Three key themes on the ESG radar

Alex Bexon, ESG Director at LDC, outlines three key ESG trends for 2023 that management teams of mid-sized businesses should be thinking about.

As we look to the year ahead, it’s clear that the developments within ESG are moving at lightning pace. It can be difficult for all businesses – from large corporates to mid-market firms and SMEs – to keep up.

From my experiences talking with industry peers and a whole range of management teams of different types of business, there are three themes I think will be particularly prevalent this year.

The first is the rise and rise of ESG data. There has been serious discussion, led in part by investors, about the need for better quality and more consistent data to show how companies are performing against key ESG issues, including carbon footprint, gender pay gap and corporate governance.

The International Sustainability Standards Board, whose creation was announced at COP26 in Glasgow in 2021, is leading the development of global standards on ESG disclosure. Most agree that this will be helpful for businesses in understanding their own performance and demonstrating progress. For ambitious management teams of growing companies, an authentic ESG strategy with supporting metrics will become increasingly vital to their credibility in the market, their customer base and their licence to operate.

Second, various recent factors – such as Covid-19 and issues with the global shipping industry – have only served to further increase scrutiny on corporate supply chains. This is coupled with the growing demand not just for Scope 1 and 2 emissions data, but also Scope 3; the emissions across a company’s value chain. Because often over three-quarters of a company’s emissions are within Scope 3, it makes it essential that they engage with their supply chains and make significant efforts to decarbonise.

What’s the upshot of this for medium-sized businesses? For me it’s that they need to work both up and down their supply chains, demonstrating their own progress to larger customers and supporting their smaller suppliers who likely don’t have the same internal resources available to manage their environmental impact.

As an investor, we’re working closely with our portfolio companies to provide them with support and advice to help them reduce their emissions by 50% by 2030 on a path to Net Zero by 2050 or sooner.

My final theme for 2023 sits in the ‘social’ bucket of ESG. In 2022, as the cost-of-living crisis took hold in the UK, some businesses stepped in to support employees at difficult times. This took the form most notably of one-off payments to help towards energy bills and other rapidly rising costs. In 2023 I expect businesses taking measures to underline their credentials as socially responsible employers and develop a supporting and inclusive work culture, such as by offering free financial wellbeing advice, will become a more entrenched, permanent trend.

 Earlier this year, LDC was named in this year’s Real Deals Future 40: ESG Innovators in recognition of our efforts to champion ESG excellence and deliver on our nine commitments to support a more sustainable and equitable future. With our support, companies across the UK and in diverse sectors are making significant improvements when it comes to ESG innovation and are growing sustainably.