Skyscrapers above the cloud in Shanghai

Environmental, Social and Governance for Manufacturers

Richard Baker, Partner, Audit and Justin Elks, Head of Risk Consulting
Skyscrapers above the cloud in Shanghai

ESG (Environmental, Social and Governance) has become the recognised term for the standards businesses use to operate in a sustainable and socially responsible way.

Frequently people talk about ESG in the context of environmental considerations: waste, pollution, energy and the like. It is in the DNA of manufacturers to minimise waste and energy usage to remain competitive in their markets. Pollution is more difficult to control as it depends on the technology available for production and reducing energy usage.

The UK has committed to becoming ‘net zero’ by 2050. This essentially means that the greenhouse gas emissions are in perfect balance with greenhouse gases removed from the atmosphere. This is an ambitious target that will require radical actions over the coming decades. These actions will impact on businesses as well as our daily lives.

Large and listed companies are now required to publish data on their carbon emissions within their financial statements. I expect that this will filter down to SMEs in due course, as standards harmonise and become established. The theory is that measuring and reporting will focus minds on actions to reduce the emission of carbon, as well as allowing this to be scrutinised by third parties.

Focusing on disclosure alone is the wrong approach and tends to lead to ‘greenwashing’ – focusing on strategy and a transition plan enables progress to be made which in turn gives a good story to tell.

For many SMEs, the challenge is how these big issues can be tackled in an achievable way. This starts by embedding ESG into the business and its strategy.

Why do this and what are the benefits?

The main areas of benefit include:

  • developing and maintaining a strong, trusted brand and reputation; both in absolute terms and relative to peers;
  • attracting and motivating talent; increasingly, current and potential employees are expecting their employers to have a strong ESG-related purpose and strategy that fits with their values;
  • greater productivity, reduced costs, improved resilience and lower regulatory intervention;
  • ·opportunities for growth and innovation; for example, through new or tailored products and improved competitive position; and
  • ·optimised investments, and better access to capital. We are now seeing increased challenge for business around their approach to ESG, including by mainstream banks providing finance.

Although they may be difficult to measure, studies now consistently show that a clear and coherent approach to ESG, and climate change in particular, can help companies be successful over the long-term.

If you are looking to improve your organisation’s approach to ESG, then please contact Justin Elks or Richard Baker, or your usual Crowe contact.

Contact us

Richard Baker
Richard Baker
Partner, Audit
Thames Valley
Justin Elks
Justin Elks
Partner, Head of Risk Consulting