Research by Addleshaw Goddard has revealed that large European businesses are making faster progress on sustainability than medium-sized businesses, with the gap expected to become even more pronounced over the next 4 years.
The law firm found that financiers intend to turn off the funding tap to companies within at least two key sectors by 2025 if they fail to provide a carbon transition strategy, with real estate and healthcare most at risk. The combination of these factors could disproportionately impact the ability of medium-sized businesses to thrive in the medium term.
Based on the views of 1,000 business and finance leaders, the research reveals that medium-sized businesses are falling behind on sustainability for several reasons. These include:
- a lack of a joined-up response among industry (a barrier for 76% of mid-size businesses vs 50% of very large businesses);
- difficulty in raising new equity finance (75% vs 56%);
- government regulation (73% vs 52%); and
- a lack of access to good quality sustainability data (75% vs 60%).
Both mid-size and very large businesses cite pressure to keep costs low as the biggest barriers preventing them from becoming more sustainable (81% of mid-size businesses vs 75% of very large businesses).
Sustainability was found to be a top-two boardroom priority for only 17% of mid-sized businesses compared to over a quarter of very large businesses (26%). 72% of medium-sized businesses expect that sustainability will become a top-two boardroom priority by 2025, compared to 82% of very large businesses.
Amanda Gray, Partner, Addleshaw Goddard says, “Small and mid-size businesses are in a bind, because they don’t have the clarity they need to develop and invest in a zero-carbon strategy, but without one, financiers are likely to cut them off within the next few years.”
“The government must work hard to provide every bit of certainty it can, for example through setting out binding interim targets. This will allow businesses of all types to be confident in the knowledge that they are responding to the right metrics and that there is a level playing field among competitors,” continues Gray.
The largest businesses also report having increased their financial investment in sustainability significantly since the start of the pandemic (41%), with 38% claiming that their boards have spent more time on improving ESG performance during the same period. This compares to under a quarter of medium-sized businesses that have increased spending (24%) and time spent by the board (23%).
The research also highlights that mid-sized companies are less likely to be taking a strategic approach to ESG. Fifty-five percent of very large organisations say that ESG considerations are at the heart of their business strategy and shape everything they do, compared to 43% of medium-sized organisations. And almost half (47%) of medium-sized organisations admit to performing the minimum level of ESG reporting for legal and regulatory compliance, compared to 23% of very large organisations.