Why do businesses need to bother with ESG?

Why do businesses need to bother with ESG?

This is a big question and the answer is long and multi-faceted but it is clear that, regardless of size, ESG factors are set to increase in relevance and importance for businesses over the coming years. The extension of mandatory climate disclosure requirements to the majority of UK corporate structures by 2025 is just one example.

ESG is not going away and, as it enters the mainstream it is likely to impinge more and more across various aspects of the corporate world. While businesses cannot afford to ignore it, those who embrace it as “early adopters” have the chance to get ahead of the competition and reap the benefits.

A new human right

The UN has recently recognised the right to a clean, healthy and sustainable environment as a human right. Although this was a non-binding decision, the Scottish government has already said it will incorporate this new right into legislation, it is likely others will follow.

Given the explosion in human rights-based litigation in recent decades, it is only a matter of time before this new human right is used as a basis for litigation.

Directors’ duties

Company directors have a statutory duty to act in good faith to promote the success of their company but, they are required to have regard to certain factors when doing so, including the impact on the environment and the consequences of any decision in the long-term.

Climate change and sustainability should therefore already be highly relevant to directors’ decision making.

It is predicted that more climate-related lawsuits will emerge based on directors’ duties or shareholders’ rights. To mitigate this potential risk, companies need to start getting their ESG ducks in a row now, if they have not already.

Pressure from stakeholders​

Just as diversity and inclusion have been pushed high up the agendas of many businesses due to pressure from stakeholders, other ESG factors are becoming just as important when it comes to buying decisions by clients, securing investment from investors and attracting the next generation of workers.

How can we help?

At Nexa, we offer a comprehensive ESG service, which includes:

• General ESG training and guidance for your organisation and/or its clients.
• Advice on incorporating sustainability into your business strategy.
• Climate clauses for your legal documentation.
• Advice on navigating climate reporting such as writing a carbon reduction plans.

For a confidential, no obligation chat about your ESG needs, do get in touch: catherine.oh@nexa.law

–Catherine Oh, ESG Lead