ICAS President: 'Now is the time to activate ESG’s virtuous circle'
CAs will play a crucial role in championing the environmental, social and governance agenda, says ICAS President Catherine Burnet CA.
Chancellor Rishi Sunak recently fired the starting gun on the race to green reporting. By 2025, the UK is set to become the first country to make climate disclosures mandatory for large companies and financial institutions. The landmark announcement reflects how ESG factors have risen up the business agenda. It is no longer a conversation separate from performance and profit – it is now recognised as central to everything a business does.
Despite the growth in ESG activity and discourse due to the pandemic, sometimes the first letter of the acronym takes precedence. It is still common to hear discussions around ESG that focus solely on the environment and climate, but each letter is equally important in our journey to better business.
The impact of the pandemic on the momentum behind ESG was initially uncertain. In tough times, would firms focus solely on cost and efficiency? Instead, it has been encouraging to see the pandemic framed as an unlikely opportunity to rethink business models and rebuild them with environmental, social and governance matters at their heart, to reassess our businesses from the ground up. What kind of firm do we want to be in the future? How do we want to interact with the wider world? Who are the stakeholders that we should be catering for?
Crucially, the acceleration of conscious capitalism has also been driven by stakeholder pressure. The age of the internet, and especially social media, has made the whole world wake up to ESG. With access to unlimited information at the click of a button, we have all become more conscientious employees and customers. People want to work for, and buy from, businesses that they can be proud of. In this new world, people see the businesses with which they engage as an extension of themselves – and want to see their values reflected back at them.
The cultural change around our expectations of business means ESG is no longer a nice-to-have. Firms will succeed or fail based on their ability to demonstrate the purpose and decisions that flow from these values. More than ever before, the customer is king.
ESG should be viewed as an overarching framework for how firms can improve their operations, rather than as three distinct areas to be tackled separately. They feed into one another and, handled properly, become more than the sum of their parts.
Think about ESG as a circle. Solid corporate governance will quicken the adoption of environmental protections and reporting. In turn, demonstrable improvement in a firm’s approach to the environment will increase public trust and attract new employees and customers. And finally, by bringing in the best talent and engaging with the community, a firm’s corporate governance will again be bolstered by a more diverse group of stakeholders. And it all works in the opposite direction, too. Once you take the first step, ESG can become self-reinforcing and snowball over time.
It’s an area where finance professionals can make a real difference. Of course, accountants can use their technical knowledge to help to ensure that green reporting is transparent, comparable and trustworthy, but we are also well placed to champion wider change from within our companies. As CAs, we can advise on the ethics and non-financial considerations underpinning business. Let’s use that knowledge and expertise to place them at the centre of decision-making and the post-pandemic economy.
Now that ESG has broken free from its silo, and with the encouragement of government, it will only continue to gather momentum. By treating each letter with equal importance, business can help bring about change that reaches far beyond the limits of the office (or, for the time being, the home office).
Read about how ICAS reported against SDGs for the first time in its 2019 Annual Review.