Corporate behaviour is undergoing a profound change. Companies now recognise that environmental, social, and governance (ESG) concerns are no longer simply a way to signal a company’s caring credentials – they are a fundamental part of sustainable business success. The shift is reflective of a wider change across society. All of us, particularly younger generations, are considering more deeply the effects of our actions on the environment, society and on the communities in which we live. As we look to recover from the pandemic and restore economic growth, ESG should be a hallmark of our approach – ensuring that the growth that is delivered is more responsible, sustainable and for the benefit of all.
Growth of ESG reflects fundamental issues we all face
The greater focus on ESG today represents a widespread response to challenges people across the world are facing. Humanity is attempting to slow down the alarming rate of climate change and the destruction of natural environments, with the UK, for example, last year passing net zero emissions laws to end its contribution to global warming by 2050. Socially, across the developed and developing world, there is a new sense of urgency around upholding human rights, addressing various forms of inequality and ensuring the wellbeing of workers. Expanding awareness of business ethics, global diversity and income inequality, meanwhile, has put corporate structures and decision makers under new levels of scrutiny. The devastating social and economic fallout from the pandemic has only served to put these factors into sharper relief and accelerate the rate of change.
Investors are a key driver of change
Investors, both institutional and retail, are likewise playing a prominent role in putting ESG at the top of corporate agendas. Across the developed world an intergenerational wealth transfer is happening on an unprecedented scale. In the UK, for example, £5.5tn is estimated to be passed down over the next 30 years. The main beneficiaries – Millennials and Generation Z – are making ESG central to their investment approach and they want to invest in companies that reflect their values and that positively impact the planet and society.
Companies are far more aware of their responsibilities
It was over 100 years ago that the landmark legal case of Salomon v Salomon in 1897 decided that the eponymous shoe business owner could not be held liable for the debts of his company and consequently established the concept of the “company” as a separate legal entity with its own rights – as well as responsibilities. Yet, for most of the 20th century, these responsibilities remained solely toward a company’s shareholders in its pursuit of maximising profits for the benefit of its owners. Barely any consideration was given to the “greater good” of the wider stakeholder community, employee rights, community affairs or environmental concerns – unless of course it affected the bottom line.
Thankfully, that is now changing. Companies large and small are reflecting societal developments and placing ESG at the heart of their business models. Last month, for instance, more than 200 leading UK businesses, investors and business networks called on the UK Government to deliver a Covid-19 recovery plan that builds back a more inclusive, stronger and more resilient UK economy. There are large corporate ESG stars such as Unilever, for example, which now has nearly 50/50 gender representation at senior management level and sends zero waste to landfill in the top 21 countries it which it operates.
Looking at UK SMEs, Tech Nation last year found that the UK ‘tech for social good’ sector was worth £2.3bn with a turnover of £732m, more than the amount generated by consumer electronics manufacturing in the UK. Cultural progress is also gradually being made within company teams and at the board level: FTSE 100 companies on average now meet the goal of having women take a third of all board positions. Nevertheless, many companies have appointed female non-executive directors to meet this target so there needs to be vigilance to ensure more is done. As champions of diversity, finnCap is proud to currently have 38% women across the team.
Education is key
To embed all the values needed to drive a sustainable future, education, as is so often the case, is key. It is vital we recognise how important it is to teach business and social skills in generations who will ultimately drive the future economy. Ideally this starts at the earliest stage, and finnCap proudly partners with Stepping Into Business, a not-for-profit social enterprise which is igniting the spark of entrepreneurship in primary school-age children to create new ideas, solve problems, and use teamwork and communication as a foundation to build upon throughout their educational journey.
finnCap is also a supporting partner of Modern Muse, a charity whose mission is to empower girls to make more informed career decisions to increase diversity in the workplace and help close the gender pay gap. In addition, I sit on the advisory board of the New Entrepreneurs Foundation, which was established to create a new generation of outstanding entrepreneurs who will build market-leading businesses and play a key role in driving the UK’s future prosperity.
There is currently a significant opportunity for businesses and entrepreneurs to be a force for good and drive the responsible, sustainable growth that will help the country emerge stronger from the pandemic. It is therefore crucial that businesses are supported along their journeys – whether through guidance or mentoring for young entrepreneurs-to-be or ensuring the necessary funding and advisory support for those companies currently driving the recovery, on which all our futures depend.