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Making ESG an integral part of the business

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As the ever increasing focus on environmental, social and governance (ESG) factors continues to be high on the agenda for a wide range of stakeholders, our report answers the question, why?

What are companies doing now compared to what they were doing two years ago and what are they planning to do to tackle climate change, embed sustainability and build greater social and economic equity for future generations? Our research explores the challenges companies are facing globally, such as identifying opportunities and sourcing support to help them navigate through the regulation and legal requirements, in order to overcome issues and thrive as a business.

Research criteria

480 companies over 4 continents

8 key sectors globally

Companies with annual turnover in excess of $250m

Listed and private companies

Global factors impacting companies

Environmental factors

Social factors

Governance factors

Environmental factors

Environmental policy, strategy and targets are the main driver for companies implementing robust ESG strategies (62%).

Social factors

Our research suggests that many companies are re-examining their ESG goals in response to the pandemic (39%).

Additionally, other global issues are playing a key role in helping companies re-consider their approach with Black Lives Matter and the #MeToo movements making companies realise they need to take action (45%).

Governance factors

With the "G" often lagging behind its counterparts, our research shows this is now getting the airtime with companies, saying that improving governance is essential (62%).

Decision making processes and responsibilities and ownership of the Board is high on companies' agendas to help identify risks and opportunities.

“I’d expect more organisations to change, adopt and merge until the market settles a uniform framework of utility. Until companies consistently adopt those frameworks it’s going to be laborious and hard to derive consistent and comparable meaning for stakeholders.”

Joseph Bailey, Senior Analyst, Bloomberg Tax and Accounting

Why is ESG strategically important to businesses today?

We provided those surveyed with a list of key themes across a range of issues asking them to select those of most relevance to their business.

Shifting market dynamic / changing business models

The need to engage future talent

Future proofing / protecting profits

Reputational risk

Increase shareholder value

Stakeholder pressure

Regulation

Climate change

It is part of our business value

42%

41%

39%

34%

30%

28%

23%

1 in 5 admit ESG performance is weak

59% of companies have lost work

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Sector specific research

Transport

Financial Services

Insurance

Consumer

Energy

Real Estate

Technology & Communications

Government & Public Sector

“Boards need to be well-versed in their responsibilities and have sufficient oversight for how ESG is being managed in the companies they oversee. Sustainability shouldn’t be an adjunct to the business. We are talking about what will sustain us into the future and it’s therefore core to business strategy.”

Suzanne Scatliffe, AXA XL

Challenges

Opportunities

The lack of a universal standard and competing sets of regulations is the challenge most companies face globally.

There is also strong indication that there is no broad agreement on best practice or what good looks like.

ESG has become more important to companies over the last 12-18 months with many now seeing ESG as a means to develop a unique position within the market.

What is more apparent is the eagerness to collaborate, learn and share with other businesses and professionals.

Note: All percentages are of 480 respondents.

What can you do?

Start with the Board

Establish a cross-functional ESG leadership group

Plan and conduct a materiality assessment

Develop an action plan

Transparency and information

Why DWF?

Our purpose is to deliver positive outcomes with our colleagues, clients and communities.

As the only main market listed legal business we understand the importance of transparency, disclosure and the level of interest from stakeholders in how ESG and sustainability is integrated and reported. Therefore, we can work with clients to do the right thing and act with integrity to be able to support each other. We can provide global legal advice on a wide range of ESG related issues. Our four key areas focus on: • Corporate compliance, governance and risk • Environment and climate change • Business and human rights • Subsidiaries and communities Additionally our Responsibility programme helps business leaders reset their culture and work with them to comply with director duties, simplifying the regulatory landscape, establishing pay strategies, managing supply chains, managing labour supply and data privacy and cyber security.

DWF have published its group ESG Strategy Find out more.

