ESG compliance: what are your environmental obligations?

Environmental, Social and Governance (ESG) issues are on the agenda for all businesses these days. Bigger businesses have to report on their compliance but even if you run a smaller business, it pays dividends to invest in your ESG strategy.

While there are three components to ESG, in this blog we focus on your environmental considerations.

What are your environmental obligations?

As a small business, your responsibility towards the environment is to reduce the impact your business has on the environment.

That’s an attractive statement, which is easy to agree with. It’s harder to know exactly what steps you need to take to do that.

Looking at the bigger picture, you should be aiming to reach ‘Net Zero’. In simple terms, that means adding no more greenhouse gases to the atmosphere than the amount you’re taking out. Simple in words. Not quite so simple to measure.

Here are some of the ways you can move your business towards Net Zero:

  • Switch to energy-efficient LED lighting that only turns on when somebody is in the area (motion-controlled lighting).
  • Make sure all monitors are off (not just on standby) overnight
  • Use renewable energy resources for your heating and electricity 
  • Choose products with zero-waste or sustainable packaging 
  • Encourage and reduce the amount of waste going landfill.
  • Switch to electric vehicles
  • Invest in EV charging points
  • Minimise packaging on your products
  • Consider changing to data centres that are more environmentally friendly

How to comply

Now for the practical (and legal) bit. How do you go about complying with your environmental obligations?

The first step is to draft a policy that reflects your strategy to reduce your impact on the environment (such as an environmental policy). We can help you create your policy so that it aligns with your goals. Once it’s on paper, you need to bring it to life by sharing it with your employees and training them on the importance of compliance.

It’s important that you’re realistic and authentic with your policy and your efforts. If you simply espouse green sentiments, without backing them up with action, then you run the risk of greenwashing. False or misleading statements about your environmental credentials will amount to greenwashing, and damage your reputation.

The next action to take is to review your supply chain. Your business responsibility extends to the suppliers you use, so if any of your suppliers are particularly polluting or unsustainable, that impacts your business’s compliance.

To make sure your supply chain is as environmentally-friendly as possible, you could put in place policies, contracts or additional contract terms for new suppliers to commit to providing evidence of green practices, like using sustainable materials etc.

If you have in-house lawyers, or regular outsourced legal counsel, they can help you review, mitigate and manage the legal risks associated with environmental compliance. For example, they can identify upcoming regulation that could shape your product development or service delivery. This is another role we can help you with at SME Comply.

Disclosures and reporting

You may be aware that certain businesses are under a legal obligation to disclose and report their ESG compliance. The businesses that need to do this are UK companies that fall into the following categories:

  • Public companies trading on the UK regulated market with more than 500 employees
  • AIM listed companies with more than 500 employees
  • Private companies with a turnover of more than £500 million

If your business is caught by those categories, then you need to submit annual disclosures about your ESG efforts.

Why it’s important

Complying with ESG is more than just a tick in the box. Of course, compliance helps to reduce your impact on the environment, but it also makes good business sense.

For companies that intend to grow, having good ESG ratings can help you secure investors. Most investors want to support responsible businesses and this is one way you can demonstrate your commitment and secure the investment you need for your next step.

It will enhance your reputation as a business. More and more people are conscious of the ethical impact of the brands they buy into, and by taking care of your ESG obligations, you can attract more customers and more talented employees.

Finally, reducing your environmental impact will lower your running costs as a business. There may be a period of initial investment, but you will be future-proofing your business and reducing the long term costs.

If you would like any help with your ESG compliance, please get in touch with us at SME Comply.

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