Smaller professional services firms cannot afford to ignore the ESG agenda. It should, says Cathy Oh, be a deciding factor in marketing and business development activity.
ESG is high on current political agendas. In January 2023, the Government’s Mission Zero Report labeled the trajectory to net zero emissions as the “economic opportunity of the 21st century” and the revised Net Zero Strategy for the UK is due to be published imminently, following the High Court ruling in July last year that the original strategy was unlawful.
Currently, any entity in the UK with more than 500 employees, as well as any premium listed company, must publish Taskforce for Climate-related Financial Disclosure (TCFD) – aligned reporting annually, including details on greenhouse gas emissions. SMEs account for one-third of the UK’s carbon emissions, so it is only a matter of time before these requirements are rolled out across all UK-registered business entities.
SME professional services firms are not currently required to produce ESG reporting, and many are choosing not to do so, primarily for reasons of time and cost. There is a strong argument, however, that they have failed to consider the risk of not developing an ESG strategy.
Your clients need your support
Part of climate reporting places responsibility on the reporting company for the emissions of its supply chain (Scope 3 emissions), so if your company is supplying services to large entities now covered by the TCFD framework, expect that they will be asking for your carbon emissions as part of their reporting cycle.
It is also increasingly likely that your ESG credentials may be a deciding factor in business development and it is, therefore, something that your own marketing/BD teams are going to need to get to grips with.
The UK Government’s procurement policy, PPN0621, requires bids for contracts valued at more than £5m to include a Carbon Reduction Plan (CRP). This details greenhouse gas emissions for a base 12-month period, compared to the most current 12-month period and includes Scope 3 emissions, so whether you or your client are bidding, this information will be required. A CRP also describes the targets set for reducing emissions and details of projects aimed at achieving those targets.
Your business stands to benefit
ESG is the framework by which these factors are assessed and sustainability informs the way in which an entity works towards its chosen purpose, with a view to mitigating ESG risk factors. A business which takes a strategic approach to sustainability can use its “sustainability advantage” to create value, from boosting market valuation, to reducing operating costs, and creating new revenue streams.
Funding can be more readily available at better rates for companies with a credible ESG strategy. Banks are offering lower rates on loans to companies committed to improving their carbon footprint and private equity firms are treating ESG factors as a core investment consideration.
ESG is regularly highlighted as a differentiator in recruitment, especially for the Millennial and Gen Z generations. By 2029, they will make up 72% of the global workforce and Deloitte have concluded that the primary driver in looking for a job as a Millennial is “to make a difference”.
The World Economic Forum has found that 25% of market capitalisation derives from brand perception and the consulting firm BCG identifies significant opportunities for business leaders who can “capture advantages, reset industries, and anchor their legacies…in the global race to sustainability.”
Taking your first steps
Often the hardest part of developing an ESG strategy is knowing where to start. Commitments can be introduced slowly, with no need to plunge in at the deep end.
One of my clients, Nexa, a platform for consultant solicitors and provider of legal services, recently began its ESG journey with an Environmental Business Charter, broadly setting out Nexa’s commitment to fighting climate change. Nexa also joined the Legal Sustainability Alliance, which offers the support of a community of like-minded lawyers and relevant resources.
Diversity, Equity and Inclusion (DEI) is also close to Nexa’s heart and the flexibility that Nexa’s structure offers its lawyers works really well for those who want to be manage their work-life balance for their lives, rather than for their work.
As a regulated law firm, Nexa is already obligated to report its diversity statistics to the Solicitors’ Regulatory Authority (SRA). This year, we will be calculating Nexa’s carbon emissions and developing a strategy to establish a relevant Net Zero target.
Nexa’s ESG expertise means that the firm is now able to support some of its own legal clients, predominantly small to mid-size businesses, including regional law firms, to establish their own ESG strategies, for example by calculating their carbon emissions, developing ESG documentation for use with their own clients and marketing their ESG services.
Reap the rewards
As your clients focus on ESG, whether by choice or by requirement, your firm needs to be ready to support them in their efforts. Making a commitment to playing a positive part, no matter how small, in the climate change challenge can be financially and morally rewarding, with tangible benefits to many functions for a professional services firm, including business development, recruitment and cost savings.
Cathy Oh is a business consultant and is ESG Lead at Nexa, a legal services provider.