The ESG Digest for the AIM & UK Small-Cap Communities - November 2024
We're delighted to bring you the latest in ESG for the AIM and UK small-cap communities.
This edition includes…
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How does the small-cap gender pay gap compare to the national average?
20th November was the UK's equal pay day, the day in the year when, based on the gender pay gap, women overall in the UK stop being paid compared to men.
Whilst the UK's pay gap creeps slowly downwards, Addidat's data provides insights into the challenges for smaller firms. The UK government's increasing focus on pay equity, as evidenced by the proposed Employment Rights Bill, underscores the ongoing relevancy of creating diverse workforces. For many small-caps, while not directly targeted by the current bill, they should be mindful of the evolving regulatory landscape and consider implementing proactive strategies.
Read our recently article which summarises: ? The latest report from the ONS on the UK's average pay gap, ? How AIM companies compare, including a sectoral view? Trends in diversity reporting? How companies are responding
Reflecting on COP 29 - What’s the status of the global alignment on climate change?
With 2024 increasingly looking likely to be the hottest year on record and the first to exceed 1.5C over pre-industrial levels, are the realities of the physical impact of climate change improving global collaboration and consensus?
Early Sunday morning, 35 hours over schedule, COP29 wrapped up with a landmark agreement on the provision of financing to poorer countries who are most affected by the negative impacts of climate change, yet have done the least to cause it.
The agreement, reached by representatives from 200 countries, commits developed countries to provide $300bn in annual financing by 2035. In addition to the increased financing, which will be achieved largely through low interest loans and grants, there were further commitments by all actors to establish additional funding, including from private sources, of up to $1.3tr annually by 2035.?
Whilst the deal is being labelled “an insurance policy for humanity” by UN Climate Change Executive Secretary Simon Steill, and $1.3tr may sound like a large sum of money, as the Guardian states, it is less than 1% global GDP and falls significantly short of the $192tr estimate required by an LSE study last year.
On a lighter note, The Economist believes the cost of energy transition is being significantly overestimated. In a recent article it highlights key flaws in the approach to calculating the cost of the climate transition, which is being estimated at $3tr-12tr+ annually.? Furthermore it states that progress in policy is reducing global warming estimations over preindustrial levels by 2100 (IEA currently predicts 2.4C and UNEP 3C, versus 5C when the Paris agreement was signed in 2015). However, the Paris Agreement is 1.5C and well below 2C to prevent a crisis. The scientists are clear - more is required.
What do we think this macro view means for UK small cap firms? With the UK stating intentions to help plug the anticipated leadership gap resulting from Trump’s hokey-cokey with the Paris Agreement, and COP30 in 2025 requiring all participating countries to provide climate action plans to reach committed goals, this only will strengthen the impending regulations on mandatory climate reporting. We anticipate the mandatory reporting requirements on climate will expand in two key ways:
Furthermore, as there will likely be a phased roll out of the new regulations starting with the biggest firms first, firms are likely to feel the pressure of these regulations indirectly from their larger customers before the regulator, as many are already starting to feel as a result of the EU's new corporate disclosure requirements.
We’ll have clarity early in 2025 when the UK government is planning on providing an update on the UK Sustainability Reporting Standards.?
After more on COP29? Try these - 15 minute Guardian podcast; 25 minutes BBC podcast, Carbon Brief's summary article?
Stewardship in focus - the FRC launches Stewardship Code Consultation
The Financial Reporting Council's (FRC) has launched its consultation on revisions to the UK Stewardship Code. The Stewardship Code is a set of principles for Asset Managers and Owners, and aims nudge investors towards an ownership approach that emphasises long-term value creation for clients, beneficiaries and society.
This FRC's initiative aligns with broader industry discussions, including WHEB's recent white paper on the topic, which emphasises the importance of prioritising material issues, transparent reporting, and strategic resource allocation.
As the complexity of the stewardship ecosystem grows, data-driven, outcome-focused practices are essential to align client mandates with systemic goals. As a data provider we will continue to monitor the outcomes of this most recent consultation given the key role stewardship plays in delivering tangible value in sustainable investing.
Ending with Something Good
We bring two important environmental wins this month
About Addidat
Addidat exists to help our clients navigate the increasingly complex Corporate Responsibility & Sustainability and ESG landscapes as internal and external pressures grow. We use a data-informed approach to our Advisory Services and, also, make this proprietary data available for investors via The Addidat Platform.
Our experts help you navigate the challenges and opportunities that Corporate Responsibility & Sustainability and ESG presents by designing and embedding right-sized solutions within your business.
Find out more about Addidat and how we help our clients visit www.addidat.com or contact Beth Scaysbrook.