The ESG Digest for the AIM & UK Small-Cap Communities - October 2024
We're delighted to bring you the latest in ESG for the AIM and UK small-cap communities.
This edition includes…
As ever, we hope you enjoy the edition and find it useful. Subscribe to receive a copy in your inbox, and please share with anyone you think may benefit.
Navigating the New Era for the Non-Executive Director
Thank you to Norman Broadbent Plc and BDO UK LLP for producing this important report on the evolving role of the NED and shining a light on the current trends and perceptions of NEDs based on a survey of over 200 board members.
The report highlighted?that "People," a key element of ESG, is the second biggest concern for NEDs after the Economy, although ESG itself?was not highlighted as a key concern. As Addidat 's Chief Client Officer Beth Scaysbrook comments on in the report, the data highlights one of the biggest challenges in ESG - a lack of universal definition and understanding.?
Even if we consider ESG by its narrowest definition as ESG reporting, with regulation and customer demands on the rise, we align behind the finding that more board training is required on ESG (and Cyber & AI) to ensure these growing threats can be managed proactively in the board room, avoiding resource-sapping knee-jerk reactions later down the line.
A real-life example is the Autumn budget, which may be driving many larger AIM listed firms to consider a move to main market. In such an important strategic decision for the company, are boards considering the uplift in regulation that will result? From an ESG perspective alone, the move leads to a significantly increased regulatory burden both from those in force now and expected in the future. Please get in touch if you’d like to learn more about the regulatory uplift of moving to the main market.
More generally, a key role of a NED is to steward long-term sustainability (in its widest sense) of a firm. Yet we know smaller, growing firms have limited capacity to dedicate to ESG which is why at Addidat, we champion proportionality. Understanding what ESG means to the firm is key to enabling boards to appropriately challenge decisions on ESG investment and strategy, and to ensure constrained resources within firms are focused on initiatives that return investment.
Tanya Gass , Partner at Norman Broadbent and one of the key sponsors behind the report, wrote an excellent piece for Sustainability Views also commenting on the surprising position of ESG in the survey outcomes, UK Boards must wake up to their ESG Responsibilities.
There are also several Governance insights in the report, and key areas for boards to address include:? 42% of boards having not conducted a board evaluation since COVID, 45% do not have a formal process for providing feedback to NEDs, and 65% admit succession plans need improvement.
Download the full report to read all the excellent insights here .?
Climate Strategy Terminology - Carbon Neutral vs Net Zero
We first released this article around 18 months ago, after our data highlighted that companies confuse the two terms.? As more companies are now reporting on their carbon reduction and offsetting strategies, we continue to see these errors, meaning that you could be either underselling or overselling your commitments.
If you are unsure of your terminology, take a read of the article from our archives .
The growing conflict between AI and Nature
There has been a lot of coverage this month on the concerns over the water usage of AI tools, which are showing to consume significantly more water than previously estimated and raising concerns over the nature-related regulatory reporting gaps.
Google, Microsoft and Meta have all reported around 20% increases in water usage and Microsoft has stated they believe that generative AI could increase water usage by four times. As The Times reported, writing a short, 100-word email on ChatGTP-4 uses the equivalent of 500ml of water and enough energy to charge an iPhone seven times.
This news coincides with a recent report from the Global Commission on the Economics of Water which highlights that global warming is putting “unprecedented stress” on Earth’s water systems and has thrown the world’s hydrological cycle out of balance for the first time in human history. The commission calls for global coordination on water management and without action, impact on the economy, environment and humanity will be devastating.
What does this all mean for firms? Mandatory nature-related reporting will not be required for a few years in the UK but investor and customer pressure may drive this sooner, especially for those in the supply chain companies in scope of the European reporting regulation (CSRD).
Meanwhile firms are embedding generative AI into their operating models, which will only be making their nature-footprint worse.
Understanding a firm’s impact on nature as well as nature’s impact on it, is a critical but complex first step to really understanding how material nature-related issues are to a business and its growth trajectory. Once understood, firms can both start to establish action plans to manage impacts, as well as identify what data might be required to evolve management plans and support future reporting requirements.?It is taking firms multiple years to establish plans around climate change, and firms should prepare themselves that nature impact assessments, mitigation strategies, data gathering and reporting will be more complex.
Want more information? The Water Commission’s website has some excellent infographics the hydrological cycle, the global challenge and its importance in the economy. Our article on the nature reporting provides an introduction to the global leading framework (Taskforce on Nature-related Financial Disclosures, TNFD) which will likely form the future for mandatory UK reporting.
Pre-IPO Due Diligence NED Event
Addidat’s CEO Nina Spencer will be joining the panel for the upcoming Transpire - Global Director Network community knowledge share on pre-IPE growth at 1pm on Monday 4th November. This session focuses on due diligence, click here for more details and to register.
Ending with Something Good - The AIM Awards 2024
We had a fabulous evening celebrating everything AIM and a special shoutout to Ford Sinclair for organising another fantastic event this year.
We’d love to extend our Congratulations to all the AIM Awards 2024 winners…
CVS Group Plc SigmaRoc plc Creo Medical Kooth Digital Health GlobalData Plc System1 Jet2.com and Jet2holidays AOTI Warpaint Cosmetics Renew Holdings plc
Full details of the winners by category can be found on the AIM Awards website .
We were delighted to provide our ESG data again this year to support the voting process in all categories. We are big advocates of transparency at Addidat; if you’d like to know how your company is represented in our data, please get in touch with Beth Scaysbrook and join those who we’ve already gained useful insights from our market-leading data.? We cover the whole AIM market and several main market participants, so you don’t need to have been nominated for an award to get in touch.
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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 .
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