Why does it matter?
ESG has moved from a niche investment concept to a mainstream business imperative. Investors increasingly use ESG criteria to assess risk and allocate capital. Regulators, particularly in the EU, are introducing mandatory ESG disclosure requirements. Customers and employees expect organisations to demonstrate responsible practices. In public procurement, ESG considerations are increasingly embedded in tender requirements, and organisations that cannot demonstrate strong ESG credentials risk being excluded from opportunities.
Key details
The three pillars
Environmental factors cover an organisation's impact on the natural world, including carbon emissions, energy use, waste management, water consumption, biodiversity, and pollution. This pillar is closely linked to climate-related disclosures and net zero commitments.
Social factors address how an organisation treats its people and communities. This includes employee welfare, diversity and inclusion, human rights, modern slavery, health and safety, community engagement, and supply chain labour practices.
Governance factors relate to how an organisation is directed and controlled. This covers board composition and diversity, executive remuneration, business ethics, anti-corruption policies, tax transparency, risk management, and shareholder rights.
ESG reporting and ratings
A growing number of frameworks and standards exist for ESG reporting, including the Global Reporting Initiative (GRI), the International Sustainability Standards Board (ISSB) standards, the Task Force on Climate-related Financial Disclosures (TCFD), and the EU's Corporate Sustainability Reporting Directive (CSRD). ESG rating agencies such as MSCI, Sustainalytics, and CDP assess and score organisations on their ESG performance, and these ratings increasingly influence investment decisions and procurement outcomes.
ESG vs social value
While ESG and social value are related, they are not identical. ESG is primarily a corporate-level framework used for risk assessment and disclosure, often driven by investor and regulatory requirements. Social value, particularly in the UK context, is a procurement-specific concept focused on the additional benefits that contract delivery creates for communities and society. In practice, strong ESG performance supports strong social value delivery, and many organisations manage both through integrated sustainability strategies.
UK & public sector context
ESG is increasingly relevant to UK public sector procurement. While the formal social value evaluation frameworks (PPN 06/20, PPN 002, TOMs) are the primary mechanisms through which sustainability is assessed in tenders, contracting authorities are also beginning to consider broader ESG credentials, particularly around climate commitments, modern slavery, and governance standards. The Procurement Act 2023 includes provisions around exclusion grounds related to environmental misconduct and labour rights violations, reinforcing the importance of robust ESG practices for any organisation seeking public contracts.