The findings of our second annual ESG Review leave no doubt that ESG has fully cemented its foothold in the Boardrooms and management teams of UK mid- and small-cap companies. We have been struck by how far companies have progressed with their ESG programmes, with clear evidence that it is being treated as a core element of management discipline, with links to corporate performance and financial outcomes. ESG now clearly challenges and influences a company’s licence to operate and reputational value.

Some of the main findings of the report include:

• 80% view ESG as positively aligned with shareholder returns, increasing from 54% in 2021, showing further evidence of the recognised impact on corporate performance and valuation.
• 86% reference consumers, customers, and society as drivers of their efforts to develop and implement ESG programmes, overtaking the capital markets and regulation as a core reason to implement ESG.
• 65% feel pressure from the workforce to implement ESG, with ESG now clearly viewed as a vital part of employee retention and attraction.
• 52% describe their approach to ESG as focused on ‘embedding ESG within strategy, with processes already in place to reduce risk and identify opportunities’, however, only 13% would say they have ESG fully embedded within their business.
• 86% have established some form of a link between ESG performance and management remuneration, in a significant uplift from 25% in 2021, with the challenge now being to provide better data, targets, and greater levels of disclosure.
• 71% intend to invest more time or resources into developing ESG in the next financial year, despite the expected economic challenges.

As ESG evolves, it will continue to place new and ever-changing demands on companies. Boards are expected to set the ESG agenda and hold the management to account on their ESG progress, which will require better informed and educated Board members and structures. ESG must also be more closely linked to purpose and based on considerations of double materiality, which should be updated regularly. New measurements and targets will need to be created to understand and manage the increasing social influence. Understanding and measuring multiple stakeholder demands and expectations will need to become more formalised. These are just some of the areas in which we believe companies will have to continuously refine their approach to ESG.

We would also like to thank Peel Hunt, a leading specialist in UK Investment Banking with a focus on the UK mid- and small- cap, for their support in garnering insight from over 70 companies, across 17 sectors and with market capitalisations ranging from £22m to over £6.6bn. In addition to a detailed survey, interviews were also conducted with 17 companies, across a spectrum of market capitalisations and sectors, in order to enable a representative update on the current status of ESG in UK PLCs.

Download the full report to understand more about the findings, the implications for UK corporates, and the direction of travel for ESG in the UK mid- and small-cap market.

Please do not hesitate to get in touch with Madeleine Palmstierna should you have any questions or would like more insight into the findings and implications for your business.