The most successful and progressive leaders are endorsing ESG or Environmental, Social and Governance principles in all areas of their businesses, but in what ways are they doing this and is it resulting in a positive effect on their overall performance?
This was the theme for the latest Brighter Thinking Roundtable, jointly hosted by Menzies Creditor Services team and the Chartered Institute of Credit Management (CICM) in London. Senior-level executives from ten organisations were in attendance at the event and shared their experiences of signing up to an ESG agenda as well as the difference it has made to their businesses.
Partly driven by changes affecting the requirements to tender for public sector contracts and corporate reporting, ESG is now a priority for Boards across the UK, indifferent of the size of their organisations. Even though a large number of the requirements for auditing related to ESG performance currently apply only to larger companies, there is a ‘trickle-down’ effect which has made small and medium-sized businesses realise that showing a commitment to ESG will be critical to their success in the long-term.
Embracing the ESG agenda
Although the business case for ESG compliance has been reinforced significantly in recent years, business leaders agree that if a ‘tick-box’ approach is used to deliver changes it is unlikely to have lasting benefits. It is more likely for the push to embrace ESG to prove beneficial if it starts from a genuine desire to want to make a positive difference to the world whilst also connecting with customers and employees in a more meaningful way.
Nikki Walker, CEO of Quality Compliance Systems (QCS) Ltd, said: “For us, ESG is core to who we are and a real business driver. Our inclusive culture enables us to maximise the diversity within QCS to connect with our customers. We have benefited massively just by making ESG part of our conversation with customers and employees. One of the measurable benefits has been a decreasing attrition rate.”
Richard Singleton, Finance Director and Head of ESG at Menzies LLP, is responsible for initiating the firm’s strategy for ESG and developing a new service line for clients. Despite this work starting before the pandemic, it has significantly accelerated in recent years. Describing the firm’s ESG journey, he said:
“As you might expect from a firm of accountants, we started out by looking at areas such as carbon accounting. We calculated our own carbon footprint and put in place a plan to reduce energy consumption and where possible, switch to renewables. As a relatively low energy user, we set a target to achieve net zero emissions by 2027 and we are making good progress.
“Whilst focusing on the environment was our starting point, more recently we have recognised how important social value delivery has become to stakeholders internally and externally. Existing employees and candidates have high expectations in this area. They want to know that their employer or prospective employer is doing the right thing – from its approach to diversity and inclusion, to staff remuneration, benefits and training, and they are not afraid to ask questions.
“At a time when many businesses are facing staff shortages and competing for talent, we recognised that ESG was an opportunity to differentiate our business and wanted to support our clients in achieving the same.”
Larger companies have tended to lead ESG
Larger companies have tended to lead the agenda on ESG, sometimes initially focusing on the corporate agenda due to their investors raising questions, as they want to know they are investing in responsible, sustainable businesses. Karen Young, Director of Accountancy & Finance at Hays UK&I, part of Hays PLC – a firm with a workforce of over 10,000 people – described how caring for the environment, whilst supporting communities and charities, is ‘part of the DNA’ of the Hays business. She said:
“Doing the right thing is not a new concept. Charity partnerships are a longstanding focus at Hays; one of the first things I was asked to do when I joined the business as a trainee over 25 years ago was to run the London Marathon to raise funds for the Hays’ corporate charity that year, which was Macmillan Cancer Support, a cause close to my heart. This initiative of building strong charity fundraising partnerships has continued to this day.
‘Helping for your tomorrow’
“However, Hays now has a global programme called ‘Helping for your tomorrow’ that is about us using our core skills and expertise to help lift the employability of those who may not have the same opportunities as others. The programme focuses on both fundraising and corporate volunteering into local communities. We have a clear key strategic priority around social value in our UK&I business and our activity is communicated regularly across the organisation and externally too.
EveryYouth
“One workstream is the development of a strategic collaboration with the charity, EveryYouth, which sets out to help disadvantaged young people succeed in life – homelessness being perhaps the most striking indicator of disadvantage. Project Flourish is dedicated to the improving the social mobility of some of the most disadvantaged young people in the UK, through an employability programme. The initiative is designed to help young people gain employment and, just as importantly, develop and flourish once in their new role.”
