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Business investment: the unstoppable growth of ESG

Author: ICAEW Insights

Published: 28 Sep 2022

Investors want solid environmental, social and governance (ESG) evidence from the businesses they put money into. This demand can push companies to invest in solid ESG plans.

Climate change is a challenge, but it’s also an opportunity for investment – both for businesses to invest and to attract investment. Investors want to see evidence of businesses’ ESG efforts, which in turn is encouraging organisations to put money into making a real difference to their ESG practices.

“You've got more and more investors realising that there are opportunities,” says Dr Andrew White, Director of the Advanced Management and Leadership Programme at Oxford University’s Saïd Business School and host of the Leadership 2050 podcast. “So there are big businesses that are pivoting towards the future and there are smaller businesses that are creating new solutions and new technologies that are moving towards the future.”

This can be seen, for example, in Citibank’s diversity and inclusion strategy, and the shift within the automotive industry towards electric vehicles. “We're in the age of action, not in the age of rhetoric, and that's a big shift,” says Dr White. “That's occurred in the past few years.”

Three weeks ago, Selfridges announced the launch of Reselfridges, an initiative to recycle and resell its clothes to move away from fast fashion. It’s a massive shift in thinking for its operations, says Dr White. 

“It changes the way you think about clothing retailing – it becomes more about an asset than just the sale of a product. This is no different to a car, which will get sold and resold a number of times during its lifetime. Now we’re seeing that model move into another.”

The investor community wants to see even more movement in this area, says Dr White – in fact, many businesses aren’t moving fast enough for investors’ liking. He says the shareholder conflict at Shell over its energy transition strategy is an example of this. Activist investor Follow This has put forward an ambitious energy transition strategy in 2016, 2020 and 2021. While it has been defeated each time, it is gaining support fast. Just 2.7% of investors supported it in 2016. By 2021, it gained 30% support. “You can see concretely the movement within the investor community based on the focus for Shell's most ambitious energy transition strategy.”

These are all larger entities. For small businesses, investing in ESG, and attracting investment in the process, can feel like a big, resource-heavy step, says Dr White. He explains that the best first move is to look at the UN Sustainable Development Goals (SDGs) and figure out where the negative impacts are and where they can make a difference.

“Have an honest conversation with your senior team about where you are having an impact on SDGs, or where you could have an impact on them. In some ways, it gets you out of thinking about your business as a small one – and that's a brilliant framework for thinking about the world.”

He cites SME JP Concrete as a good example of how to do this. The company has a simple, single page report on its website that outlines where the company has an impact in line with SDGs and how it is trying to make a difference.

“It's an honest conversation,” says Dr White. “It's where they do harm and where they can make a difference. And so it starts a conversation. You can see it gets them out of being a little concrete business in the back end of the UK to looking at its role in the world and the impacts it could have.”

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