In a tight market for sustainability services, the UK consulting industry is reaping the benefits of a rise in climate-related regulations over the past year, as companies rush to comply with the requirements to avoid hefty fines.
Pressure to meet the latest environmental, social and governance (ESG) due diligence and disclosure requirements is key to the projected 6 per cent rise in UK sustainability consultancy spend in 2024, according to the consulting sector specialist Source Global Research.
The firm expects growth in sustainability consulting to continue in 2025 and 2026 as clients face new government expectations and legislation.
“As a wave of ESG regulations came into force in 2024 with legislative penalties for missing deadlines, companies are investing heavily in meeting these regulations and are increasing their use of consultants,” says Joel Bradbury, a senior consultant at Source Global.
While the red tape is a costly headache for businesses, and has sparked a growing backlash from companies and politicians, consultants say it is helping companies to more accurately understand their material risks and impacts, and to adapt their sustainability efforts accordingly.
“This isn’t regulation for regulation’s sake,” says Laura Kelly, a PwC director in ESG reporting and assurance. “It may take time to feel the benefit, but data gathering will bring insights to inform strategy and drive better decision-making.”
For companies listed in Europe or with large-scale European operations, a big concern is the EU’s Corporate Sustainability Reporting Directive (CSRD), which requires them to disclose data on an array of social and environmental issues linked to their business activities. This includes reporting on their exposure to risks arising from these issues, as well as the environmental and social impact of their own operations.
Helping companies adhere to this so-called “double materiality” requirement has created a significant amount of work for sustainability consultants, says Chris Shaw, technical director for mandatory reporting at ESG consultancy Anthesis.
Adding to the regulatory burden is a growing list of UK-specific disclosure rules. This includes the reporting of climate risk to the Financial Conduct Authority, the inclusion of greenhouse gas emissions and energy use data in annual financial reports, and due diligence measures to ensure supply chains are free of modern day slavery, among others.
ESG reporting requirements are proving a particular boon for the consulting arms of the UK’s Big Four auditing firms, which are “perfectly placed” to capitalise on what is a “very expensive” process, says Shaw.
Yet some consultants fear that this focus on compliance may limit companies’ capacity to spend on other sustainability-related advice or eat into their budgets for implementing ESG practices.
Brendan May, founder of the boutique advisory firm Robertsbridge Group, is one of those within the consultancy sector who are concerned about the “tsunami” of compliance springing up in the sustainability field. “All the work sustainability teams are having to do on materiality and disclosure and so on — it’s distracting from the actual implementation work of getting the important stuff done,” he says.
Sustainability experts among the Big Four are quick to dismiss such claims. Done well, they say, and reporting requirements should give companies a clear sense of their non-financial risks and opportunities, which in turn informs their sustainability strategy and investments.
The acquisition of robust ESG data figures highly in their defence. To date, corporate decision-making has been hampered by a lack of such information. What is available, moreover, is often insufficiently granular or current to be useful. By helping companies to create an accurate “footprint” of social and environmental impacts, internal resources and investment can then be better targeted, argues Kelly at PwC.
The increase in ESG rules has also come with greater boardroom attention. Reporting and compliance tasks that used to fall almost exclusively to budget-constrained sustainability functions are gradually shifting to core departments such as legal and audit, Kelly notes. Focusing executives’ minds is the prospect of costly legal penalties. In some jurisdictions, failure to meet disclosure requirements can even make senior management personally liable.
“Once the board and audit committee get to understand this fully, they will start to mobilise other parts of the organisation, which should free up sustainability professionals to focus more on strategy,” she says.
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For consultancies such as the Big Four, with both compliance and strategy expertise under the same roof, advising companies on ESG can be a gateway to providing other advisory services. This multi-service offering model should stand the UK’s larger consultancies in good stead as companies become more adept at meeting their own compliance needs.
Katherine Lampen, UK climate and sustainability lead at Deloitte, anticipates client demand shifting to more specialised advice on issues such as data management, impact assurance and operational implementation. This growth in corporate compliance expertise “doesn’t necessarily translate to less reliance on consultancies”, she says. “Instead, we see a shift towards more specialised support.”
Not all are so confident that the burden of compliance will ease any time soon. Regulations are poorly aligned in many cases and new norms are emerging all the time. UK companies with an international reach are particularly susceptible, says Rory Sullivan, founder of the sustainability consultancy Chronos. He points to recent analysis by the London Stock Exchange of five major disclosure standards that highlights the variance in basic factors like scope, definitions and legal weighting.
“It’s unsurprising that the emphasis for now is on compliance rather than strategy,” he says. “Over time, you would expect reporting processes and strategic reflections to align better, but that’s just not realistic here and now.”
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