At this point in the calendar, we usually publish our outlook for potential drivers of ESG for the year ahead for mid- and small-cap companies. This year, two factors have changed our approach. Firstly, there is an excellent article in the Moral Money Newsletter from the Financial Times published on Wednesday 3^rd January which has done much of the job for us. Secondly, we will soon be publishing the findings of our own research into the UK Boardroom perspective on ESG, and we don’t want to pre-empt the findings.

The team at Moral Money provided an outlook on the top five drivers for companies to consider in 2024. They identified the assessment of environmental and social risks in the supply chain; the momentum behind carbon pricing; the backlash against ESG (specifically in the US); a crunch year for climate finance; and the implications of numerous political elections around the world as having an important influence in the coming year. In summary, they believe ESG is entering a phase when regulation and government policy will have a pivotal role, two factors with which we completely agree with.

However, we also believe there are additional related areas that should have a bearing on how small and mid-sized companies will need to shape their ESG programmes in the year ahead.

These include:

• The new regulations demand the testing of materiality. How companies treat, report, and most importantly, act on the findings will be key to breaking away from focusing on just compliance and “tick-box” demands.
• Climate and nature will remain an ongoing priority and challenge, but delivery of social value and impact should be treated with equal importance, as employee and customer influence increases.
• In some cases, the challenging economic environment has led to more short-termism and a perceived decline in the level of engagement from the capital markets on several ESG issues. This should not be misinterpreted as a chance to reduce activity.
• Companies will benefit by moving away from a mindset of ESG as a siloed activity and reporting requirement. The sooner environmental and social factors are viewed and treated as long-term potential drivers of performance, on the same level as other risks and opportunities, the better Boards and management teams will understand their respective value.

In the year ahead, ESG as a concept will continue to evolve, putting new pressures on corporates to respond and adapt accordingly. We look forward to participating in its development, and in the meantime, to publishing our own research. Please be in contact if you would like a copy.