ESG Ignite Report 1: Embracing ESG opportunities by millsandreeve

ESG Ignite: Unlocking environmental, social and governance potential Part 1: Embracing ESG opportunities

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ESG Ignite ESG Ignite is a series of reports aimed at helping organisations to take a proactive and positive approach to environmental, social and governance issues. Rather than a regulatory burden, ESG is treated as being fundamental to building strong, future-proof foundations.

The series includes thematic insights highlighted during in-depth, face-to-face interviews with 60+ senior leaders across a diverse range of sectors. The aim was to gather insights and opinions about how they are responding to ESG challenges and opportunities.

To stay up to date on the latest ESG developments affecting clients across Mills & Reeve’s sectors, sign up to our blog, listen to our podcast or visit our dedicated ESG page.

What is ESG? ESG was born out of the premise that no organisation is sustainable in the long-term if its activities come at too great a cost to society or the planet. It is a framework for any organisation to assess how its operations impact (for good or bad) on people, communities and the planet. That framework provides a guide for any organisation or business on how to become a more responsible citizen.

ESG drives the way any organisation behaves – what it does, how it does it, what it buys, who it works with, its structure and systems, and how it interacts with its people and communities. By embedding ESG, you drive long-term sustainability and success, without costing the earth.

Keep an eye out for the next report in this series which will unpack what ESG means in different industries and contexts.

Introduction: the ESG lens is magnifying

There is no denying that society views every organisation through an ESG lens. Customers, clients, communities, investors, regulators, board members, trustees, and current and future talent – all expect organisations to do the right thing, in the right way. The momentum is only accelerating. Look at how often ‘ESG’ is Googled: it’s 5x more popular now than in 2019. Advert after advert on TV and social media reveals how brands are striving to be better. Universities major on their ESG credentials in the race to attract the best students. It’s a key area of focus in our firm and within many of the organisations we work with. Our research evidences this trend: 68% of senior leaders we spoke to believe their organisation is focusing on ESG not because of regulation but due to people pressure.

In our ESG Ignite series, we outline insights garnered during our conversations with dozens of senior leaders, look at how leading organisations are embracing the move to more sustainable ways of operating, investigate opportunities in the supply chain and leadership, and finish with a view of the future. I hope you find this practical series helpful as you look to unlock your own potential for environmental, social and governance success.

Organisations that are not environmentally conscious, socially aware and strongly led risk severe reputational, regulatory and financial damage. But what is more interesting to me is the opportunities that an ESG-focused approach affords. Everything you do as an organisation has the potential not only to make a positive impact, but also to enhance your long-term sustainability environmentally, socially and financially as well – so, what’s not to like?

Neil Pearson (he/him) Partner, Head of ESG and Social Value, Mills & Reeve

Analysis: revealing the opportunities Not everything is as it seems when it comes to ESG. When talking to senior leaders about their approach, we came across some interesting insights. By revealing more about these, the aim is for you to see how your organisation measures up to peers and your best next steps. Our three key findings were: 1. People pressure trumps legal compliance 2. Social beats environmental 3. Innovation overtakes activation

People pressure trumps legal compliance

Leading organisations are listening and responding to customers and clients by going beyond compliance, instead aiming to really do the right thing. The most significant driver for increasing focus on ESG is not regulatory or financial. More than two-thirds (68%) of the senior leaders we spoke to told us that they were acting on ESG due to the pressure, internal and external, to do the right thing and have a positive impact on the wider world. Action is not about meeting regulatory requirements but meeting (or exceeding) increasing expectations. Those organisations embracing ESG strategically are thriving, with leaders telling us that benefits include: Improved financial performance from reducing costs, increasing revenues, and enhancing profitability A competitive advantage, enhanced reputation and brand value Greater access to finance Reduced risk exposure by managing issues that affect reputation, operations and legal compliance

Social beats environmental

While the perception may be that addressing environmental issues are the most pressing for many organisations, our research found that social concerns were just as prevalent. The top ESG issues organisations are focusing on include: Social: Supporting the local and global community (30%) Environmental: Carbon use and emissions (23%) Social: Equality, diversity and inclusion (19%) This may be because of the growing influence and impact of social justice movements to raise awareness and demand for more action on social issues such as racial and gender equality, human rights and climate justice.

