ESG HORIZON SCANNING WITH RSM UK

• How might the landscape for ESG change in the next 12 months?

Despite the myriad of challenges that businesses are currently facing due to continued geopolitical and economic uncertainty, ESG is set to remain in the spotlight and continue to be a key focus for businesses across many industries. Importantly, we are starting to see a shift in the attitude towards ESG. It is not always being seen as more red tape for businesses to contend with, with organisations now embracing the long-term value and sustainability they can derive from sound ESG strategies and goals.

We are also expecting regulations to continue to be implemented across more of the economy.

Climate reporting aligned to Task Force on Climate-Related Financial Disclosures (TCFD) is now mandatory for large businesses and we expect this to filter down to smaller businesses along with the ongoing development of the UK’s version of SFDR (EU’s Sustainable Finance Disclosure Regulation) – SDR (Sustainability Disclosure Requirements). Consultation on this regulation closed earlier this year and we’re expecting to see final guidance on the SDR in the summer.

In terms of topics, I don’t think there will be a material shift, I believe climate change and human rights will remain the two most important factors.

Kathy leads RSM’s ESG team across the North West, working with businesses to identify and set their ESG and sustainability goals. Kathy also works closely with RSM’s private equity team to develop the firm’s ESG offering for private equity clients, including ESG reporting, stakeholder engagement and ESG due diligence.

• What are the key trends shaping ESG?

With increased legal and regulatory requirements impacting many businesses, there is now a huge focus on data, and transparency of reporting. As Greenwashing claims become more prominent, so too does the need to have clear evidence to support progress against ESG objectives. Different industries are also experiencing different types of regulation and scrutiny. We’ve seen this particularly in retail where products are being labelled as ‘sustainable’ or ‘made with recycled fabric’ only to find out that a very small portion of the garment is made with recycled materials. As a result, some of these terms are becoming regulated.

Carbon emissions and net zero are topics that we speak to clients about at length. There are a large number of stakeholders that influence a business to act on ESG, and this is usually the first area these stakeholders ask about. These stakeholders are typically investors, customers and employees who want to know that they’re working for a business that is having a positive impact on society, rather than just delivering profits.

Human rights are also a growing topic of conversation and feature increasingly on client priority lists. This covers everything from modern slavery in supply chains to employee wellbeing and diversity and inclusion.

• How do I get started on ESG?

For businesses just starting out on their ESG journey, the first step is to understand what the material ESG issues are for your business. These could be defined by the size of your business, or what industry you operate in, as well as the complexity of your supply chain and stakeholder pressures. There are tools such as the Sustainability Accounting Standards Board (SASB) materiality finder that can assist with this.

Once you know what your material issues are you can then start to collect and understand data that will inform your overall ESG strategy and targets.

In the world of ESG, you’re not expected to have the answers on day one. However, you need to show progress and be transparent about both the current status and your future plans, as your stakeholders will hold you accountable.