ESG Regulations Prioritise Social Impact, Says Report

S-RM, a global leader in intelligence and cybersecurity consulting, released its 2024 ESG Report.

The report shows a drastic shift in corporate priorities, with companies moving from a primary focus on environmental issues to social ones. Human rights, modern slavery, diversity, equity, and inclusion (EDI), and community programmes are now taking centre stage in many ESG strategies.

Social Takes Priority

This year marks a major change in how companies view ESG. S-RM's findings suggest that social responsibility will be a bigger strategic focus and receive a larger budget for many companies in the next five years.

Regulations and Awareness

Nearly a quarter (23%) of companies are most concerned about domestic laws against modern slavery, compared to only 15% prioritising the new Corporate Sustainability Reporting Directive (CSRD). This highlights the growing importance of social issues and human rights in ESG.

Interestingly, despite the stricter requirements of the recently passed CSRD in Europe, only 13% of companies see it as their top regulatory concern. This suggests they might be unprepared as the EU strengthens its ESG focus in the coming years.

Also, around a quarter of both investors (24%) and companies (26%) lack awareness of social issues within their industries. This reveals a critical knowledge gap that needs to be addressed.

Some of the negativity surrounding ESG stems from seeing it just as an investment category when it should be integrated into company governance. This lack of understanding creates operational risks for businesses that do not consider future trends, potentially impacting reputation, stakeholder relationships, and long-term sustainability. Closing this knowledge gap is crucial for effectively including social factors in ESG frameworks.

ESG with a Social Focus

The expectation of larger ESG budgets in the coming years highlights the increasing significance of social issues. 66% of companies expect to increase their ESG budgets in the next five years, with a substantial portion dedicated to addressing social concerns. This trend not only reflects the changing corporate approach to ESG but also its emergence as a key business driver.

Natalie Stafford, Director and Head of ESG at S-RM, said:

"At S-RM, we recognise the continued importance of addressing the social elements within ESG strategies. Our survey has highlighted the widespread lack of confidence that the Social pillar of ESG is being sufficiently tended to, with risks mitigated and value exploited across both investor and corporate groups.

"There is a clear consensus that Social risks are rising up the corporate and investor agendas, driven by a combination of employee retention, shareholder pressure, board instruction, regulation and legislation, and consumer and client demand.

"Our findings demonstrate that in the corporate world, ESG remains firmly on the board agenda, supported with growing budgets among 66% of companies. We’re observing a shift towards increased budgets tackling social issues specifically over the next five years.”

For more information, access the full ESG Report 2024 on S-RM's website.

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Source: S-RM