What is ESG? A complete guide for UK businesses

ESG stands for Environmental, Social and Governance. These three pillars of ESG are used to measure how responsibly an organisation operates, from its carbon footprint and treatment of people to the strength of its leadership, ethics and controls. For UK organisations, ESG has moved from a talking point to a core part of investor due diligence, procurement scoring and regulatory reporting.

In this guide, we break down what ESG means in practice, which UK laws and reporting rules actually apply to your business in 2026, and how governance, risk and people data underpin a credible ESG strategy, and a practical checklist you can use to get started.

See ESG governance in practice Before you dive in, take a look at how OneAdvanced approaches its own environmental, social and governance commitments, from board oversight to community impact. Societal report: Environmental, Social and Governance Strategy

What is ESG?

ESG is a framework for measuring how a business manages its impact on the environment and society, and how transparent and accountable its leadership is. Rather than a single metric, it's a lens that investors, regulators, customers and employees increasingly use to judge whether a company is being run responsibly and sustainably.

The three pillars of ESG explained

In simple words, the three pillars of ESG break down as:

Pillar	What is covers
Environmental (E)	Carbon emissions, energy use, waste, resource efficiency and climate resilience
Social (S)	Employee wellbeing, diversity and inclusion, pay equity, community impact and customer welfare
Governance (G)	Board oversight, risk management, business ethics, executive pay and regulatory compliance

Environmental

The environmental pillar covers a business's impact on the natural world: greenhouse gas emissions, energy consumption, water and waste management, and how resilient operations are to climate-related disruption. In practice, this might mean tracking Scope 1 and 2 emissions, cutting energy use across sites, or building more sustainable supply chains.

At OneAdvanced, we are dedicated to cutting our carbon emissions every year on our journey to net zero. We are proud to report that we have reduced our Scope 1 and 2 operational GHG emissions by 48%. Read our Societal Report for more insights.

Social

The social pillar looks at how an organisation treats its people: employees, customers, suppliers and the wider community. Common focus areas include diversity, equity and inclusion (DEI), gender pay gap reporting, employee wellbeing and engagement, health and safety, and community investment.

At OneAdvanced, our focus on DEI revealed a -8.22% median Pay Gap in favour of women, with a mean gender Pay Gap near parity at -0.23%. However, we acknowledge that there is still more work to be done. As an organisation, we are committed to continuously reviewing and improving our practices to bridge the gender pay gaps and bring opportunities for all employees.

Governance

Governance is the pillar that underpins the other two: board oversight, risk management, internal controls, audit trails, data protection and anti-bribery policies all sit here. Strong governance is what turns environmental and social ambitions into accountable, auditable practice, which is why it's worth taking the time to build a strong risk management framework as the foundation of any ESG strategy.

Why does ESG matter for UK businesses in 2026

ESG has become a genuine business differentiator rather than a compliance afterthought. Investors are screening more rigorously, customers are asking harder questions of their suppliers, and employees increasingly want to work for organisations with a credible, evidenced sustainability story.

Momentum is building across UK boardrooms too. Deloitte's 2025 research found that 81% of business leaders are now embedding sustainability into their strategy, and 65% report seeing measurable returns from doing so, evidence that ESG investment is increasingly paying for itself.

Beyond investor and customer pressure, these four factors are pushing ESG up in the UK business agenda:

• Risk mitigation: ESG due diligence helps identify supply chain, regulatory and reputational risks before they become costly problems
• Access to finance: Lenders and investors increasingly weigh ESG performance when assessing creditworthiness and valuation
• Talent attraction and retention: A credible ESG story is now a factor in recruitment and employee engagement, particularly for younger workers
• Resilience: ESG-mature organisations tend to be better prepared for regulatory change, climate risk and supply chain shocks

Turn ESG ambition into evidence Explore OneAdvanced's Governance & Risk software for board management, risk registers and audit trails that make ESG reporting defensible. Explore Governance & Risk Software

Is ESG mandatory in the UK? Legal and regulatory landscape (2026 update)

The short answer is yes, but not in the same way for every organisation.

There isn't a single UK law that makes ESG mandatory. Instead, ESG obligations are spread across several regulations covering environmental impact, governance, workforce practices and corporate transparency. The requirements depend on factors such as your organisation's size, turnover and whether you're publicly listed.

For many large businesses, ESG reporting is already a legal requirement. Smaller organisations may not be directly in scope, but they're increasingly expected to provide ESG data to customers, investors and larger organisations within their supply chains.

