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Compliance Beyond Obligation: Why Non-Scoped Suppliers Need to Embrace ESG

In an era where Environmental, Social, and Governance (ESG) criteria are becoming increasingly important, businesses are grappling with regulatory compliance. However, an intriguing dynamic has emerged: suppliers who are not directly in scope for mandatory ESG regulations may still find themselves compelled to comply. This article explores why suppliers, who are themselves outside the scope of regulation may need to adopt ESG practices due to their position within broader supply chains.

The Ripple Effect of ESG Regulations

At the heart of ESG regulations lies a commitment to sustainability, ethical practices, and governance standards that transcend individual companies. Governments and regulatory bodies have rolled out ESG laws and regulations requiring large corporations adhere to stringent ESG criteria. These regulations often focus on industries with significant environmental footprints or high-risk governance structures. Yet, the influence of these regulations extends far beyond the large entities that come within their scope, creating a ripple effect that permeates entire supply chains.

The Role of Corporate Responsibility and Supply Chain Pressure

Large corporations, driven by regulatory requirements and stakeholder expectations, are increasingly holding their suppliers accountable for ESG standards. These corporations are keenly aware that their own compliance and reputational standing hinge on the practices of their entire supply chain. As a result, they exert pressure on their suppliers to align with their ESG policies, even if those suppliers are not directly regulated.

For example, a multinational corporation may be mandated to reduce its carbon footprint. To meet these requirements, it will scrutinise its suppliers’ environmental practices, ensuring that raw materials are sourced sustainably, and that manufacturing processes are energy efficient. This trickle-down effect necessitates that suppliers must adopt ESG measures in order to maintain their business relationships with these larger, regulated entities.

Market Expectations and Competitive Advantage

Beyond regulatory pressures, market expectations are a powerful driver for ESG compliance. Investors, consumers, and other stakeholders are increasingly prioritising sustainability and ethical business practices. Companies that demonstrate robust ESG performance often enjoy enhanced brand loyalty, investor confidence, and market competitiveness. Therefore, suppliers who wish to do business with ESG-focused companies must proactively integrate ESG principles into their operations.

Moreover, suppliers who embrace ESG practices can gain a competitive edge. By demonstrating their commitment to sustainability, they position themselves as preferred partners for leading corporations, potentially opening doors to new business opportunities and long-term contracts. In contrast, those who lag in ESG compliance risk being overlooked or even replaced by more responsible competitors.

Risk Management and Long-Term Viability

Adopting ESG practices is also a strategic move for risk management and long-term viability. Environmental risks, such as resource scarcity and climate change, pose significant threats to supply chain stability. Social risks, including employment disputes and community backlash, can disrupt operations. Governance risks, such as corruption and non-compliance, can lead to legal complications and reputational damage.

Suppliers who proactively address these risks through ESG initiatives can pro-actively guard against potential disruptions and safeguard their operations. By fostering a culture of sustainability and ethical governance, they enhance their resilience and ensure continued alignment with the evolving expectations of regulators, partners, and consumers.

The Path Forward: Proactive ESG Integration

For suppliers outside the direct scope of mandatory ESG regulations, the path forward lies in proactive integration of ESG principles. This involves conducting thorough assessments of their environmental impact, social practices, and governance structures. By setting clear ESG goals, investing in sustainable technologies, and fostering a culture of transparency, suppliers can effectively align with the broader ESG ecosystem.

Additionally, collaboration and communication within the supply chain are crucial. Suppliers should engage in open dialogues with their clients, understand their ESG requirements, and seek guidance on best practices. By building strong, trust-based relationships, suppliers can navigate the complexities of ESG compliance and contribute positively to the collective sustainability efforts.

Conclusion

In conclusion, while mandatory ESG regulations may not directly target all suppliers, the interconnected nature of modern supply chains necessitates that even those suppliers not in scope for mandatory regulations should adopt ESG practices. The ripple effect of regulatory pressure, market expectations, competitive advantage, and risk management underscores the importance of ESG compliance for long-term success. By embracing proactive ESG integration, suppliers can not only meet the demands of their partners but also position themselves as responsible and resilient players in an increasingly sustainability-focused business landscape.

To discuss any of the points raised in this article, please contact Ann-Maree Blake or fill in the form below.

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Quastels Advises The 44 Group on Strategic Investment in LLUK

Quastels is pleased to announce its role in advising The 44 Group on its recent investment in LLUK, a bespoke manufacturing facility for luxury goods with a steadfast commitment to ethical practices and social responsibility. The transaction highlights the continued alignment of The 44 Group’s investment strategy with ESG (Environmental, Social and Governance) principles.

