Why SMEs should lead not follow when it comes to ESG

What are the benefits of an ESG plan for SMEs?

1. Being part of a supply chain If you supply goods or services to a large company or LLP then they will almost certainly be mandated to report their carbon emissions and take steps to improve them. They will be reporting their Scope 1 (direct) and Scope 2 (indirect from purchased energy, steam, heat or cooling) emissions and in some cases their Scope 3 emissions. Scope 3 emissions include those from their supply chain, which means your emissions. So, if you are not reporting your GHG emissions and taking steps to better them, you’re helping your customer fail in its reporting. I wonder how that might look in a contract renegotiation or competitive tender? Remember, your Scope 1 and Scope 2 emissions are part of your customer’s Scope 3 emissions.
2. Government departmental work All government departmental tenders now require evidence of ESGH compliance in order for a business to be eligible to tender; and the weighting of this evidence within the tender is high – typically a minimum weighting of 10% is applied. In essence, no ESG actions, no tender.
3. Efficiency Many ESG actions are focused on reducing waste and unnecessary energy usage, particularly when driven by circular economy metrics where materials never become waste and nature is regenerated. Put simply, less ‘take, make and throw away’ and more sharing, re-purposing, re-using, repairing, refurbishing, remanufacturing, leasing, recycling and composting and more. Where there’s waste there are efficiencies that can be gained. A strong ESG programme can help identify areas for improvement as well as engaging with staff and stakeholders as a critical part of the solutions. Your business can only benefit from the improvements that result.
4. Better loan repayment terms Lending institutions are now obliged to take into account ESG compliance when approving business loans. Not only will some lending institutions now refuse loans to non-compliant companies, but some can offer better terms to businesses actively engaged with ESG programmes, especially where loans are designated for ESG-related improvements.
5. Competitive advantage Not all of your competitors will be actively engaged in ESG actions, or may be undertaking just a small number, or have no real plan for ESG. With an increasing focus on ESG amongst businesses, governments, customers, consumers and staff, your ESG programme could give you a competitive advantage in everything from tendering for work through to recruiting staff.
6. Impact investment Once investment was driven mainly by financial return. Things have changed. Today’s investors will of course be seeking financial returns, but many will also be looking for strong ESG credentials and a business with a business plan that takes account of its impact on its people, the local community, the economy, the environment and climate change. With the number of investors looking for this ‘return’ increasing, your investment could be lost to a lack of ESG action.
7. Attracting and retaining staff Increasingly employees and candidates are expecting more than a fair salary and good working conditions from their employers. This is particularly the case for younger workers such as ‘millennials’. Your staff and your future staff will be examining your environmental record, your commitments to communities and to the planet’s health. Fall down on these and you limit your company’s ability to attract the right people, and retain them.
8. Marketing and PR A strong ESG commitment provides great content for marketing and PR, both of which enable you to tell your future customers and staff about the very things that might attract them to buy from you or work with you. Environmental, Social and Governance, or ESG, is the hottest topic of the day as the global climate changes and we see impacts of almost every aspect of our lives from the food we eat to the way we travel. Can you afford not to be engaged with the hottest topic you’ll probably ever see?
9. Leading the way In increasingly complex and crowded markets, with increasingly fragmented audiences and consumers, cut-through or stand-out can be hard, if not impossible, to achieve; especially if you lack the large budgets of your bigger competitors. It doesn’t have to be that way – businesses with a strong ESG programme can often use that to raise their voice above the rest by leading, not following.
10. The best you can be your commitment to ESG is a strong indication of the way you do business and the things that are important to you. Because environmental issues, social issues and climate change affect all of us, that commitment is a clear sign that you care about your clients, customers, consumers, staff, suppliers and stakeholders. When your company is seen in its best light, it will be able to conduct its best business. The lack of a strong ESG programme can have the reverse effect.