ESG is in the spotlight
By Stephen Phipson CBE, Make UK CEO: The topic of ESG (Environmental, Social and Governance) is in the spotlight for a number of reasons at the moment. Not only is it one of the biggest trends in financial markets, attracting hundreds of billions of pounds as investors try to do well by doing good, but is also attracting the attention of Government which is looking to legislate on ratings agencies who have been accused of inflating the green credentials of companies to attract investment. Make UK’s latest survey with Lloyds Bank shows that ESG is also rapidly rising up the Boardroom agenda of manufacturers.
A quarter of companies have responsibility for ESG at Board level while a similar number have their Executive Reward linked to ESG performance. Furthermore, the survey shows that three quarters of companies are now including ESG conditions in their procurements strategies, a significant increase since the last survey three years ago.
This shows that for many companies this is not a ‘nice to have’ option but a cast iron pre-requisite for doing business and for those companies unable to comply there is a risk they will be shut out of supply chains or have to accept discounted prices or margins in order to simply do business. This is a critical factor because the survey shows that almost half of companies, presumably the majority being SMEs, feel they do not have the resources required to achieve the conditions set by their customers. And the ESG requirements being stipulated are now moving beyond the traditional and expected conditions in areas such as health & safety and employment conditions into areas such as human slavery and biodiversity, for example wildlife habitats.
Given the strains on supply chains for companies from the pandemic, the invasion of Ukraine and the energy price shock these increasing requirements are presenting yet another challenge for companies but one they will simply have to meet. It’s now clear that those companies who are already ahead of the game and responding to their customers will be in pole position should Government ever to get to the position where the demands of consumers and other stakeholders make mandated ESG legislation necessary.