If you run a small business, you may be wondering whether sustainability for SMEs is even possible. This is due to the lack of resources available. Regardless of the size of the business or the industry you work in, there has been an increasing pressure on businesses to consider environmental, social and governance (ESG) concerns to help work more sustainably.

What is ESG?

ESG refers to the environmental, social and governance matters which form sustainability for SMEs’ strategy. The term was primarily associated with organisations in the finance sector to help investors assess the behaviour of the entities in which they wished to invest. However, it’s now a relevant consideration for all types of organisations, their clients and stakeholders, such as trustees, shareholders and consumers.

It’s worth explaining the three aspects of ESG, which are in essence a form of standards measurement or benchmarking:

  1. Environmental: This metric focuses on a company’s impact on the natural environment. It is designed to identify factors such as the company’s carbon footprint and its impact on climate change and biodiversity. It also includes consideration of other matters such as the production of waste and any pollution which a business generates.
  2. Social: The social metric requires an examination of the way businesses treat people including employees, customers and other stakeholders. Having an attractive culture will help businesses to maintain low staff turnover and will also attract talented individuals easily.
  3. Governance: The governance metric is focused on how a business operates in terms of audits, board diversity, shareholder rights and internal controls. These factors allow investors and other stakeholders to ensure the accountability of companies. They also measure their performance.

How important is sustainability and does it apply to SMEs?

You may believe that sustainability metrics are not relevant for SMEs. But unfortunately, it’s now a popular measurement tool. This means that understanding how your business measures up is crucial for SMEs and should be taken seriously. In fact, SMEs play a significant role in most economies worldwide, especially in developing countries.

According to the International Labour Organisation, SMEs represent 90% of all firms worldwide and contribute to roughly 70% of employment and up to 70% of global GDP. If SMEs want to retain that role, operating in a way which enhances ESG criteria is a sensible strategy.

In any event, SMEs will increasingly be faced with requirements of this character from third party customers or clients. These might include for example a requirement, when supplying goods and services to larger organisations, to submit an ESG strategy. This will be expected to mirror that of the larger organisation. Larger organisations are doing this to ensure that the products and services they are receiving align with their own ESG goals. They also consider third-party contractual commitments.

There are undoubtedly well-recognised benefits to pursuing suitable ESG metrics. These include:

Possible reductions in operating costs: Companies that switch to more sustainable methods of production tend to cut costs and be more efficient. For example, Nestlé recently announced its investment to shift from plastic packaging to food-grade recycled plastics. This will not just help cut its carbon footprint but also save non-compliance costs.

Attracting talent and increasing employee productivity: Companies with a strong focus on ESG, demonstrating a strong commitment towards society, are more likely to attract better talent. They also have a longer staff retention rate. Members of staff may feel appreciated if they work for a business that commits to high ESG standards.

Costly?

BUT, of course, post-Brexit, post-pandemic, at a time when business survival is front and centre, many SMEs feel overwhelmed by the suggestion. There’s yet another costly strategy to be pursued and managed.

“We’re not Nestle”, you cry.

Our point is merely that it’s good to make a start. As the marketplace levels, you will want, indeed need, to be able to show the marketplace that you are a business with an ethos to be admired and conscious of your role in relation to sustainability. Baby steps may be all that is required – but at least those. Otherwise, you risk being left at the starting gate as your competitors romp ahead.

What are the simple baby steps?

  1. Create an ESG Team: Find employees who are passionate about sustainability and are willing to volunteer some time to work up a suitable strategy particular to your business.
  2. Invite the team to create some realistic measurement metrics and monitor them: Publish the performance against metrics within the business and encourage all personnel to help improve areas falling short. Everyone in your company could play a role in promoting sustainability. For example, managers and supervisors can play an active role in supporting their employees. Even small changes to your workforce can make a big difference. For instance, actively recycling waste or assessing suppliers rigorously. You can also use internal communications with your staff to communicate about the importance of ESG. Also, supply regular updates as to what your business is doing.
  3. Monitor your supply chains: If your business has supply chains, you should present your ESG strategy to them. You might seek to agree for the future that your ESG policies apply to contracts for new suppliers. This might enable your business to require better working practices in terms of employee working conditions. It might also limit performance to the use of sustainable materials.
  4. Keep your progress visible: As transparency and openness are important in ensuring that your business is sustainable, you should update your employees, customers and other stakeholders about progress. You need to communicate your progress honestly by demonstrating accountability for areas requiring improvement and addressing any outstanding issues. You may consider incorporating ESG progress into your annual report. Share updates in staff newsletters. Or even share this on social media platforms to update customers on how your organisation is performing and the initiatives involved.