Middle market companies refocus their ESG efforts

The nature of business is constantly changing, and ideas accelerate from unknown concepts to vital functions with breathtaking speed. This is the case with environmental, social and governance (ESG) policies, which were unfamiliar to many companies in past decades, but are now a key component of many organizations.

Support for ESG initiatives continues to be high among middle market companies. However, the nature of that support is evolving. Middle market companies are reprioritizing their ESG policies to reflect their industries and organizational goals better. Companies are focusing on what they can realistically accomplish and are striving for specific objectives rather than attempting to tackle a broad range of ESG concepts. In addition, bigger organizations are making larger investments and adopting more ESG initiatives than smaller ones.

These insights come from the data provided by the third-quarter RSM US Middle Market Business Index survey. For the survey, 407 interviews were completed from July 5, 2022, to July 26, 2022, of middle market executive decision-makers working in a broad range of industries in the U.S.

The survey reveals that 70% of middle market companies have formal plans or strategies regarding ESG initiatives, up from 66% for the comparable period a year ago. 

Organization has formal plans/strategies regarding commitments to ESG initiatives*

Furthermore, 88% of the companies provide external reporting on their ESG performance, a statistically significant increase from 77% the previous year. And 69% of companies now have a dedicated senior executive whose primary responsibilities include establishing and achieving a vision for ESG. This is on par with 66% the previous year.

“A higher level of education about ESG has developed in the middle market over the past few years,” says Anthony DeCandido, a partner at RSM US LLP and leader of the firm’s ESG practice. “Under the ESG banner, there are components that allow professionals to go much deeper and make an impact. But what matters most to one industry will sometimes differ from another industry.”

DeCandido says the middle market recognizes that the bar has been raised for ESG commitments and policies. Indeed, the specialization of ESG initiatives might be one reason why just 56% of companies with a formal ESG plan specify all of their commitments—such as environmental goals, gender and ethnicity programs, community involvement and so on—in their policies. This percentage is down from 72% a year ago, implying that organizations may be highlighting certain aspects of their ESG efforts.

“It’s almost impossible to improve everything and to track hundreds of different variables,” says Tu Nguyen, economist and ESG director at RSM Canada. "Companies don't have the money, time and resources to improve everything. So it's much better to pick a few things that are key indicators that can really move the needle and make a difference in ESG performance."

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