Figures from the recent BDO survey suggests that ESG considerations are moving up the agenda for mid-market businesses. Indeed, when asked about their top business priorities, 38% of business leaders ranked meeting ESG criteria as their highest priority. This was higher than those citing adapting to post-Brexit challenges (36%) and recovery from COVID-19 (25%).
ICAEW’s Director of Technical Thought Leadership, Richard Spencer, believes that ESG has shot up in priority as a result of the rise in natural disasters.
“COVID-19, fires, floods, famine, pestilence and hurricanes on an almost biblical scale is part of the new normal,” said Spencer. “There is no going back to the cosy world of concern-at-a-distance and big words without action. The IPCC report at the beginning of August made abundantly clear there will be more of this, more often and at greater scale.”
Spencer says that companies have got to act and be seen to do so, and acting means changing the way they operate, not just doing what they do a little bit better.
“However, we cannot rely on markets alone to solve this; they have singularly failed to do so far. Market action needs to be coupled with good, well-targeted legislation and regulation with teeth. This also must be part of the new normal,” he said.
No ESG standards means no business deals
When asked to think ahead to the next five years, 31% of respondents said there was a ‘high’ or ‘very high’ risk of losing business or losing the eligibility to bid for new business if they failed to meet acceptable ESG standards. However, 36% said the risk was ‘low’ and 6% judged there was no risk at all.
Matthew White, BDO Senior Partner and Chair of the firm’s ESG Executive Committee, said: “While the pressure to improve ESG performance has to date focused on the large polluters, big financial institutions and publicly listed companies, we are now seeing a trickle-down effect with ESG now firmly on the board agenda at mid-market level.”
COP26 looms over business planning
With the start of the COP26 summit in Glasgow less than two months away, many mid-market companies appear to be particularly focused on improving their environmental performance.
White continued: “With COP26 just around the corner, the world’s attention will focus on efforts to limit the global temperature rise to below 1.5˚C. In this context, it is encouraging to see so many mid-market firms taking action to reduce their environmental impact, but globally emissions will need to be halved over the next decade so there is still much more to do.”
When asked about new environmental commitments made in the last 12 months, 32% said they had a ring-fenced budget for green initiatives and 28% said they had set carbon reduction targets for the next three to five years. In addition, 26% said they had introduced measurable policies to reduce their carbon footprint and one quarter (25%) said they had pledged to become net zero or carbon neutral.
Encouragingly, fewer than 1% of respondents said they hadn’t planned any environmental measures at all.
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