Karen also highlighted how important strong leadership is. She said: “A couple of years ago, one of our Executive Board addressed a meeting and asked us ‘Is the world a better place because Hays is in it? If not, we need to do better’. We took inspiration from this and haven’t looked back.”
Appointing an ESG leader
For most small and medium-sized businesses, and some larger ones, it might not be feasible to recruit a dedicated ESG leader. Boards of companies often decide to appoint someone from within the business to take on the role. Finance teams are the obvious place to look as they focus on managing and declaring business data, which is an appropriate fit for evaluations of carbon footprint and setting targets which are performance-linked. In some cases a representative from the HR team is involved to provide a ‘people perspective’ and to support the outpouring of information internally. However, there is no hard and fast rule so the boards of other businesses may choose to appoint the head of investor relations or sales director as their new ESG leader.
Considering nature of the business’ activities
For some businesses, the nature of their activities can be difficult to accommodate with a socially responsible agenda. For example, collecting debts can be perceived as causing a negative impact on society, but some businesses are attempting to change this by adopting an ESG-led approach.
David Sheridan, Operations Director at ARC (Europe) Ltd, a consumer-focused debt collection agency based in Walton-on-Thames, explained: “Employee wellbeing and mental health awareness is an important area for us. Some of our customers have mental health problems, so our employees are trained to deal with this in an empathetic way, providing signposting to health services and other support where needed.
“Alongside our Employee Assistance Programme, we have dedicated St John’s ambulance mental health first aiders within our business to provide our teams with the training and support to deal with challenging conversations with customers who are really struggling with serious mental health issues. In an industry with a high attrition rate, we also recognise that handling challenging calls can affect employee wellbeing. We take this seriously by really listening to what they want and ensuring that our pay and benefits packages are aligned.”
‘Focusing on real needs is vital’
Rebecca Williams, Coface’s Head of Direct Products UK & Ireland, echoed that focusing on real needs is vital, saying: “When implementing ESG strategies, as employers we must take care not to overlook the basics: this is when it could become a tick-box exercise. We should start by really making sure we know what our stakeholders need from us and develop work streams that make a tangible difference.”
Identifying the right ideas that will keep employees engaged and make customers happy can be a challenge for employers, especially when budgets are tight and teams are stretched due to worker shortages. Nevertheless, business leaders shared plenty of ideas with each other. Menzies LLP hosts ‘Make a Difference Week’ in July each year, offering a variety of fund-raising activities that involve community engagement for employees to be a part of, some close to local offices and others on a national scale. Hays is partnering with Neighbourly this summer, to deliver a volunteering programme to people in local communities called ‘Hays gets Neighbourly’.
Richard Singleton added: “Some of the best feedback we have had from employees was around Earth Day (22 April, 2023), when we gave each employee a voucher to buy a plant. They felt good about working for Menzies and caring for the plant reminded them of the importance of nurturing the environment. Some employees said the initiative had a positive effect on their families too, as their children were able to help with the planting and watch it grow.”
Supply chains
Making supply chains more environmentally friendly is a problem area for some businesses, and initially it will be time consuming. Implementing processes to aid the business to make greener choices will lead to better decisions in the future. Running ‘blind testing’ workshops to collect employee feedback on proposed changes for pens, paper and coffee can increase engagement and inspire individuals to offer their own ideas.
For small and medium-sized businesses, launching an ESG journey can be daunting and knowing the correct place to start is important. Understanding stakeholders’ needs is critical, but if employers get it right there can be tangible business benefits – these include increased employee and customer engagement as well as reduced attrition rates and a better-motivated, more productive workforce. Summarising the main message from the roundtable, Sue Chapple, Chief Executive of the Chartered Institute of Credit Management (CICM), said:
“For those that are wondering whether now is the right time to embark on an ESG journey, or take it to the next level, the question should not be ‘do we want to do this?’ but ‘when shall we start?”.
Next steps
If you’d like to understand more about the benefits for your business, the planet and ultimately your bottom line, please contact Richard Singleton to see how Menzies can assist you.