AQA A-Level Business (7138)

## Learning Outcomes

- Understand what **Environmental, Social and Governance (ESG) reporting** means
- Identify the difference between ESG, **CSR**, business ethics and the **Triple Bottom Line**
- Explain how ESG reporting can affect costs, demand, reputation and investment decisions
- Analyse ESG from both **shareholder** and **stakeholder** perspectives
- Assess the benefits and drawbacks of ESG reporting for businesses and shareholders
- Structure strong evaluative answers on ESG in AQA A-Level Business questions

## AQA A-Level Business (7138) Syllabus

For the AQA A-Level Business (7138), you are expected to understand ESG reporting as part of business and society, with a focus on the following syllabus points:

- Know that **ESG reporting** means disclosing information about environmental, social and governance performance and policies
- Identify the three parts of ESG: environmental factors, social factors and governance factors
- Explain how ESG reporting links to **stakeholders**, **shareholders**, **CSR** and business ethics
- Understand the difference between the **shareholder approach** and the **stakeholder approach** when judging ESG decisions
- Analyse how ESG reporting may affect reputation, trust, risk, costs and long-term profitability
- Assess whether reporting on a wide range of ESG data is likely to benefit shareholders
- Understand that governance is a separate part of ESG and is not the same as environmental action
- Recognise that ESG reporting can be a genuine strategic tool or a superficial image exercise

## Test Your Knowledge

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, look more closely at that area during your revision._

1. What is meant by ESG reporting?
2. What is the difference between a shareholder view and a stakeholder view of ESG?
3. Name one example of an environmental factor, one social factor and one governance factor.
4. How might ESG reporting increase both costs and long-term value?
5. Why is governance often the part of ESG that students forget?

## Introduction

Businesses do not operate in isolation. They are affected by changes in society, consumer expectations, pressure groups, investors, governments and the media. One result is that many firms are now expected to explain not just how much profit they make, but also how they affect people, the environment and the way the business is controlled.

This is where **Environmental, Social and Governance (ESG) reporting** matters. In AQA A-Level Business, ESG should be treated as both a reporting issue and a strategic issue. A business may use ESG reporting to build trust, reduce risk and support long-term value. However, it may also create extra costs, use management time and fail to satisfy shareholders who want stronger short-term profits.

> **Key Term: Environmental, Social and Governance (ESG) reporting**
> The reporting and disclosure of a business's performance, policies and impact in relation to environmental, social and governance issues.

### What ESG means and why it matters

ESG has three separate parts. Students often focus only on environmental issues, but all three matter in exams.

The **environmental** part covers the business's impact on the natural world. This may include carbon emissions, energy use, waste, packaging, water use and use of renewable resources. For example, a manufacturer may report reductions in energy consumption or recycling rates.

The **social** part covers how a business treats people. This includes employee welfare, pay, working conditions, diversity and inclusion, training, customer treatment, supply chain standards and community impact. A retailer that improves health and safety, pays suppliers fairly and supports local communities is addressing social factors.

The **governance** part covers how the business is directed and controlled. This includes board oversight, accountability, transparency, executive pay, anti-bribery systems, whistleblowing procedures and internal controls. Good governance can reduce the risk of fraud, scandal and poor decision making.

> **Key Term: ESG factors**
> The environmental, social and governance issues that can affect a business's performance, reputation, risks and long-term success.
>
> **Key Term: corporate governance**
> The systems and processes by which a business is directed, monitored and controlled.

ESG matters because it can influence both **costs** and **demand**. For example, switching to cleaner energy sources may raise short-term costs, but it may also reduce future energy bills, improve brand image and appeal to ethically aware customers. A business with weak governance may suffer fines, poor publicity or loss of investor confidence.

AQA questions often expect links to strategy. ESG reporting is not just about publishing data. It can shape objectives, investment choices, supply chain policy, recruitment and market positioning. If a business reports on issues that matter to customers and investors, it may gain a competitive advantage. If it reports weakly or dishonestly, it may face accusations of greenwashing.

> **Test Tip:** In exam answers, define ESG clearly first, then separate your analysis into environmental, social and governance points. This stops your answer becoming too vague or too focused on pollution alone.

### ESG, CSR and the Triple Bottom Line

ESG is closely linked to CSR, but they are not identical. **Corporate social responsibility (CSR)** is the wider idea that businesses should go beyond minimum legal requirements and behave as responsible social citizens. ESG reporting is more specific. It is about disclosing information on environmental, social and governance matters.

> **Key Term: corporate social responsibility (CSR)**
> A form of self-regulation in which businesses go beyond minimum legal requirements to act as responsible social citizens.

A business may claim to be socially responsible, but ESG reporting asks it to show evidence. That makes ESG more measurable than general statements about ethics or values.

The **Triple Bottom Line** is another related idea. It says business performance should be judged by more than profit alone. The usual three elements are profit, people and planet. This fits well with ESG because it reminds students that success can include financial, social and environmental outcomes.

> **Key Term: Triple Bottom Line**
> The idea that business performance should be judged using financial, social and environmental measures, often described as profit, people and planet.

A simple comparison is useful:

- **CSR** = broad philosophy about responsible behaviour
- **ESG reporting** = disclosure of environmental, social and governance information
- **Triple Bottom Line** = framework for judging performance beyond profit

These ideas also connect to **business ethics**. Ethical behaviour includes treating customers honestly, paying the correct tax, avoiding anti-competitive behaviour and providing accurate financial information. ESG reporting can provide evidence about whether ethical claims are backed by action.

However, businesses may use ESG mainly for image. A firm may publish attractive sustainability targets while continuing harmful practices elsewhere. That is why evaluation matters. A strong answer should ask whether ESG reporting leads to real operational change or is mainly a public relations exercise.

