In an era marked by unprecedented global challenges and a shifting business landscape, the role of organisations has transcended profit-making to encompass a broader responsibility for societal and environmental well-being. At Pierce, we recognise that the pursuit of growth is intricately linked with the pursuit of sustainability and businesses are not only judged by their financial performance but also by their contributions to the environment, society, and ethical governance. Embracing ESG isn't just a trend; it's a strategic imperative that holds the key to long-term resilience and prosperity.
WHAT IS ESG?
ESG is a three-component framework set by the government measuring a business’s impact on Environmental, Social, and Governance. It encompasses guidelines, principles, and standards that gauge how effectively a company incorporates these considerations into its daily operations and overall business model.
ENVIRONMENTAL
This part of the framework focuses on how a business impacts the environment by looking at the products and services offered, the supply chain and operations. The business can choose to target specific areas of the organisation to focus on implementing sustainable practices.
A business may:
- Convert to renewable energy sources resulting in becoming a net zero organisation
- Switch to biodegradable packaging
- Replace lighting with LED
- Encourage recycling
SOCIAL
How a business performs in relation to the culture of its employees, suppliers, consumers and wider society.
A positive approach is to invest in fair and equal opportunities and conditions.
For example:
- Promoting health and safety in the workplace and providing necessary training
- Caring for employees' wellbeing
- Collaborating and supporting local projects and incorporating charity work within the business social responsibility
- Advocating equality, diversity and inclusivity
- Delivering high-quality products that are safe
- protecting any consumer data
GOVERNANCE
This refers to the decision-making within a business in relation to policies, rules and procedures and applies to the organisation's stakeholders including board directors, management and shareholders. Best governance practice is crucial to maintaining transparency, accountability, and fairness in decision-making, as well as safeguarding the interests of stakeholders.
A business should consider:
- diversity in the boardroom
- transparent reporting to stakeholders on financial performance, business strategy and operations.
- Risk management processes in identifying, assessing and mitigating potential risks that could affect the operations of the business
- The ethical practices amongst the organisation particularly in the event of corruption or bribery.
How Does ESG Impact Tax Liabilities and Financial Reporting
The below is not an exhaustive list but a few examples.
- Tax incentives and credits are offered by some governments to businesses that engage in ESG activities and may reduce a company’s tax liabilities. For example, if the business operates from an energy-efficient building, install EV (Electric Vehicle) charging points, and install solar panels.
- Several UK Authorities are introducing ESG regulations to be disclosed in a company’s financial reports which can impact compliance costs and financial transparency.
- Investing in sustainability is likely to impact the income statement and cash flow of a business due to the expenses incurred to install or train employees.
Adopting ESG within your business and following best practices can result in:
- An improved reputation
- A reduction in costs
- Attracting new employees
- Attracting new clients/customers
- Attracting investors
Contact our experts today if you have any questions on how ESG can impact your financial reporting.