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What is ESG and why should it be important for recruitment companies?

We take a look at ESG (Environmental, Social & Governance) reporting and why is it important for your recruitment business?

Marie
18/10/2022

Despite there being a lot going on in the world at the moment, one topic that has prominently featured is ESG (Environmental, Social & Governance) Reporting. In the first of our five-part series on ESG reporting, we’ll start by answering the what and the why, namely: what is ESG reporting and why is it important for your recruitment business?

What is ESG?

ESG is a very broad topic that looks at a company’s impact on the environment and society as a whole, but it can cover everything from ethical supply chains to data protection. These will all fall under three different headings: Environmental, Social and Governance. Let’s look at a brief overview for each:

Environmental – to tackle climate change, this covers the impact that businesses have on the environment, such as carbon emissions, pollution and waste. 

Social – this focuses on areas like customer, community and employee relations, but also expands into areas such as supply chains and health and safety.

Governance – as the name suggests, this heading focuses on how your business is governed, including board practices, business ethics, board diversity, executive pay and compliance.

All of these combined make up ESG and there’s an increasing demand for companies to report on their overall ESG performance. So why is that?

Why is it important?

In boardrooms not just across the UK, but across the globe, ESG is becoming more prominently featured in meeting agendas. Whilst the largest corporations have mandatory ESG reporting requirements imposed on them, more and more SMEs are voluntarily choosing to report on their ESG performance, whether internally or with full transparency externally. However, what business stakeholders are driving this shift? We’ll cover three of these below…

New & existing employees

As recruitment businesses can appreciate more than most, the most important capital for businesses is often their human capital. Within ESG, there is a focus on human capital so it should come as no surprise that this is important to employees, but employees are also interested in the ethics of a business as a whole. This is illustrated by research by Robert Half which recently found that 38% of employees would look for a new role if their organisation was not doing enough on ESG.

However, ESG isn’t just important for existing employee wellbeing and retention, it can also be crucial for attracting new employees. The same Robert Half report found that regardless of remuneration, 53% of employees said they would never work for a company that they deemed unethical.

Clients

Whether this covers candidates or your end clients, not focusing on ESG exposes your recruitment company to the risk of reputational damage and losing business.

In terms of end clients, many ESG reporting frameworks will not only cover the business itself, but also its supply chains and the businesses that they work with. Therefore, it will become increasingly common that businesses will need to prove their ESG credentials to win work.

Candidates are increasingly choosing to interact with companies that focus on ethics and sustainability. Therefore, ignoring ESG may also open up the risk of reputational damage with potential candidates, especially the younger generation.

Investors & lenders

Research by Charles Stanley in 2021 found that nearly half (48%) of UK investors expect to increase their ESG investments over the next three years. However, this trend doesn’t just apply to individual investors, now many of the largest investment or lending companies have an increasing focus on ESG, partly as their investments influence their own ESG credentials.

Although it isn’t just their own ESG credentials that will influence the reluctance to invest in or lend to your company if you don’t report on ESG, it’s also seen as a crucial part of the risk assessment for your company. Effectively, if you don’t report on or perform poorly with ESG, it will be viewed that your business has high-risk exposure.

Read our next article

Hopefully, this article has helped answer the what and why. In our second article of this series, we’ll cover in more detail the environmental elements of ESG reporting and why, even as a recruitment company, this should not be ignored.

Need advice?

If you own a recruitment business and are seeking support about ESG reporting, call our friendly team of business experts on 0845 606 9632 or email hello@recruitmentaccountants.com.

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