Is The UK The Next Hub For ESG?
With the looming threat of a global recession, countries from all over the world signal to investors that the inevitable will be upon us soon. Investors begin to sell stocks out of panic, and companies begin cutting jobs in order to stay functional throughout the recession. This is standard behaviour and is also why it’s so surprising that one country currently isn’t doing that.
The United Kingdom.
In a new study from ECI Partners, they spoke to 500 CEOs in the UK and found they weren’t looking to cut jobs. According to the study:
74% maintained sustainability was their top priority;
26% said it was important but not a financial performance metric for them;
and 2% said it doesn’t impact their strategy at all.
The increased importance of ESG has been a growing corporate priority all across the UK. Many have taken action and have shown they’re not all talk either. From that same study, it was revealed that 28% of leaders have been wanting to appoint a Chief Sustainability Officer within the next year - perhaps a novel addition to the traditional structure of board rooms.
Not only have investors been able to push businesses in this area, but companies in the UK see being proactive on ESG as crucial in bringing in talent and retaining staff from the bottom to the top. Even though, by the end of 2022, companies were hit hard with workforce problems, and along with the pressures resulting from Brexit and the cost of living crisis, ESG still sits as a priority.
And yet, it could actually become one of the first countries to establish itself as a hub and a stellar example of ESG making a difference. Here is why.
Companies Have Been Integrating ESG Everywhere
At this point in time, we’ve seen various companies implementing all kinds of ESG initiatives. There’s Shein, Coca-Cola, Delta Airlines, and many others. But when looking at UK-specific companies, you’ll notice they’re going a step further. Combined with the statistics mentioned above, many companies are embedding ESG ambitions into reward and benefit programmes.
And while that number is still small, there is an expected trend upward as more companies are looking to advertise sustainability credentials as a way to incentivize employees to care about ESG goals and values, and to appear attractive to younger potential hires from Gen Z. ESG gives companies tangible goals that are easier to communicate, that transcend traditional notions of success via profitability.
For certain, there’s a robust element of corporate greenwash happening. It can’t hurt to be seen as ‘caring’, but if the net effect of such policies is positive impact on environmental and social issues, then it can empower change for good.
Featured Article: Top 9 ESG Courses And Certifications For Professionals
Regulating ESG Ratings
Key to the ultimate ‘success’ of ESG, in terms of its widespread adoption, is of course its regulation by the government. The EU is already taking steps in doing this by creating the Corporate Sustainability Reporting Directive (CSRD), however, this only helps EU-based businesses, which will be reporting in full by 2025 when the directive takes full effect.
The UK is taking a different approach in two ways. Their first goal is to regulate the ESG ratings themselves. The second is by setting out new green finance strategies. Both of these strategy components are expected to be released in the first quarter of this year.
The government is working alongside Sacha Sadan, the head of the Financial Conduct Authority (FCA) ESG division. The plan, as Sacha Sadan put it, would have “regulation that focuses on transparency, good governance, management of conflicts of interest, and robust systems and controls.”
This is a huge step to take, as the only other country that has done this thus far is Japan, which introduced a code of conduct for data providers. The UK is planning this through regulations while also releasing a voluntary code of conduct for businesses. This brings public exposure and adds clarity surrounding what ESG actually is and what it should look like in the country.
The UK Is Focusing On The Bigger Picture
Between regulations and focusing on businesses themselves to change, the changes that those businesses will make are expected to trickle down to the workers and to the general public over time. For example, because ESG values are being adopted by corporations, employees will have more incentives to partake in ESG initiatives. Those initiatives will likely include projects that impact their community at large.
And when will those projects happen? Well, when companies make the transition from making commitments to taking action on those commitments. Based on what's been mentioned above, a lot of companies are taking more direct action.
But the FCA is doing more than that too, as Sacha Sadan has stated they’ll be looking at wider environmental issues like biodiversity and nature. This is on top of social and governance issues, which have only recently been given more attention.
Bigger Challenges Are Ahead
As with so many other ESG efforts, it will take a while to see any results from any change. Any change to how business is conducted will take several months to a year for those efforts to make a social impact. But, at the very least, the UK government's actions and investor encouragement for corporations are yielding promising results.
The ESG talk in the UK is loud enough, but we must wait and see if solid action will take place. If so, it could be an interesting lever for change, given the strain the country is currently under.
Want to know more about ESG? Start with our FAQs.