More Middle-Market Businesses Making Specific ESG Plans

(Credit: Pixabay)

Many middle-market businesses have specific ESG action plans in place, which often is seen as a missing piece of making sustainability progress, showing companies are focusing on what they can realistically accomplish, according to a report by RSM US.

In the third quarter of 2022, 56% of middle-market companies with a formal ESG plan specify all of their commitments in their policies, according to the RSM US Middle Market Business Index (MMBI) ESG Special Report. That is down from 72% a year ago, which may indicate businesses are being more precise in taking on certain parts of their ESG initiatives, the report says.

Overall, 70% of middle market executives say they have formal plans or strategies regarding ESG, and 69% say they have a dedicated executive whose primary responsibilities include establishing and achieving ESG results. Of companies with no current formal plans, 15% say they are developing a strategy, and 8% say they have an informal plan.

When it comes to ESG strategies, most corporations, big or small, have publicized commitments. Yet having concrete plans is often what holds back achievements, according to a significant amount of ESG and sustainability analysis.

A recent report by EcoAct says more than 70% of the world’s corporations have made net-zero goals, but few have set or evolving, long-term strategies to hit those goals. That report finds even clear strategies are meaningless without verifiable results.

On an industry level, analysis by Haynes and Boone and EnerCom shows most oil and gas companies are adopting ESG policies, but most have not taken it further to net-zero goals. A CNBC report shows many financial executives are leery of ESG initiatives altogether.

RSM says narrowing down the strategies could lead to more ESG successes long term.

“It’s almost impossible to improve everything and to track hundreds of different variables,” says Tu Nguyen, economist and ESG director at RSM Canada in the report. “Companies don’t have the money, time, and resources to improve everything. So it’s much better to pick a few things that are key indicators that can really move the needle and make a difference in ESG performance.”

What is the impact of ESG initiatives?

These efforts also come at a time when consumers, while overall unfamiliar with what ESG means, are looking for businesses to achieve ESG goals. A study by Fordham University shows that nearly 80% of respondents want companies to act on ESG issues and want to understand what the impact is of the products they purchase.

Nearly half say they would like to know what a company’s ESG results are, and 54% say they would like sustainability information on labeling. Many are also concerned about issues such as greenwashing but don’t believe there is enough information available to determine if they are being misled.

That type of information shows the impacts sustainability measures could have on businesses. RSM says business concerns are always the main motivator to take action, although 58% of respondents say there could be positive public relations results if they were a leader in sustainability issues, and there has been some movement in that area regarding ESG initiatives.

The report shows this year 41% of companies say they have embraced ESG objectives because it is the right thing to do, up from 35% in 2021. However, the top reason listed why a company is not making ESG objectives is because other organizational goals were more important.

Regulations are a motivator in making ESG goals, with 97% saying mitigating the impact of new laws or policies is an important consideration. New climate and emissions disclosure requirements by the Securities and Exchange Commission are on the table, which has received pushback from industries, that could impact businesses.

Still, new legislation such as the Inflation Reduction Act, which was passed after the MMBI survey took place, is seen by RSM as having a potentially positive impact on companies. On that end, more than half of the respondents say sustainability initiatives, such as using renewable energy, could lower their overall operating costs.

The MMBI analysis was gathered from 407 middle-market executives from companies with annual revenues of $10 million to $1 billion. The survey was conducted in July 2022.