Sustainability issues and concerns globally over the past decade, have led to the surfacing of a new and different approach by investors when making investment choices and decisions, namely, Environmental, Social and Governance (ESG).
ESG – A Reminder:
ESG is the term used to describe a corporation’s interests and focus on their sustainable and ethical impacts. The role of ESG is to drive and monitor a corporation’s societal and environmental impact, and to promote organizational accountability. ‘Capital markets use ESG to evaluate organizations and determine future financial performance.’[Source]
So ESG focusses on sustainability and a firm’s ability to meet social responsibility standards rather than being solely focused on making money and examining how the three factors’ impact on their risk register. This should lead to the consequential creation of value for all concerned, the consumer, stakeholders, and the environment. Through ESG, the benefit of the community which surrounds the firm and its business is placed at the forefront of everyone’s mind.
Examples of ESG:
| Environmental | Social | Governance |
| · Contribution to climate change through GHG emissions
· Pollution control · Impact on biodiversity · Impact on water resources · Contribution to a circular economy |
· Human rights
· Modern Slavery · Child labour · Workplace safety · Employee welfare · Diversity and inclusivity · Global and local community relations |
· Executive pay
· Board diversity · Political lobbying and donations · Tax strategy · Business ethics · Bribery and corruption[Source] |
ESG now:
ESG initiatives have rightly found their place on the agenda of CEO’s worldwide, as sustainability and social value targets are now firmly fixed as part of stakeholder expectations. Statistics outlined in a recent KPMG 2022 CEO Outlook indicate that ‘CEOs increasingly agree that ESG programs improve financial performance’[1]. Notably, the downside of not meeting ESG expectations may result in up to 25% higher cost of raising finance.[2]
One could argue that statistics like the above would indicate that ESG approaches are or should be cemented in organizations’ cultures and goals. However, in light of mounting recession risks, ‘chief executive officers are putting a number of environmental, social and governance goals on hold in attempts to cut down expenses.’[3]
Long-term sustainability and social value generation is once again taking the backseat to short-term economic viability and liquidity. Economic uncertainty in the market is, it seems, undermining ESG’s role in the corporate landscape.
What’s next:
As outlined in the KPMG 2022 CEO Outlook, firms choosing to move away from ESG targets and efforts, may limit their operational resilience and sustainability, potentially damaging their long-term financial growth.
In the UK, the FCA is establishing an ESG committee to assist firms in executing ESG-related responsibilities. As stated in the latest FCA article on ESG, the role of the Committee will advise the FCA Board on three areas:
- On how the Board executes oversight of ESG issues relevant to the FCA both as a regulator and its own operations
- On relevant emerging ESG topics or issues
- On how the FCA should develop its ESG strategy, in line with the organisation’s statutory objectives and regulatory principles.
The pilot meeting of the ESG Committee will be in Q4 2022, and quarterly onwards, showing that ESG-efforts should and will remain a priority for the FCA. It is our understanding that firms should continue demonstrating priority in investing in ESG efforts.
How can Complyport Help?
If this article has raised any questions about ESG, or you think your firm may require assistance in pursuing ESG-related goals and targets, please contact Jan Hagen via jan.hagen@complyport.co.uk to book in a free consultation.
About Complyport
Complyport is a market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.
We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.
Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.
Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.
About Complyport
Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.
We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.
Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.
Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.
[2] Ibid
[3] theedgemarkets.com/article/executives-backing-away-esg-recession-risks-mount-—-kpmg
