and other stakeholders to assess corporate behaviour, performance and risk.
Historically, factoring these sorts of considerations into a business has been viewed as optional but this has changed. Community pressure and the reputational implications of not taking ESG matters seriously cannot be easily ignored. Ensuring that ESG is embedded within a business’ core policies and practices has in fact become a positive business action, potentially opening up new work streams and enhancing employee retention and attraction.
When considering ESG as a business, there are a wide variety of resources to draw on. Below are key ESG themes which have been published through three initiatives. They set out areas for a business to look at when thinking about how to operate with people (not just shareholders), the planet and profit collectively in mind. While not all of these will be relevant to every business they provide a useful starting point.
Climate change and emissions
Pollution (air and water)
Product design and lifecycle management
Land use and deforestation
Impact on biodiversity
Water and effluents
Supply chain management
Working conditions (including child labour and slavery)
Employee and customer welfare/relations
Diversity, equality and inclusion
Data privacy and cybersecurity
Training and education
Health and safety
Anti-bribery and corruption
Financial and corporate reporting
Board independence, diversity and structure
Risk management and oversight
Marketing and labelling
Transparency and shareholder rights
Ethics and anti-competitive behaviour
In addition, the Sustainability Accounting Standards Board and Global Reporting Initiative has identified subsets of ESG issues most relevant to certain industries and topics. These specific standards are freely available online (here and here) and provide more detailed guidance on which ESG topics are likely to be relevant to a particular industry and how they can be built into their specific plan.
As you can see from the above, there is no “one size fits all” approach to incorporating ESG into a business. Example transition plans are available online which may be useful to refer to – for example The Chancery Lane Project (a collaborative initiative of international legal and industry professionals whose vision is for every contract to enable solutions to climate change) has published this Net Zero Transition Map. The UK Government has also announced plans to require certain companies and financial institutions to develop and disclose climate transition plans – draft implementation guidance covering the key steps for preparing transition plans has been published.
For certain companies (mainly listed companies and larger private companies), there are already compulsory reporting requirements around certain ESG matters e.g. modern slavery, gender pay gaps and climate-related financial disclosures. It is likely that such obligations will extend, in some form, to private companies more generally and businesses will need to prepare for that.
ESG considerations are about more than legal compliance though. They are about businesses being managed as a force for good – something which employees, shareholders, customers, suppliers and communities are really pushing for. The reputational and financial implications for a business found to have, say, been involved in a supply chain relying on child labour or hazardous waste being discharged into a river are potentially huge.
Any business looking for capital investment to achieve growth (whether through an investor, lender or merger) is likely to be subject to due diligence on its ESG impact and approach. Investors and lenders will be asked to report on this as part of their internal processes – for example, they are unlikely to want to support a business which doesn’t treat its employees well (it poses reputational, brand and value risks). And for a buyer, in addition to the above, it will want to assess how easily it will merge the target business with their own. Our Green finance hub has a wealth of information, ranging from green loans and mortgages to corporate investments and pensions.
As a full service commercial law firm with regional, national and global reach, we create legal solutions to support clients in achieving their ESG objectives, including the UK’s major banks, building societies, fintechs, investment funds, asset managers, private equity and venture capital firms, pension funds and corporates.
If you would like to speak to us about the legal issues relating to achieving your ESG objectives, do get in touch.
 The Sustainability Accounting Standards Board, Global Reporting Initiative and UN Principles for Responsible Investment.
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27 January 2023
News 04 SEPTEMBER 2023