ESG – What Does it Mean to Me?

ESG – What Does it Mean to Me?

ESG is a buzzword on many organisations’ lips, however what does it really mean, and how does it apply to your business?

Environmental, Social and Governance (ESG) are the independent terms used for regulations and guidelines describing the areas surrounding sustainable, ethical and responsible business practices. Together they cover a wide range of topics, with the primary focus often being on the Environment.

What Is The Legislation?

At present there isn’t one piece of government legislation that covers all three areas of ESG. However, there are a side range of regulations that organisations need to comply with depending on their sector, size, or type of business. While the regulations and guidelines are in place, there is little in the way of guidance or advice for application.

The UK Government is working with organisations to both set and achieve ESG targets. Examples include Voluntary Business Energy Efficiency Agreements with energy suppliers to provide energy efficiency advice, energy audits and services, and the EU Emissions Trading System, responsible for the greatest reduction in emissions from both the power and business sectors.

Some of the key ESG Legislation:

  • UK Corporate Governance Code 2018 (UKCGC)
  • Companies Act 2006
  • Climate Change Act 2008 (CCA)
  • UK Stewardship Code 2020 (UKSC)
  • Disclosure Guidance and Transparency Rules (DTRs)
  • Bribery Act 2010
  • Modern Slavery Act 2015
  • TCFD Task Force Climate Disclosure

What Should My Business Do?

While the importance of ESG is increasing and those organisations that have previously dismissed it as a fad are having to put in place actual policies and procedures to address it, the main aim for businesses is to make steps towards reducing their environmental impact, whilst fostering strong social and ethical principles throughout their organisation.

While regulations are in place, demands from investors and customers are also driving change, meaning those organisations that simply wait to comply with regulations are behind the curve.  Many organisations are therefore investing in Sustainability Risk Management (SRM), a business strategy that affiliates financial targets with organisational ESG policies, aligning sustainability and business growth.  With sustainability emerging as a source of competitive advantage, sustainability risks are putting pressure on company Directors to act.

Organisations need to identify and understand the key sustainability risks for their specific business and hence develop targets and plans to mitigate these risks while demonstrating progress. This can form part of a broader ‘security of supply’ strategy (see information on third party risk management below).

Which Regulations Must I be Following?

But how do organisations know which regulations to follow? Once, a tick box exercise, now ESG is becoming a fundamental aspect of business operations and it is no longer an ‘option’ for large organisations.

The nature of your business will impact the regulations that will apply to you, the stakeholders that should be aligned on company ESG policies and the progress reports, however it won’t be long before ESG reports will be read alongside the financial reports. 

Outside of the legal regulations, how organisations interpret and apply the guidelines is fluid. However, as the impetus grows, pressure to make the rights steps is coming from all stakeholders including investors, customers and suppliers.

The steps to achieve a clear ESG stance would be to:

  • Determine the business KPI’s against which to measure ESG practice. Identify success metrics, against which to track success.
  • Create an ESG role within your organsiation to set in place regulations and oversee procedures in support of the business. This role will be responsible for outlining the relevant frameworks and metrics for which the business should report against.
  • Clearly identify business ESG targets and principles while publishing regular reports, demonstrating the steps towards achieving these goals.
  • Be clear on the infrastructure to support ESG goals and the steps to meeting them

Implementing EGS practices will impact the entire business and should be aligned with all department heads in order to achieve a common goal. Acting now to set business standards, create reporting metrics and building ESG into corporate strategy will enable competitive advantage and set the business in good stead as regulations become more rigorous over time.

Third Party Risk Management

As regulations vary according to organisational size, scope and sector, a robust approach to third party ESG standards and policies is crucial in order to meet internal business goals.

In addition, the supply chain will be impacted by the variance across international ESG regulations. Increased transparency and awareness of the risks third parties present are needed. Effective communication and strong supplier relationships are key as well as ensuring business ESG objectives and supplier requirements are clear and assessments carried out prior to contract.

Environmental Risks: What are the organisation’s current environmental practices? How does the organisation use natural resources? What effect do the organisation’s practices and material sourcing have on the environment? What initiatives has the organisation taken to demonstrate good environmental stewardship?

Social Risks: How does the organisation value its relationships to employees, communities, partners and stakeholders? How does the organisation ensure fair supply chain labour standards? Does the organisation offer opportunities in finance and healthcare to its employees? What initiatives has the organisation taken to demonstrate a meaningful social contribution to its surrounding community?

Governance Risks: Is the organisation structured equitability in terms of diversity and inclusion? Is the organisation’s leadership group committed to equal opportunity? How well is the organisation aligned with ethical business standards, including tax transparency and anti-bribery and corruption?


To find out more on how your organsiation can respond to ESG regulations, the impact on Supply Chains and corporate guidance, speak to our team of Procurement and Supply Chain experts at Procure4.

You will be surprised at how quickly we can create real value for your organisation through People Powered Procurement. Click here to contact us today.