Led by corporate partners Adam Convisser and Marcus Rebuck, this deal represents a pivotal growth opportunity for both The 44 Group and LLUK, while also reinforcing Quastels’ expanding presence in the ESG-focused transaction space.

This deal is a clear demonstration of how commercial success and ESG values can be successfully integrated—a direction increasingly embraced by forward-looking businesses. Quastels is proud to have supported an investment that underscores this progressive shift in the market.

Duncan Parker, Group Chief Executive Officer of The 44 Group, commented:

“I would like to thank Adam, Marcus and the whole team at Quastels for their commercial insight and first-class handling of this transaction. Their expertise was invaluable in achieving this milestone for both businesses.”

Sarah Jones St John, Group Chairperson and owner said:

“As an entrepreneur myself, I love empowering female founders to unleash their creativity and innovation and business prowess to drive progress and transform their industries. From the moment I met Rachel [Walker, MD & Founder of LLUK], I knew there was a kindred spirit and so I’m really proud to be able to invest in such a talented individual and exciting business.”

The transaction reflects a growing market appetite for investments that combine commercial viability with a purpose-driven approach. As more businesses place ESG at the centre of their operations, Quastels continues to stand at the forefront of legal advisory services that deliver both impact and innovation.

Marcus Rebuck  engages in a thought-provoking discussion with Rachel Walker, CEO of LLUK. Together, they explore how the fashion industry is evolving to embrace sustainability, address supply chain challenges, and navigate the growing importance of Environmental, Social, and Governance (ESG) principles.

You can watch the whole conversation here on our website or view it via Youtube.

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The UK’s New FIG Regime: A Potential One-Year Tax Holiday in Disguise?

So I’ve been thinking? Might the FIG be the juiciest tax holiday that’s ever been created?

For background, the UK government’s newly introduced Foreign Income and Gains (FIG) regime has been billed as a more equitable and modern approach to taxing international wealth. But looking more closely and viewing it from a more practical set of lenses and you’ll notice a striking outcome: for internationally mobile entrepreneurs, the FIG regime could offer what amounts to a one-year tax holiday to realise significant capital gains – including the sale of a business – before departing the UK again, entirely tax-free.

What’s the FIG all about?

At the heart of the new regime is the offer that individuals arriving in the UK after 6 April 2025 will enjoy a four-year window of tax exemption for foreign income and gains – provided they meet the eligibility criteria. Crucially, unlike the remittance basis (which taxed foreign gains when brought into the UK), the FIG regime simply ignores foreign income and gains in that four-year window – regardless of whether the proceeds are brought to the UK or spent abroad.

What’s the juice then?

This creates an obvious planning opportunity for a certain category of internationally mobile individuals, namely those who are planning to sell a business or realise significant gains in the near term. For them, the UK may become an unexpectedly attractive jurisdiction to relocate to for a short period. To be clear, we are not talking about those looking to settle permanently, but rather short-term stays to shelter a future disposal from tax.

Let’s imagine a scenario: An entrepreneur based overseas identifies a potential exit event for their business within the next year or two. They relocate to the UK in 2025 under the FIG regime, enjoy all the benefits of life in London or elsewhere, sell their business within their four-year window, and then leave the UK shortly thereafter, well in advance of being exposed to UK tax on their worldwide income and gains. We are also assuming, for these purposes, that the tax where the business is based is lower, negligible or non-existent, possibly based on their non-residence in that jurisdiction.

From a policy perspective, this raises a serious and legitimate question: will the FIG regime produce the long-term tax revenues the government hopes for or will it simply encourage short-term ‘tax tourism’ by highly mobile individuals? Ultimately, there is currently no requirement for new arrivals to commit to the UK for any meaningful period beyond the four-year window.

What’s next?

This is not to say that the FIG regime is without its advantages. However, if the government’s objective is to attract genuine long-term residents and tax payers who contribute more into the overall tax take, the regime may need further safeguards. Without them, the risk is that the UK simply becomes a short-term tax shelter for business owners who never intended to make the UK their permanent home. How might this enrage other jurisdictions with whom the UK is intended to cooperate on the global mission for tax fairness.

The challenge for policymakers will be to balance the UK’s competitiveness as a destination for international talent with the integrity of its tax system. As always, clever tax planning tends to find opportunity in new rules, and the FIG regime may prove no exception.

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