As UK organisations prepare for their new ESG reporting responsibilities from 2023 in line with the Sustainability Disclosure Requirements, it is no wonder that internet searches for ‘ESG meaning’ are topping tens of thousands. But obligatory or not, how can businesses approach the growing need for ESG compliance?
ESG, meaning Environmental, Social and Governance, is a set of standards used to measure an organisation’s impact on society and the environment, and how transparent and accountable it is.
As countries announce their respective net-zero targets, governments are taking steps to keep private sector organisations accountable by requiring ESG reporting.
There are various frameworks and standards currently in use, such as the Global Reporting Initiative (GRI), and the Sustainable Accounting Standards Board (SASB). But governments are normalising how ESG information is disclosed to ensure investors have accurate information to make the right decisions, and so that sufficient funding is available to meet national emissions reduction targets.
Is ESG reporting obligatory in the United Kingdom?
In 2019, the UK passed a law targeting net zero greenhouse gas emissions by 2050. In order to achieve that target, the government has put a great deal more weight behind reporting requirements, and these are set to expand even further over the next five years.
One of the core regulatory factors for ESG disclosures in the UK is the Companies Act 2006, which comprises obligations for annual reporting. The rules apply to larger companies that are either listed, have a £500 million+ turnover, or employ a workforce of over 500 people. Some companies outside of these criteria will, however, partake in ESG reporting for the purposes of enhancing their competitiveness.
Whilst non-financial information has always been a necessity in annual reports, in 2022, the Companies Act was expanded to include sustainability information. The newly introduced requirements have been designed to meet the recommendations made by the Task Force on Climate-Related Financial Disclosure (TCFD), with companies now having to report on their impact on the environment, how they approach social matters, their respect for human rights, and their anti-bribery and anti-corruption policies.
In terms of the environment in particular, organisations must make disclosures on climate change-related risks and opportunities and how these are managed; how climate change is addressed by corporate governance, and how climate risks impact upon their general strategy.
Large UK companies must also report on their energy use and carbon emissions within their annual reports through the Streamlined Energy and Carbon Reporting (SECR) requirement. Introduced in 2019 to replace the Carbon Reduction Commitment (CRC) Scheme, the SECR requires companies obligated under the scheme to report on their energy consumption and associated greenhouse gas emissions within their financial reporting for Companies House.
Why else do ESG ratings matter to businesses?
A business that scores well on ESG metrics is considered better prepared to manage future risks and take advantage of arising opportunities. In this respect, it would be more likely thought of as a healthier investment prospect. Companies with low scores may be considered unsustainable and therefore excluded from portfolios, which may negatively impact on stock prices.
Across Europe, around 50% of assets are managed using responsible criteria. It is therefore essential that organisations are acutely aware of their ESG scores and take action to improve them, regardless of whether there is a mandatory requirement to do so.
Investment aside, ESG ratings also act as a useful internal benchmarking tool, helping to fuel decision making and enhance sustainability performance generally.
So, even where ESG reporting is not obligatory, it remains of huge importance. And this is precisely why organisations are turning to the power of smart building technology to help them manage both environmental and social factors more efficiently.
What is a smart building?
In a smart building, the process of managing the ‘S’ factors of ESG, such as employee health and well-being, are simplified. And in terms of the ‘E’ factors, smart building technology is able to fuel the move towards that all-important green building status.
A smart building management system makes it possible for individual users to control the likes of heating, ventilation and air conditioning (HVAC) so that they can create their own working microclimates, boosting productivity and helping workers to feel more valued in the process.
Smart HVAC controls have the ability to provide workers with maximum comfort, creating a healthy building through improved air quality. When you consider that HVAC accounts for almost half a building’s energy consumption, and bring in the fact that buildings are responsible for 39% of energy and process-related carbon dioxide emissions, it becomes very clear that creating an energy efficient building is of exceptional importance.
A smart HVAC system makes it possible to monitor individual spaces via Internet of Things connected sensors, setting automations to switch off heating and air conditioning where it is detected that rooms are not occupied; reducing heating levels where the ambient temperature has risen, or switching off air conditioning where it has dropped. All of this significantly reduces energy waste.
What’s more, smart lighting is known to contribute to healthy buildings, which again supports employee well-being. It also saves energy by automatically adjusting lighting in line with changing natural conditions. So that ticks both social and environmental boxes.
How can Smart Spaces help with ESG reporting?
When it comes to ESG reporting, it’s all about the data. And in the smart building, rich data insights are produced as standard.
Smart Spaces is an Internet of Things (IoT) driven platform that takes an ordinary building management system and transforms it into a smart building management system.
Powered by internet-connected sensors, machine learning and artificial intelligence, Smart Spaces is able to automatically control a variety of building management system elements, including heating, lighting, ventilation and air conditioning. This all contributes towards reducing energy waste to create the green building status that ticks the ‘E’ in ESG, and towards promoting employee well-being, covering the ‘S’ element.
Smart Spaces data insights show how a workspace can be improved, highlighting how a building is used, and benchmarking performance against other buildings.
On a more personal level, Smart Spaces provides users with a smartphone app which lets them control their own individual workspace conditions, whilst machine learning stores personal preferences, and creates pre-sets for specific tasks, times of day and environmental conditions.
A sense of community and togetherness is another important ESG ‘S’ factor. Smart Spaces is primarily a workplace engagement app, designed to promote positive work-life balance. There’s a Social Wall for everyone to share latest news and community events and keep on top of local and workplace life, plus a personal chat feature.
To discover how Smart Spaces could help your organisation manage various aspects of ESG and help you create a green building, you are welcome to get in touch or request a demo.