ESG confusion will hamper business growth and environmental and societal change, says RSM UK

New research reveals that business leaders are not familiar with Environmental, Social and Governance (ESG). For those who are, nearly a quarter (24 per cent) are not making any attempt to measure the potential impact that their ESG goals might have on the environment or society, and in turn the benefits a robust ESG approach could have on business and society.

The survey by leading audit, tax and consulting firm RSM UK revealed that almost half (44 per cent) of the 416 UK middle market business leaders (defined as companies with a turnover between £10m and £750m or financial institutions with assets under management of £200m to £7.5bn) questioned are unfamiliar with ESG.

The research comes as the UK Government prepares to publish findings from a consultation launched earlier this year proposing mandatory ESG reporting in line with the Task Force on Climate-related Financial Disclosure (TCFD). The new rules, expected to come into force from 2022, will make ESG reporting mandatory for all private UK companies and LLPs with more than 500 employees and turnover greater than £500m, along with all publicly quoted UK companies.

Over half the business leaders familiar with ESG (56 per cent) are attempting or have attempted to measure the impact of their ESG programme. However, over three fifths of businesses who have an ESG strategy in place, the range of standards and frameworks that these businesses are using is extensive and difficult to navigate – creating a complex and inconsistent picture when comparing what organisations say about themselves.

Mark Taylor, regional managing partner at RSM UK, said: ‘ESG is about responsible business. Being out of tune with the net zero carbon agenda and social responsibility is not a viable option. It’s now a clear business imperative as reticence or inactivity in this space could have very real impacts on future growth, as customers, employees, investors and other key stakeholders increasingly demand strong ESG credentials.

‘However, the whole area is complicated and covers a wide range of issues. It’s difficult to define, difficult to know how best to engage and sometimes difficult to measure, despite there being no lack of standards. In fact, the number of different frameworks across the globe actually adds to the complexity as businesses can effectively pick and choose aspects which they report on making benchmarking across organisations very difficult. Without a clear, unified approach to standards, it is easy for businesses to be in the dark on what to focus on and how best to measure impact.

‘As the powerhouse of the UK economy, middle market businesses have a real opportunity to embrace the key principals of ESG to strengthen their organisations and make a real difference to climate change and how business contributes to society. Oversight bodies and government need to play their part by providing the clear guidance business needs in order to most effectively and usefully report on progress.’

The survey was the fourth in The Real Economy series of topical quarterly surveys focusing on the middle market as the powerhouse of the UK economy. The Real Economy is the first authoritative source of economic data from this crucial area of the UK business market, sharing insight and perspective for the wider economy.