Here's where UK ESG requirements stand in 2026:

Legislation / framework	What it requires	Who it applies to
Companies Act 2006	Strategic reports covering business risk, employees and (for large companies) environmental matters	All UK companies, with extended duties for large and quoted companies.
Streamlined Energy and Carbon Reporting (SECR)	Annual disclosure of UK energy use and Scope 1 & 2 emissions in the Directors' Report.	Quoted companies, plus large unquoted companies.
Energy Savings Opportunity Scheme (ESOS)	Mandatory energy audit every 4 years to identify efficiency opportunities.	Large UK undertakings and their corporate groups. Also apply to not-for-profit bodies and any other non-public sector undertakings that are large enough to meet the qualification criteria.
UK Sustainability Reporting Standards (UK SRS S1 & S2)	Climate and wider sustainability-related financial disclosures, based on ISSB standards.	Proposed mandatory for ~500 UK-listed companies from accounting periods starting 1 January 2027; voluntary for others now.
Equality Act 2010	Gender pay gap reporting and protection against workplace discrimination.	Gender pay gap reporting and protection against workplace discrimination.
Modern Slavery Act 2015	Annual modern slavery statement covering supply chain due diligence.	Commercial organisations with £36m+ annual turnover operating in the UK.

What does this mean for businesses?

Even if your organisation isn't legally required to produce a full ESG report, ESG expectations are becoming part of doing business. Customers, investors, lenders and regulators increasingly expect organisations to demonstrate how they manage environmental impact, social responsibility and corporate governance. For many UK businesses, ESG is shifting from a compliance exercise to a competitive advantage.

Read our Societal Report here -> Environmental, Social and Governance Strategy

ESG vs CSR vs Sustainability: What's the difference?

These terms are closely connected, but they serve different purposes. Sustainability is the long-term goal. CSR reflects an organisation's values and commitment to making a positive social impact. ESG provides the measurable framework, data and governance needed to demonstrate progress. Understanding the distinction matters when you're building a strategy or reporting to stakeholders.

Term	What does it mean	Primary audience
ESG	A measurable, structured framework used to assess and report on environmental, social and governance performance	Investors, regulators, lenders, procurement teams
CSR (Corporate Social Responsibility)	A broader, often voluntary philosophy of a company's responsibility to society	Customers, communities, employees
Sustainability	The overarching goal of operating in a way that doesn't compromise future resources or wellbeing	All stakeholders

In simple words: sustainability is the destination, CSR is the mindset, and ESG is how organisations measure, manage and prove they're getting there. That's why ESG has become the language of investors, regulators and enterprise customers when assessing business performance and resilience.

The role of governance in ESG

Governance is often called the least glamorous of the three pillars (mentioned above), but it's the one that gives ESG its credibility. Without strong board oversight, risk management and internal controls, environmental and social commitments are just statements of intent rather than evidence-backed performance.

Good governance covers board composition and accountability, risk registers, audit trails, data protection, anti-bribery and corruption controls, and ethical decision-making. It's also your first line of defence against greenwashing – making claims about environmental or social performance that can't be substantiated. As scrutiny from regulators, journalists and investors increases, unsupported ESG claims carry real reputational and legal risk.

Investing in board management, risk registers and audit trail software is one of the most effective ways to build a strong risk management framework that can stand up to investor and regulatory scrutiny, turning ESG governance from a paper exercise into a defensible, auditable discipline.

Key benefits of an ESG strategy

Despite the challenges businesses face, those that adopt ESG practices are well-positioned to unleash a multitude of long-term benefits. Here are some of the key advantages that ESG strategies can bring to businesses.

Driving value and sustainability

The core principles of ESG are not just limited to social responsibility and environmental protection but also focus on long-term sustainability and creating value for all stakeholders. By implementing ESG strategies, businesses can align their goals with the expectations of investors, customers, employees, and the wider community.

Enhancing reputation and stakeholder trust

ESG policies and practices not only benefit society but also have a positive impact on a company's reputation. Our latest findings reveal that 62% of businesses say they prioritise ESG strategy to improve the reputation of their business.

Mitigating risks and building resilience

Companies that prioritise ESG considerations are better equipped to navigate risks and uncertainties. By addressing environmental and social challenges head-on, organisations can build resilience to potential disruptions, regulatory changes, and reputational risks. This proactive approach helps future-proof the business and ensures long-term sustainability.

The role of technology and AI in ESG

As we further traverse into the digital age, technology, including automation and artificial intelligence (AI), plays a crucial part in ESG practices. AI can streamline the process of data collection, which is often the most time-consuming step in carbon accounting. Its complex algorithms can swiftly gather and analyse data on energy use, waste production, and other carbon-emitting activities across a business's operations.

For instance, Google's cloud-based AI platform utilises machine learning to automatically convert raw data into GHG emissions insights, enabling businesses to track their carbon footprints in real-time. Such advancements help businesses better understand their environmental impact and identify areas for improvement.

Additionally, technology can also support the reporting of ESG initiatives to stakeholders. With the increasing demand for transparency from investors and customers, businesses need reliable tools to accurately report their efforts and progress towards ESG goals.

Sally Scott, Chief Marketing Officer at OneAdvanced explains, “As we look ahead to 2026, responsible AI sits at the heart of our strategy. We are committed to ensuring that as we deploy IQ, our Intelligent System of Work, we enhance productivity, strengthen resilience and support better outcomes for the communities our customers serve.”

Register to learn more about OneAdvanced IQ

How to build an ESG strategy: A step-by-step checklist

Building an effective ESG strategy doesn't have to happen all at once. Start with the fundamentals, focus on the issues that matter most to your organisation, and build from there. Here’s a step-by-step checklist.