### ESG and the shareholder versus stakeholder debate

A major exam link is the difference between the **shareholder approach** and the **stakeholder approach**.

Under the shareholder approach, the main duty of managers is to maximise returns for owners. ESG reporting is worthwhile only if it raises profit, share price or dividends. From this view, expensive ESG reporting systems may look unnecessary if they do not improve financial performance.

> **Key Term: shareholder approach**
> The view that managers should make decisions mainly in the interests of shareholders, usually by maximising profit and shareholder value.

Under the stakeholder approach, managers should consider the interests of all groups affected by the business. These include employees, customers, suppliers, communities, governments and pressure groups as well as shareholders. ESG reporting fits well with this approach because it increases transparency and accountability to a wider set of groups.

> **Key Term: stakeholder approach**
> The view that managers should take account of the interests of all stakeholder groups, not only shareholders.
>
> **Key Term: stakeholder**
> An individual or group that affects and is affected by the activities of a business.

For example, ESG reporting may help:

- **employees** by showing data on pay, conditions and diversity
- **customers** by proving ethical sourcing or lower environmental harm
- **investors** by revealing risks and long-term planning
- **communities** by showing local impact
- **pressure groups** by making the business more accountable

There is also a middle view. A business may support ESG because responsible treatment of stakeholders can improve long-term shareholder value. Better workforce conditions can reduce labour turnover. Better supply chain standards can reduce disruption. Better governance can prevent scandal. In each case, stakeholder-focused action may still help shareholders over time.

This is why many strong judgements say ESG reporting may be less attractive to shareholders in the short run but more attractive in the long run.

> **Test Tip:** For 9-, 16- or 20-mark questions, use the pattern: on the one hand, on the other hand, it depends. This shows balanced analysis and evaluation.

### Benefits, drawbacks and how to structure an evaluative answer

There are several arguments in favour of ESG reporting.

First, it can improve **reputation**. If customers believe a business is honest, fair and environmentally aware, demand may rise. This can help the firm differentiate itself from rivals.

Second, it can improve **employee recruitment and retention**. Many workers prefer employers with responsible policies. Lower labour turnover can reduce recruitment and training costs.

Third, it can improve **risk management**. A business that reports properly on emissions, supply chain conditions or governance controls may identify problems earlier. This can reduce the chance of fines, scandals or consumer boycotts.

Fourth, ESG reporting may improve access to **investment**. Some investors prefer firms that show clear long-term planning and lower non-financial risk. More investor confidence may support the share price.

But there are also strong arguments against it.

Collecting and checking ESG data can be expensive. The business may need new systems, more staff time and outside verification. These costs can reduce short-term profit margins.

Some ESG data is difficult to measure. Social outcomes such as employee wellbeing or community value are less precise than sales revenue or profit. This can make reports inconsistent and harder to compare.

There is also the risk of weak disclosure. If a business publishes exaggerated claims, it may be accused of greenwashing. This can damage reputation more than saying nothing.

Finally, not all shareholders want the same thing. Some may support long-term sustainable growth. Others may care more about near-term profit and dividends. So whether ESG reporting is "good for shareholders" depends on the type of shareholder and the time period being judged.

A useful exam-style chain of analysis looks like this:

ESG reporting improves transparency -> stakeholders trust the business more -> demand or investor support rises -> long-term revenue and profit may increase.

A second chain could be:

Wider ESG reporting requires more systems and checks -> operating costs rise -> short-term profit falls -> some shareholders may oppose the decision.

For high-mark evaluation, avoid generic comments like "it depends on the business". Be specific about what changes the judgement:

- the industry, especially if environmental or ethical risk is high
- the size of the business, as large firms face more scrutiny
- the time horizon, short term versus long term
- the power of stakeholders such as consumers, investors and pressure groups
- whether the reporting is linked to real strategic change

### How to structure an evaluative answer

Start with a clear definition of ESG reporting. Then apply the point to the business in the question.

A strong paragraph should follow this pattern:

- make a point
- apply it to the business or industry
- analyse the effect on costs, demand, profit, risk or shareholder value
- evaluate by questioning how large, how likely or how long-lasting the effect will be

For financial evidence, use any data given on revenue, costs, margins, market share, investor reaction or share price. For non-financial evidence, discuss brand image, employee morale, governance quality, customer trust, pressure groups and regulation.

Do not treat all ESG reporting as equally useful. Reporting on material issues is far more valuable than reporting on trivial ones. For example, emissions data matters greatly for an airline or oil business, while labour conditions may be especially important in clothing retail.

A strong final judgement often says that ESG reporting is most valuable when it is accurate, relevant and built into strategy. It is less valuable when it is expensive, superficial or disconnected from business decisions.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- ESG reporting means disclosing information on environmental, social and governance matters
- Environmental issues include emissions, waste, energy use and resource use
- Social issues include employee welfare, customer treatment, supplier standards and community impact
- Governance issues include board oversight, transparency, controls and accountability
- ESG is linked to CSR and business ethics, but it is not the same as them
- The Triple Bottom Line judges performance using profit, people and planet
- The shareholder approach focuses mainly on shareholder returns
- The stakeholder approach considers the interests of a wider range of groups
- ESG reporting can improve reputation, trust, recruitment, investment appeal and risk management
- ESG reporting can also increase costs, use management time and reduce short-term profit
- Governance must be included in ESG analysis because students often ignore it
- The best evaluation weighs short-term costs against long-term value and uses context

## Key Terms and Concepts

- Environmental, Social and Governance (ESG) reporting
- ESG factors
- corporate governance
- corporate social responsibility (CSR)
- Triple Bottom Line
- shareholder approach
- stakeholder approach
- stakeholder


Business and society - Environmental, Social and Governance (ESG)