“The one thing we made clear when we launched the strategy was that it wasn't a nice-to-have or an add-on,” says James Amar, head of CSR and strategy at food supplier RH Amar. “We want it to become part of our everyday business decision making, not because it’s going to save us money or [even because] it’s the right thing to do.”
Amar’s ambition is a perfect example of how environmental, social and governance (ESG) issues are moving from the periphery towards the centre of business, reflecting the context in which companies now operate.
Stakeholders demand nothing less. Research conducted by Investec reveals that 70 per cent of mid-market companies now have an ESG strategy in place or are working on one. And, with more than half of businesses now regarding ESG as business-critical, 42 per cent intend to invest more in ESG strategy and implementation over the next 12 months.
A recent survey from SEC Newgate confirms that awareness of and interest in addressing ESG issues is rising (53 per cent of respondents are aware, up from 46 per cent in 2022) and 67 per cent rate their interest at 7 out of 10 or higher, up 11 per cent since 20221. And research from Future Business found more than 70 per cent of current jobseekers are looking for environmentally friendly employees2.
ESG is attracting investment
These findings explain why companies increasingly embrace ESG for the strategic long-term benefits as much as because of a desire to contribute to social good.
Callum Bell, executive committee member and head of direct lending at Investec, argues that UK companies may be able to steal a march on international competition in this way. “The UK has always been a country that looks to the outside world, grabs the best of everyone, and tries to self-improve,” he says. “ESG is another great way to differentiate, to attract capital, and to create value over the long term.”
This competitive advantage could take one of several forms. One possibility is increased customer sales: 47 per cent of mid-market companies think full implementation of their ESG strategies will drive growth. The most common motivation for companies to focus on ESG is to enhance brand reputation, with the related benefits for talent retention, potential strategic partnerships, and commercial appeal in a competitive marketplace.
Jo Hunter, founder of food producer Piglets Pantry, says of its ESG practices: “Wherever there is an opportunity, we embed sustainability in both our existing products and in new product development.”
A stronger ESG focus also has a positive effect on employee engagement, says Ian Webb, CFO of schoolwear retailer Banner. This, in turn, drives recruitment and retention. “We’ve had plenty of examples of people joining us, having been impressed by our ESG credentials,” he says.
Businesses can also make serious efficiency gains. Ian Short, managing director of Morley Glass, a specialist blinds manufacturer, points to the progress the company has made since stepping up its glass recycling.
“Every tonne we send back to the manufacturer saves 1.2 tonnes of raw materials, giving you a 20 per cent saving,” Short enthuses. “Plus, by sending more glass back into the mix, you can make new glass at a lower temperature [reducing energy costs] and saving emissions.”
Rather than take the profits, the company has chosen to pass the savings on to help fund green initiatives in its local community, offering grants to schools, charities and community groups in Leeds and Yorkshire.
Getting suppliers up to speed
None of which is to suggest that improving ESG performance is straightforward. As they attempt to start or accelerate their strategies, mid-market companies report particular challenges with the supply chain.
Four in 10 of those with a strategy at some stage of development said ESG is critical to reducing supply chain risk and more than a third said they find it hard to meet the ESG standards of their partners/customers. Separate research from MIT underlines the scale of the challenge: each of 10 stakeholder groups surveyed is putting companies under more pressure to improve supply chain sustainability3.
“We’ve made a lot of progress getting data into a workable format, but we have less control over what happens beyond our walls,” explains James Amar. “[Obtaining] good-quality data from our supply chain is probably the biggest challenge we currently face.”
With the direction of travel on regulation clear — the EU will extend reporting and disclosure rules to smaller listed companies, and the UK is set to implement its own Sustainability Disclosure Standards later this year4 — businesses will be forced to sharpen their approaches.
Concepción Galdón, vice-dean for business with purpose at IE Business School, argues that leaders of mid-market businesses will need time to adapt. “We’ve developed our global accounting standards over decades, and they continue to evolve,” she says. “We’re undergoing the same process on environmental and social metrics, but in a much shorter time.”
2 https://future-business.org/is-sustainability-in-demand-with-prospective-employees/#:~:text=71%25%20of%20job%20seekers%20want,sustainable%20or%20socially%20responsible%20organisations
3 https://sscs.mit.edu/2023-sustainability-pressure/
4 https://www.gov.uk/guidance/uk-sustainability-disclosure-standards
