ESG: a positive direction of travel amongst
FTSE 350
Following our analysis of ESG trends within the FTSE 350, it is possible to observe some interesting variations across different segments of the index.
In terms of the FTSE 350 overall, consumer sector businesses (retail, leisure & hospitality, consumer goods) have shown a significant 18% increase in their use of the term 'ESG' in their most recent annual reports, compared to the previous year.
Figure 1 - Frequency of ‘ESG’ mentions
Furthermore, 70% of businesses used the phrase ‘ESG’ more frequently in their most recent annual reports, compared to the previous report. Just over a quarter saw a reduction, whilst 4% saw no change. There are also notable differences when comparing the FTSE 100 and the FTSE 250.
The FTSE 250 has displayed a substantial increase of 37% in 'ESG' references, demonstrating a stronger emphasis on ESG-related reporting and initiatives amongst these businesses.
On the other hand, there has been a slight decrease of 3% amongst FTSE 100 consumer businesses. This suggests a potential shift in focus or reporting priorities within the FTSE 100, although further analysis would be required to understand the reasons behind this trend.
When we examine the frequency of 'ESG' mentions by sub-sector within the consumer FTSE 350, those involved in consumer goods have used ESG the most. Additionally, the leisure & hospitality sub-sector experienced the largest increase in mentions, recording a 22% rise.
70%
of businesses used the phrase ‘ESG’ more frequently in their most recent annual reports.
37%
of FTSE 250 companies significantly increased references to ESG
Figure 2 - Average number of 'ESG' mentions by sub-sector in FTSE 350 Annual Reports (Source: Irwin Mitchell)
Overall, the analysis of ESG trends within the FTSE 350 reveals a positive direction of traffic, with a notable increase in the mentions of 'ESG' across the board. The consumer sector businesses, particularly in the FTSE 250, have shown a strong commitment to ESG reporting and initiatives and arguably signals a shift towards more sustainable and responsible business practices within these organisations.
Expert comment
“It is evident that businesses across various sectors are recognising the benefits of incorporating ESG principles into their operations.
“One of the primary drivers behind the increased focus on ESG is the recognition that it aligns with the evolving expectations of stakeholders. In today's socially conscious world, consumers, investors, and employees are placing greater emphasis on sustainability, ethical practices, and responsible governance. By incorporating ESG considerations into their strategies, businesses can meet these expectations, enhance their reputation, and build stronger relationships with their stakeholders.
“Many businesses have come to realise that ESG can be a powerful tool for risk management and long-term value creation. By proactively addressing environmental and social issues, companies can mitigate potential risks and adapt to changing regulatory landscapes. Embracing good governance practices can also help businesses avoid reputational damage and costly legal issues.
“ESG considerations can also lead to tangible financial benefits. Companies that prioritise sustainability and responsible practices often outperform their peers in terms of financial performance. Through efficient use of resources, cost savings, and improved operational efficiency, businesses can enhance their profitability and attract investors who value sustainable and resilient organisations.
“Additionally, more and more businesses are recognising the potential for innovation and market differentiation through ESG initiatives. By integrating sustainability into their product development, supply chain management, and business models, companies can tap into emerging market opportunities and meet the demands of environmentally and socially conscious consumers. This can drive growth, create new revenue streams, and enhance competitiveness in a rapidly changing business landscape.
“The increased emphasis on ESG that we are seeing here in this report could also be attributed to the changing dynamics of access to finance. Investors, including asset managers and pension funds, are increasingly incorporating ESG factors into their investment decisions. Businesses that prioritise ESG are more likely to attract capital and secure favourable terms from lenders and investors who view sustainable practices as indicators of long-term value and reduced risk."
Companies that prioritise sustainability and responsible practices often outperform their peers in terms of financial performance.
Hannah Clipston
Partner and Director of Strategic Growth, Irwin Mitchell