ESG trends set to impact privately owned businesses
ESG strategy and transformation
ESG trends set to impact privately owned businesses
Thu 11 Jul 2024
As the call for responsible business gains momentum, privately owned businesses are looking at how to step up their efforts on integrating environmental, social and governance (ESG) factors into business models. As new reporting requirements emerge and investors increasingly assess sustainability progress as a pre-requisite for funding, privately owned businesses are under pressure to ensure they develop a credible sustainability strategy.
Equally, there are number of rising trends that are now shaping the ESG landscape. How privately owned business respond to these trends will help determine their ability to meet future demands and expectations.
Standardisation of sustainability reporting
A big stumbling block for integrating ESG into business models is non-standardised reporting, which can lead to inconsistencies in data and misrepresentation of the facts. This has led to growing calls for ESG reporting to be standardised, which is already drip-feeding through into more recent reporting initiatives from the International Sustainability Standards Board (ISSB) and the Corporate Sustainability Reporting Directive (CSRD). For large privately owned businesses who have already begun reporting on sustainability issues, aligning with standardised ESG reporting frameworks provides a concrete platform for ESG actions going forward. For those privately owned businesses yet to embark on ESG reporting, using standardised reporting frameworks will provide much needed guidance to begin the journey from a position of clarity and confidence, particularly when reporting on more complex areas within the supply chain.
Digital transformation
Technology will play a significant role in enabling the corporate sustainability agenda. Data quality, quantity and availability are paramount to any business strategy, management programme or ESG reporting framework. Trusted data sources eliminate the discrepancies in the data, reducing verification and validation requirements. Automated ESG assessment, management, and reporting frameworks are being developed, allowing for broader and speedier acceptance of ESG reporting. Blockchain has yet to be fully utilised, but innovations are being tested. It is essential that privately owned business leaders ensure they are not left behind in using technology to support ESG integration. Analysing how technology can benefit ESG strategies and reporting will help reduce the burden on resources.
Reduction in cost and administrative barriers
Cost and administrative navigation have been big barriers to ESG integration among privately owned businesses. However, these barriers are expected to reduce drastically as governments require and encourage more business sectors to engage with the benefits of sustainability. According to the latest Mazars’ survey, awareness of the benefits of ESG has risen in small and medium-sized enterprises. This suggests that, as ESG becomes more accepted as a whole of market requirement, the barriers associated with meeting those requirements will fall. At the same time, available expertise needed to meet those requirements will increase as the ESG service sector grows.
New value creation opportunities
As business leaders increasingly shift their mindset and strategy, ESG will move from risk management to opportunity and value creation. This trends presents benefits for privately owned businesses who are often nimbler and more agile in their ability to react to market forces than their blue chip counterparts. While it will require leadership to clearly identify the added value opportunities that a more sustainable business model can bring, improved performance, the ability add value to shareholders and a distinct competitive advantage are distinct benefits.
Adjusting to the new landscape
A significant consequence of the ESG revolution is that it has forced the world to redefine success in that businesses can no longer be assessed purely on financial returns. Similarly, ESG reporting alone cannot determine the value of an organisation and will therefore force the merging of these two paradigms to deliver a holistic definition of success. Progressively, we are closer to holistic reporting and redefining how the value of businesses is measured. As the value case for ESG becomes increasingly apparent, the infrastructure of sustainable business assessment, management and reporting will be deployed more widely by a broader section of society. This is likely to have a positive impact on talent attraction, service provision choice and international expansion ambitions.
In terms of performance benchmarking, there will be a shift to incorporate more sustainability standards, including the Paris Agreement and the UN SDGs. A more formal process of building strategy and targets around future needs will emerge as a more effective long-term measure of progress and success for privately owned businesses.
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