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Why an Environmental, Social and Governance Policy is essential

Published on Jul 25, 2023

Most businesses today will consider it essential to have an Environmental, Social and Governance (ESG) policy to show it takes corporate commitments to recognised environmental, social and governance standards seriously. ESG is applicable to start-ups, small and large companies, public and private companies, unincorporated businesses, and charity sector organisations. 

Some ESG requirements are legally binding, others not. Any business will need to comply with the statutes and common law applicable to it. These may include the reporting requirements on ESG issues under the Companies Act, various acts such as the Bribery Act, the Modern Slavery Act, the Equality Act, the Environment Act, and others. 

ESG goes beyond legal compliance though. All stakeholders, including suppliers, customers, shareholders, employees, and tenants expect contemporary businesses to meet other standards of business ethics as well, as part of its ESG vision as a respectable corporate entity. This also embraces “sustainability,” which is an overall measure of a business’ initiatives to reduce its negative and increase its positive outputs on the globe. 

This focuses on the environmental performance of a business. It may cover climate change, greenhouse gas emissions, biodiversity, land use, treatment of animals, energy efficiency, recycling, and renewable energy. 

This focuses on people related matters such as the business’s employees, customers, and the local and global communities in which it operates. This may cover hiring practices, modern slavery and child labour, supply chain labour standards, health and safety, diversity and inclusion requirements, equal pay, data security, stakeholder relations, customer satisfaction and employee advancement.

This focuses on how a business operates on board diversity, internal controls, shareholder rights and audits. This includes conflicts of interests, bribery and corruption, executive pay, board composition, and whistleblowing.

Implementing a well thought out ESG policy can assist a business in defining the factors that are a specific risk to that business. This will begin the process for planning mitigation measures for situations where the risks could happen which could minimise the risks. 

The ESG policy should be consistent with the business’s own corporate culture and values and be realistic. It can set targets and timescales that it expects to achieve and report regularly on its progress. This forms the basis for informing stakeholders and others about that compliance, and it will be showing itself and others its commitment to self-regulation and how it is mitigating its risks.

Businesses should consider all the beneficial aspects of its own ESG, for example, achieving costs savings through reduced waste or energy consumption, better customer satisfaction, better productivity, better employee engagement, satisfaction and retention, better opportunities to contract with suppliers, customers and potential investors who also require ESG standards. 

If you have any questions about creating an ESG policy, please do not hesitate to contact Genevieve Mead, Senior Solicitor, Knocker & Foskett at email: or tel: 01732 748819

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