1. Assess where you are today: Review your current environmental, social and governance performance, including carbon emissions, workforce data, existing policies, risk registers and compliance processes.
2. Identify your material priorities: Focus on the ESG issues that are most relevant to your sector, business model and stakeholders, rather than trying to address every issue at once.
3. Set measurable goals: Define clear objectives with owners, timelines and KPIs so progress can be tracked and reported consistently.
4. Put governance in place: Assign board-level accountability and establish a cross-functional ESG working group involving finance, HR, risk, operations and sustainability teams.
5. Align with the right reporting framework: Choose the standards that apply to your organisation, whether that's UK Sustainability Reporting Standards (UK SRS), SECR or sector-specific requirements.
6. Connect your data: Implement integrated systems that capture ESG data continuously, reducing manual reporting and improving accuracy, visibility and auditability.
7. Measure, review and improve: Report progress regularly, communicate transparently with stakeholders and update your strategy as regulations and business priorities evolve.

ESG for SMEs vs larger organisations

Small and Medium Enterprises (SMEs) account for the vast majority of UK businesses, and many are not yet required to meet mandatory ESG reporting requirements because they fall below regulatory thresholds for turnover, balance sheet value or employee numbers. That doesn't mean ESG can be ignored.

Increasingly, larger organisations expect suppliers to provide ESG data as part of procurement and supply chain due diligence. For SMEs, establishing the right foundations early, such as maintaining a risk register, implementing strong data protection and ethical policies, and adopting transparent people practices, can strengthen credibility, improve resilience and create a competitive advantage when bidding for enterprise contracts.

Larger organisations face a different challenge. Many are already subject to reporting requirements such as SECR and ESOS, with UK Sustainability Reporting Standards expected to expand reporting expectations over time. As a result, they typically need more mature governance, risk management and reporting capabilities, supported by connected systems that can deliver accurate, auditable data at scale.

Common ESG mistakes to avoid

Even organisations with good intentions can struggle to turn ESG ambitions into meaningful outcomes. Common pitfalls include:

• Greenwashing: Making environmental or social claims that cannot be supported with credible evidence.
• Treating ESG as a compliance exercise: Focusing solely on meeting regulatory requirements rather than embedding ESG into business strategy and decision-making.
• Setting vague objectives: Without measurable targets and clear accountability, it's difficult to demonstrate progress or impact.
• Overlooking governance: Strong environmental and social initiatives lose credibility without effective board oversight, risk management and internal controls.
• Relying on disconnected data: Manual spreadsheets and fragmented systems increase the risk of errors, make reporting more time-consuming and create challenges during audits

How OneAdvanced supports your ESG journey

At OneAdvanced, ESG is central to our purpose of Bettering Society. Through our four commitments: better for the planet, people, technology and business, we help organisations create lasting value while driving positive environmental, social and governance outcomes.

From reducing emissions and improving resource efficiency to fostering diverse, inclusive workplaces and strengthening governance, we help organisations turn ESG ambitions into measurable action. Our technology also enables more accurate reporting, better decision-making and long-term sustainable growth.

Our solutions include:

• Governance, risk and compliance software that supports board oversight, risk management, policy management and audit readiness.
• People management software that helps organisations monitor workforce metrics, including diversity, equity and inclusion, gender pay gap reporting, employee wellbeing and engagement.
• Financials software that connects financial data, helping finance teams support more accurate and transparent UK SRS-aligned reporting.

Conclusion

ESG is no longer a side project for sustainability teams. It's a measurable, increasingly regulated framework that touches governance, people and financial data across the whole business. UK organisations that invest early in strong governance, connected data and clear targets will be far better placed to meet rising investor, customer and regulatory expectations as UK SRS and wider disclosure requirements take effect.

See ESG governance in practice Read more about how OneAdvanced approaches its own environmental, social and governance commitments, from board oversight to community impact. Societal report: Environmental, Social and Governance Strategy

Frequently Asked Questions (FAQs)

Why is ESG important for businesses?

ESG performance influences investment decisions, access to finance, customer and supplier relationships, regulatory compliance and talent attraction, making it increasingly central to long-term business resilience.

What are some examples of ESG in practice?

Examples include reducing carbon emissions, improving supply chain diversity, publishing gender pay gap data, strengthening board oversight, and maintaining transparent risk registers and audit trails.

How do you measure and report ESG performance?

Most UK businesses use a combination of the Companies Act strategic report, SECR energy and carbon disclosures, and (where applicable) UK SRS climate-related disclosures, supported by internal KPIs tracked through connected data and reporting systems.

What is greenwashing and how can businesses avoid it?

Greenwashing is making environmental or social claims that can't be substantiated. Businesses can avoid it by only publishing claims backed by evidenced, auditable data, and by investing in governance and risk controls that support transparent reporting.

How can technology or software support an ESG strategy?

Connected governance, risk, people and financial data reduces the manual effort of ESG reporting, improves accuracy, and gives leadership and operational teams a shared, trusted view of performance in real time.