ESG beyond G7

11 Jun 2021

As world leaders from the G7 meet in Cornwall over this weekend, DRD Associate Anna Bailey looks at what’s in store for corporates on the ESG front.

The Future has caught up with the Corporates

Nothing captures the shared sentiment across most of the world’s developed economies as the distinct thematic focus of this year’s G7 summit. The slogan chosen for the event, “Build Back Better”, reflects the clearest point of consensus among the leaders who have gathered in Cornwall.

From a business perspective, the focus on the post-pandemic recovery will translate into commitments that fall under ESG considerations. The G7 leaders have endorsed the new Taskforce on Nature-related Financial Disclosures (TNFD, building on the Task Force on Climate-related Financial Disclosures’ success) and are launching a joint framework for sustainable development. The most widely discussed initiative – a global minimum tax rate agreed by G7 Finance Ministers last week – is also a matter of corporate responsibility. According to US Treasury Secretary Yellen, it will “ensure fairness for the middle class and working people in the US and around the world.”

The comparisons employed by the UK government to characterise the magnitude of the summit’s ambition could hardly be more dramatic – the ‘Clean Green Initiative’ has been positioned as the new Marshall plan and as an alternative to China’s Belt and Road.

UK businesses are watching these developments closely, anticipating new obligations and hoping to stay ahead of the legislative and regulatory agenda.

New UK legislation

The reality is that the G7 priorities fit very neatly within the Government’s roadmap for sustainability, social responsibility and governance, which is already in play. The Queen’s Speech last month detailed the awaited Environment Bill, while the Government unveiled a new Animal Sentience Bill. The initiatives discussed in the summit could take years to materialise into tangible business risks and opportunities. The UK Government, on the other hand, has pulled the starting gun on a regulatory shift in ESG. The Environment Bill will contain a range of targets on air quality, water, waste, and biodiversity. Local powers will be tasked to tackle air pollution, mandating manufacturers to recall vehicles when they do not meet the relevant environmental standards. Construction firms will commit to a Biodiversity net-gain. New powers would ensure businesses take responsibility for the waste they create, including new charges to minimise the use and impacts of single-use plastics.

Importantly, the net zero carbon emissions target for 2050 remains, enshrining major green policy actions towards a lower carbon future. As part of this, a new watchdog, the Office for Environmental Protection (OEP), will have the power to take businesses, public bodies, and the government to court over any breaches of UK environmental law. Businesses should be closely scrutinising their obligations on emissions and pollutants – particularly sectors with the largest “activity footprint”, such as energy, secondary materials and chemicals.

Meanwhile, the Animal Welfare (Sentience) Bill will embed the principle that animals are sentient beings, capable of feeling pain and pleasure, in law. It contains an obligation to consider the welfare needs of animals when formulating and implementing government policy, while businesses will commit to more stringent animal protection measures throughout operations. Most relevant businesses will be meeting this obligation already, but it does serve to show a significant legislative shift in standards – caring for animals, the environment, and your social impact is rightly expected by regulators, investors and consumers as the bare minimum.

When the new framework is in place, the openings for sustainable solutions and market-leading ideas can be seized by the businesses quickest off the mark.

What next for business?

What can businesses take from the flurry of activity, of which G7 is just another step? If you’re an incumbent, the time for defining ESG statements and strategies is slipping away fast. Unless they are bold and extensive, you are unlikely to be lauded for them by media, staff, and your potential investors. Boards with no existing initiatives on ESG issues risk being caught out, with stakeholder concentrated on whether they are complying and conforming, rather than leading and modernising.

But the picture is not all gloomy. This legislative proactivity has and will unleash exciting opportunities. The Government clearly expects, as set out in its policy paper, that in shifting to circular industry, the Bill and its targets will “spur innovation needed for a more productive and sustainable economy”. When the new framework is in place, the openings for sustainable solutions and market-leading ideas can be seized by the businesses quickest off the mark.

For those with essential supply chain activities in the areas being targeted by this Government – such as construction or animal transport – now is resolutely the time to establish clear explanatory messaging on the reality of the business and the trajectory of evolution ahead. Better to acknowledge the facts and your vision for the future, weaving this into communications materials and stakeholder engagement, than to wait for a third party to point them out.

Beyond the G7

What else is coming down the tracks beyond G7? The Employment Bill promised in the 2019 Queen’s Speech did not appear in this year’s offering, though it is now likely to feature in next year’s. This will introduce new rights for workers, including the right to request more predictable employment contracts, rights to flexible working and extending redundancy protection.

COP26, due to be hosted by the UK in Glasgow this November, will again refocus government efforts to establish a greener economic recovery. Public awareness and media interest will peak around this time, meaning companies should be alert to opportunities, such as environmental partnerships or climate pledges, as well as heightened scrutiny of unsustainable practices.

The advice from our profession has long been to stay two steps ahead of the Government and regulation. Now that the policy has caught up, companies must seize control of their own ESG narrative by assessing their credentials and agreeing a route forward that is clear and well-explained to all stakeholders.

Photo credit: Twitter/@borisjohnson