The ESG Digest for the AIM & UK Small-Cap communities - February 2024

We're delighted to bring you the latest in ESG and sustainability for the AIM and UK small-cap communities.

We start this month with our top tips for employee engagement. Social strategies present real opportunities for growing firms, but knowing where to start can be a challenge. So we've embraced the advice "inspiration is around us, don't let the brain limit the mind", and we have used the hit TV series, The Traitors, as our inspiration for this one (don't worry you don't need to have seen the show to benefit from the insights)...

We've also continued our explainer series with a focus on carbon offsetting. We know that greenwashing continues to be a real threat to companies and directors, and navigating this challenge starts with understanding the key terminology.

As usual, we finish up with key ESG news and regulatory updates.

We hope you find this edition helpful. As always, we welcome your feedback - please share your thoughts on what we are covering and what we're not.

If you have any feedback or would like to know more about Addidat's data, what we're seeing in the market, please contact Beth Scaysbrook for more information.

Strengthening employee engagement and wellbeing. What can we learn from The Traitors?

Company's are tending to focus their ESG investment on environmental initiatives due to increasing regulations and more clearly defined requirements. However, we believe there are more opportunities for small and growing firms in addressing social sustainability, especially when it comes to employees.

So last month, whilst we became a little obsessed with the hit TV series, The Traitors, we decided to collate our Traitors’ Top Tips to strengthening employee engagement, wellbeing, and career management. Sound tenuous? You're probably right, but stick with us, there is helpful advice in this article!

Not all is equal in the carbon offset market; how to mitigate greenwashing concerns.

With an increasing number of UK small-cap and AIM firms investing in their Net Zero strategies and the threat of greenwashing increasingly front of mind, how do companies continue to invest and communicate progress on their Net Zero strategies with confidence?

Firstly, executives and boards need to understand the key terminology and ensure that commitments are being communicated to stakeholders accurately. ESG and sustainability can present as a new language, and our data shows terminology is being misused by firms.

Building on our short article last year, where we explain the greenwashing challenge and that Net Zero is not the same as Carbon Neutral, here we expand on carbon offsetting, and explain that carbon credits are not the same as carbon offsets, and not all carbon offsetting approaches are equal, and what this all means for company's Net Zero strategies.

Latest ESG News & Regulation

• Environmental Claims Legislation Evolution. Both Australia and EU have recently announced updates on regulations aiming to crackdown on greenwashing related to product environmental claims in their respective markets. This continues the trend that marketing teams must be increasingly vigilant about any environmental claims being made and that increasingly globally, there is pressure to substantiate claims with data and facts.
• AI and treating customers fairly. One of the biggest social megatrends is the evolution of technology including AI and its impact on people, from employees at risk of losing jobs or, in the case of this landmark legal suit, treating customers fairly. This month a court ruled against Air Canada and in a customers favour, as a result of misinformation (or hallucination in AI speak) provided by the airline's chatbot about its bereavement refund policy. This ruling tilts its hat to the complexities that need to be considered as Boards and companies deepen their understanding and risk governance around the topic. Whether to include AI as part of its ESG strategy and governance is a different question, and we see a mixture of approaches being taken. Example questions to consider when deciding how best to govern AI vs ESG include... Are the issues material to the long term success of the business? Who has the knowledge and responsibility internally? And how stakeholders think about AI and technology innovation with respect to ESG?

About Addidat

Addidat is a market leading ESG consulting and data provider to the AIM and UK small-cap communities. Our suite of products and services are underpinned by our proprietary dataset, providing the most comprehensive view of ESG performance in UK small-cap and AIM markets. This means we help companies to right-sized their ESG strategies, avoiding over and under investment, and provide unparalleled insights on ESG performance to investors and intermediaries.

Our team of high-caliber consultants provide Management Consulting, Senior Advisory, Outsourced ESG Management, and Data Services to our clients.

We strongly believe in the opportunities that ESG and sustainability provide, but for smaller, growing companies it needs to be done in a right-sized way; doing it all now is not the answer. We come from small-cap and AIM backgrounds, and we're excited about helping these communities to use ESG and sustainability to accelerate growth, rather than be another cost and regulatory burden.

If you're interested in finding out more, please contact our Chief Client Officer, Beth Scaysbrook