In 2023, ESG (Environmental, Social, and Governance) standards in the UK will require companies to meet regular Sustainability Disclosure Requirements (SDRs).
This is because, with the 2019 announcement that the UK is aiming for Net Zero carbon emissions by 2050, those emissions need to be tracked and progress measured.
This is vital if we’re going to stop climate change. And far from being just one more hoop to jump through, we would argue it’s a great opportunity for businesses to show they’re walking the walk when it comes to their Environmental, Social, and Governance standards:
What are the main ESG regulations in the UK?
Even as recently as 2022, there is no single system for ESG regulation in the UK. The system is a mash of EU and domestic regulations. Some of these aren’t even directly linked to ESG.
The most important ESG regulations in the UK are derived from:
- The Companies Act – says that UK directors must consider the impact of their company’s activities on their employees, their local communities, and the environment.
- The UKCGC – the Corporate Governance Code.
- The DTRs – the Disclosure guidance and Transparency Rules.
- The UKSC – the UK Stewardship Code regulates institutional investors.
- The CCA 2008 – the Climate Change Act, though this makes the government responsible for achieving Net Zero by 2050 and allows carbon trading.
Companies with a £36 million turnover, £18 million on their balance sheet, or have more than 250 employees are also expected to report their GHG emissions (Greenhouse Gases like CO2) and energy usage through the Streamlined Energy and Carbon Reporting mechanism.
Why is ESG reporting so important?
Like most business activities and processes, choosing the right metrics is the only way to ensure a given approach is working.
This is why ESG reporting is absolutely critical if we’re going to hit that 2050 Net Zero target. If we don’t measure the impact – and hold companies accountable for their emissions – we don’t know what they are.
The agreement on this is pretty global. The US, the EU, and Hong Kong are all among those either introducing or preparing to modernise mandatory ESG or sustainability reporting for companies.
What will the UK ESG standard update mean for businesses?
The Companies Act was already updated in 2022 to include sustainability reporting for companies that are listed, have a £500 million or more turnover, or have more than 500 employees.
The new SDRs (coming into force in 2023) will set metrics, goals, and provide a framework that companies can use to assess sustainability risks. They will also define activities that can be labelled “green”.
Why is this a good thing for businesses?
1) Public perception and brand reputation
The public mood has shifted decisively in the past decade towards acceptance that climate change is a genuine issue and that something needs to be done. More and more people are letting this knowledge guide their purchasing habits.
Many brands that are able to effectively tout their ESG credentials are outperforming their less environmentally and socially-conscious peers (or those that aren’t communicating their successes as well).
2) Secure more funding
European investors put their money into sustainable options to the tune of €120 billion in the 2019 to 2022 period.
What’s more, investors and Venture Capital firms are checking into the ESG policies of startups before they invest.
If you can demonstrate that you’re ahead of the game, it’s been shown to increase your chances of securing funding.
3) Create a better business
Research and reports are regularly showing that businesses that score better when it comes to Environmental, Social, and Governance factors routinely outperform their competitors with:
- Faster growth
- Better employee productivity
- Fewer regulatory inventions and fines
- Cost reductions
- Less volatility (thanks to fewer labour issues, controversies, and issues like fraud)
Why ESG matters
Finally, we should probably all take a step back and acknowledge that these rules aren’t coming in because the government wants to get its jollies.
Climate change is very real. It’s going to impact us all even more in future if we don’t collectively get our act together.
But if we all start taking steps in the right direction, working together we might just all get there. If it ends up being better for our businesses along the way… well, it’s a win-win.
Of course, this is just our opinion. But we’re also doing a lot of work on improving the way we work as a business. Are you looking to do the same?
Get in touch for a free chat about how to make your IT more sustainable – or if you want to be pointed in the direction of the right people to talk about your ESG with.