‘Code red’ warning for South East businesses over ESG impact

South East businesses face increasing pressure to address environmental, social and governance (ESG) issues but their good intentions need to be backed with more robust planning and better reporting.

New research from leading business and financial adviser Grant Thornton UK LLP has found that the importance of ESG is widely recognised in the region’s business community but also highlighted significant knowledge gaps around ESG measuring and reporting, which is limiting progress.

According to the survey, almost all (91%) of the canvassed mid-sized businesses working in the South East considered a strong ESG strategy to be a significant factor in their company’s overall value creation. 86% of survey participants also considered a strong ESG plan to play a significant role in an organisation’s ability to obtain funding.

More than two thirds of respondents (67%) said that their environmental performance directly impacts customer buying decisions, with even more (72%) agreeing that their social impact has a direct impact on talent retention and attraction. A total 66% think potential ethical issues in their supply chain would pose significant reputational risk to the business.

Yet many of the businesses surveyed are not delivering on fundamental measurement and reporting, with over a third (36%) having not calculated their carbon emissions for the last year and two fifths (40%) not having set a net zero strategy.

Growing stakeholder pressure is also driving increased attention on ESG issues. Only 3% of respondents said they felt no pressure at all from stakeholders on environmental issues and, only 2% on social issues.

The main barrier to South East businesses progressing their ESG agenda, the research finds, is lack of senior management support. This is followed closely by lack of understanding of what is required and lack of resource.

John O’Mahony, a tax partner who heads up Grant Thornton’s Gatwick office, said: “ESG reporting continues to increase in importance for all businesses as stakeholders, from investors to employees, demand increased transparency around environmental and societal impact.

“This year the impact of ESG will be greater than ever, with the UN IPCC report issued in August that world leaders agreed, is a ‘code red’ warning for humanity on climate change. We also have the UN COP26 conference here in the Autumn. Businesses in our region clearly recognise the critical need for action and are enthusiastic about their own efforts. These results show, however, that many lack direction and do not have a proper understanding of how and where to invest resources that will drive change. Activity needs to be led from the top and it’s important that the South East’s business leaders are supported in developing a deeper understanding of their responsibility and the practical actions that need to be taken to embed ESG into their overall business strategy.”