Find out more

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Kirsty Rogers

Head of ESG E. ESGEnquiries@dwf.law

Technology and Communications

Over the last 12 months there has been increasing pressure from stakeholders about ESG performance and evidence of this is key. Thankfully data is not so much of an issue as other sectors but there is a difficulty with the lack of universal standards. That being said, the sector is the most confident when it comes to saying that there are no external challenges, however when you ask the same question internally, lack of employee engagement is the highest across sectors.

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Transport

The sector is seeing the rise of ESG as an opportunity to develop its USP and there has been a huge increase in implementing ESG strategies and aligning targets over the last 12 months. With that comes issues and many still fear that implementing ESG will have a negative impact on their service offering if they focus too heavily on environmental targets. Our research suggests that the sector is looking for professional advisors more than anyone else to work with them.

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Financial Services

As you would expect regulation and shifting markets is the top priority for financial institutions. Whilst climate change is climbing the ladder in terms of priorities there is still a sense that financial institutions focus their ESG strategies more on the "S" and "G". We expect to see the "E" increase over the next 12 months, especially with more firms required to sign up to the Task Force on Climate-Related Financial Disclosures (TCFD).

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Insurance

There is increasing pressure on insurance companies to meet market expectations and subsequently stakeholders are often requesting ESG information from their suppliers. There has been a huge spotlight on insurance over the last 24 months compared to other sectors and due to it being somewhat behind the game, it has unfortunately resulted in many companies losing business as a result. Insurance companies know they need to catch up and are working hard to push for Board level engagement.

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Consumer

Over the last 12 months there has been huge emphasis on the "G" but with that, the consumer sector has slightly fallen behind when focussing on the "E". Our research would suggest that the responsibilities and ownership of ESG within the business is more fragmented than other sectors, something they hope to see improve over the next 12 months. The primary focus as you may expect is the need to consider ESG principles within goods and services.

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Energy

With such a focus on the environment, energy companies are using ESG to influence changing behaviours across their business community and therefore is a key part of their values compared with other sectors. It is no longer just seen as priority for these companies but is embedded in day to day operations. However, energy companies are feeling more pressure than others when it comes to their shareholders analysing their ESG performance.

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Real Estate

ESG appears to have been high on the agenda for real estate longer than other sectors with many companies looking at this strategically for well over 12 months. Whilst they have been ahead of the game in comparison to other sectors, they are now realising the struggle to attract and retain talent and how they can use ESG as a growth opportunity.

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Government & Public Sector

Our research suggests that ESG hasn't been as high on the agenda as other sectors, potentially because others are waiting for guidance from them about what they need to do. That said, the Government and Public Sector are struggling to identify the skills they need and are desperately seeking a broad agreement on best practices and are therefore turning to their professional advisors for help. Board level commitment is strong and robust.

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Our research suggests that 32% believe there is still lack of commitment from the Executive. Everything starts with the Board so it is therefore key that there is a commitment to take ESG seriously.

In establishing your leadership group you need to look at the different aspects of ESG in your company. You need your leaders involved in a connected way.

Carrying out a company-wide materiality assessment will establish what social and environmental factors really matter to the business. It is a complex task, but essential to enable measurement of ESG performance.

Once complete, your materiality assessment will be able to guide your business and ESG strategy. DWF advise aligning your plan to the UN Sustainable Development Goals (SDG's).

It is important to understand your data and be able to share it transparently and consistently, keeping it up to date and available for reference.

Companies realise that the "E" is bigger than climate change, with carbon emissions, biodiversity and the circular economy all cited as a factor.

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Our research suggests that 32% believe there is still lack of commitment from the Executive. Everything starts with the Board so it is therefore key that there is a commitment to take ESG seriously.

In establishing your leadership group you need to look at the different aspects of ESG in your company. You need your leaders involved in a connected way.

Once complete, your materiality assessment will be able to guide your business and ESG strategy. DWF advise aligning your plan to the UN Sustainable Development Goals (SDG's).

It is important to understand your data and be able to share it transparently and consistently, keeping it up to date and available for reference.