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How an ESG strategy could future-proof your business

Smaller businesses that get to grips with an environmental, social and governance (ESG) plan could help future-proof their operations by clarifying sustainable actions and social responsibility.

As countries fine-tune their own agendas amid a global drive to tackle climate change, the UK has committed to a Net Zero Strategy to be reached by 2050. And so the pressure ramps up for businesses: filtering from a worldwide endeavour down to an individual customer checking out a small company’s ESG credentials (explainer at the end of this article) before they buy.

But are SMEs prepared for this scrutiny or do they need to change to remain relevant?

What are the benefits of implementing an ESG framework for SMEs?

Strong growth and investment

  • In a world where fossil fuels and other carbon intensive materials are being phased out, financing is more likely to be extended to companies that focus on sustainable objectives.
  • Indeed, government policies may clamp down on those not addressing these issues, making them vulnerable to regulatory and legal intervention.
  • Governments and regulators are increasingly devising rules and requirements for businesses to measure and report ESG factors
  • There may be opportunities for expansion into international trade markets that already embed ESG criteria for those wishing to do business.
  • Potential investors, lenders, and capital providers will be reassured that they share the same values, such as a united approach to climate action: an ESG strategy shows long-term risk mitigation.
  • Promoting strong ties within the local community and appealing to stakeholders will boost growth.

Potential reduced costs

  • A long-term commitment that starts small. Lower energy consumption, delivered by investing in insulation, machinery, cleaner tech, transport and alternative renewable resources, for example, could provide a steady output and robust savings.
  • Aspire to ‘reduce, reuse and recycle’ and take your employees on this journey.
  • Potential access to government funding and grants to integrate these ideas within existing businesses. These might include buying solar panels, (there’s a chance to get paid for excess renewable energy via the Smart Export Guarantee), opting for heat pumps to replace fossil-fuel boilers, retrofitting business premises or moving across to electric vehicles.

A cohesive sustainability strategy to underpin your entire business model

  • Reduced carbon emissions and lower reliance on fossil fuels to prepare for the future. This could introduce changes such as installing solar panels or heat pumps, for example, as listed above.
  • Supply chain oversight – do other businesses in the supply chain adhere to the same values? It’s a two-way street: an SME could also be chosen to be in a supply chain due to its low-carbon credentials.
  • Ensuring fair wages and equality policies such as gender, diversity and inclusion.

Attracting and retaining the right talent

  • Many employees want to work for a business that takes a proactive stance on social and environmental issues. In turn, they’ll put extra effort in to ensure long-term success.
  • When it comes to recruiting the right talent, prospective staff will want to see an ESG strategy that reflects the wider purpose.
  • A recent KPMG survey showed that one in two candidates have turned down a job because the company’s ESG commitments weren’t in line with their own.

Increased customer engagement: How sustainable you are matters to your customers, who often scrutinise the brands they buy, and are willing to pay a little more if green credentials meet their standards.

Talking point: A case study of sustainability in business

Amee Ritchie and Jake Elliott-Hook, founders of S’wheat, a reusable bottle made from plants, and Dr James Cadman, Head of Consultancy and Carbon at Action Sustainability, discuss how businesses can develop supply chain sustainability initiatives.

How to stay on top of an ESG strategy

Stakeholders want to see a transparent ESG strategy in place but it’s equally important to review it regularly, ensuring both environmental and social goals are measured and monitored. Support and focus could be found by using an environmental management system.
Optimally, the founder should clarify “who” is accountable for implementation, back priorities with metrics, and report to staff to keep everyone on board.

What is ESG?

ESG stands for environmental, social and governance and it’s a way of approaching and assessing businesses on issues such as its impact on the environment and on society, rather than solely on financial performance. To date, this has been incorporated by larger companies that are listed or face institutional investor demands. But with the current environmental pressures and rise of the conscious consumers and supply chains, smaller companies are being asked about ESG plans and targets. A considered approach to ESG issues can help them be ‘best in class’ or be primed for growth to attract a wider net of investors, customers and suppliers.

It can be broken down into:

  • E for Environmental: What’s the company’s carbon footprint? Measuring an SME’s greenhouse gas (GHG) emissions, and impacts on Nature, means key factors like energy use, waste management and natural capital can be tackled.
  • S for Social: Are employees treated fairly? Factors such as gender equality, diversity, working conditions and health and safety are key. Do suppliers hold the same values and subscribe to the same principles further down the supply chain? Is there engagement within the local community?
  • G for governance: The set of rules, processes and reporting standards that underpin how a company is run. These should be as accessible and transparent as possible.

NatWest’s Springboard to Sustainable Recovery report recently revealed there’s more than £175bn of revenue opportunity up to 2030 for UK SMEs as they tackle climate change. With the right support small and medium-sized businesses could contribute up to 50% of UK 2030 emission targets through pursuing decarbonisation.

Accessing support

Getting started: Do you know your carbon footprint?

Sign up to the Carbon Planner today to find out more and see how your business could potentially reduce emissions.