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May 23, 2023

UK small and mid-caps may miss investment due to poor ESG disclosure

More than 40 percent of growth company investors believe ESG expectations will continue to grow

Nine in 10 UK investors in small and mid-cap companies believe there has been an increase in expectations regarding ESG disclosure since 2020. 

More specifically, 43 percent of investors in UK growth companies say expectations around such disclosures have increased a fair amount over the past three years. This compares with a lower 26 percent who believe it has increased substantially and 22 percent who say they have seen only a slight increase.  

This is according to the latest research from the Quoted Companies Alliance (QCA), which looks at investors’ attitudes to ESG. The survey, conducted via YouGov between March and April 2023, collates the responses of 54 small and mid-cap investors in the UK and considers whether when it comes to ESG metrics, smaller companies should be held to the same standards as larger ones. 

More than 40 percent of respondents believe small and mid-cap firms are missing out on ESG investment. When asked why, respondents point to reporting and size limitations as the main reasons.

 ’A force for good’ 

The QCA research also reveals that 33 percent of investors surveyed prefer to invest in main market companies over those on AIM or the Aquis Stock Exchange growth market. The reason? Investors can observe greater levels of ESG disclosure in line with the TCFD framework or the Financial Conduct Authority’s listing rules at larger caps. 


‘ESG is meant to be a force for good, but our report supplies evidence that it is a major culprit in diverting funds away from the growing companies that most need them,’ says James Ashton, chief executive of the QCA. 

‘This is not for want of trying on the part of directors. Investors are asking the Earth and companies are racing to satisfy numerous data points. We have to ensure these demands are appropriate so that promising companies do not wither on the vine.’ 

Michelle de Jongh, director of ESG services at UK-based firm Inspired, says: ‘The report is a call to action to develop an appropriate ESG disclosure framework for AIM companies to demonstrate their ESG credentials to investors and other stakeholders.’ 

What investors want 

The survey asked investors exactly what they expect to see from small and mid-cap businesses and how they see the ESG landscape evolving. 

Nine in 10 investors call for companies to be more descriptive in their approach to ESG and explain where it fits into the overall company vision and strategy. More than half of respondents consider it important for companies to collect and disclose quantitative data on their ESG-related KPIs.

In terms of timeframes, nearly half of investors say that when it comes to historical data, they prefer companies to provide information on the performance of ESG-related metrics for at least the previous five years. 


In terms of long-term objectives, 67 percent of respondents say they would expect companies to provide a three to five-year outlook. And more than 40 percent of investors expect their ESG expectations on smaller caps will increase significantly. 

‘Given the importance of ESG reporting to investors demonstrated in this report, it is important to recognize the challenges of identifying and gathering the data to provide the reports investors want,’ says Alasdair Steele, partner at international law firm CMS. 

‘A level of standardization is needed for the benefit of both investors and companies as mandatory and voluntary reporting obligations increase to enable companies to capitalize on the ESG-related finance available in the market.’