Innovation overtakes activation

Leaders are taking an ambitious approach to ESG. Only a tiny proportion (5.3%) think that they will be doing exactly what they are doing now for the next three years. Many told us that they will have moved on from simply setting up robust ESG processes to innovating them. When asked where they hoped to be in the next one to three years in terms of delivering their ESG strategy, the top responses from senior leaders were: 1. Innovatively and transparently contributing to environmental and sustainability matters 2. Having their ESG strategy fully embedded in their company 3. Being in-line with Net Zero targets What all this suggests to us is that leaders realise that every part of ESG represents a possible win-win, making their organisation stronger and more resilient at the same time as doing the right thing. Not only that, but they also have it in their gift to spot chances, both big and small, to make a positive impact.

Case study: Adnams and the butterfly effect

"I'm sure you've heard the phrase: when a butterfly flaps its wings here, you get a hurricane over there." As a 150-year-old business, Adnams knows all about long-term sustainability. From creating stronger relationships with key customers to leading industry innovation, the brewer’s ESG focus over the last 20 years has had a significant positive impact. As a large, listed alcohol business, Adnams is obliged to comply with more ESG-related rules than organisations in many other sectors, but that was never the main driver for change, according to Andy Wood, CEO. Instead, the business saw environmental, social and governance issues as opportunities to think bigger rather than as a hinderance to be hurdled. “There are all sorts of regulations that we have to sign up to but we always thought about going a bit further,” they reveal. Adnams is always looking at new ways to improve.

Social

The company has a serious social focus too, donating to and supporting numerous local charities (too many to mention here) and championing social mobility.

Environment

Environmental investments and innovations have been made throughout Adnams’ operations. It is working to reduce emissions, especially at its power intensive breweries, and hydrogenated fat has been trialed as fuel for its fleet. Another key example of an ESG opportunity that the company spotted was when one of its major customers asked it to develop a product to fit into its environmental strategy. The brewer went above and beyond, working with the University of East Anglia to assess carbon emissions all the way through the supply chain. As part of that process, a lighter beer bottle was developed which many other brewers across the world have emulated, creating a butterfly effect of lower emissions that the company is rightfully proud of. That commitment transformed their commercial relationship and today the customer remains one of Adnams’ largest.

Governance

Andy Wood (he/him) Chief Executive Officer, Adnams

The company has ESG objectives built into its financing and insurance arrangements and is also keen to let customers know how seriously they take the issue. One famous example was an advertising campaign about how you can have too much of a good thing – unheard of at the time for an alcohol brand. “I think many of our peers in the market wondered what the heck we were doing,” says Andy.

Practical steps: embracing every chance

Having supported organisations to address ESG issues for over a decade, I can feel a real sea change taking place. It’s an exciting time as the growing significance of ESG provides the momentum, funding and leadership buy-in needed to drive positive change. In addition to the findings presented in this report, we have learned from our own ESG journey and from supporting clients across various sectors on theirs. To inspire you to discover your own ESG potential, here are five tips.

Judith Houston (she/her) Corporate Associate with ESG focus, Mills & Reeve

When working out how to meet upcoming requirements, question how you can exceed them. Get on the front foot and go even further to future proof your organisation for long-term success. Rise to challenges set by your customers to build loyal and long-term relationships.

Carry out a materiality assessment. Identifying the ESG issues and opportunities that are most relevant to your organisation and your stakeholders will help focus your resources and guide your strategy. Consider conducting a gap analysis using national and international standards and best practice from similar organisations to enable you to better understand your current position and help prioritise future activities.

Share learnings with your industry peers and cooperate with other stakeholders. ESG is not something you can do alone – collaboration is key.

Authentic communication and transparency builds trust and credibility with customers and other key stakeholders. Your website, sustainability reports, annual reports and social media are all great tools for telling your story. You can also use third-party certifications, labels or ratings to demonstrate your ESG performance and standards. Start to look at innovating now your plans are near fully formed. Be clear and consistent and avoid greenwashing or exaggerating your claims.

Innovate and differentiate. Use ESG as an opportunity to create new products, services, processes or business models that address the needs and expectations of your customers and society. ESG is a way to stand out from your competitors and position yourself as a leader and a pioneer in your industry.

Get in touch

How can our ESG expertise support your business? Visit our website

To discuss any of these issues in more detail or to sign up for the next report in the series, please get in touch:

Neil Pearson (he/him) Partner, Head of ESG and Social Value, neil.pearson@mills-reeve.com 07769 994210