Why is ESG Important for SMEs in 2023?
Small businesses should care about ESG (environmental, social and governance). It's easy to understand why you might have initial reservations - you might not have the seemingly bottomless resource of the larger companies that dominate the conversation.
However, it's essentially an investment - one that could secure your business' future profitability.
What is ESG?
ESG is simply a group of factors relating to environmental, social and governance issues. Understanding them is pretty straightforward when you associate them with the following questions:
- Environmental - How do businesses treat the planet?
- Social - How do businesses treat people?
- Governance - How are businesses being run?
The spotlight has never been shone so intensely on ESG-related topics as it has in recent times. So, issues like sustainability, climate change, gender pay equality, anti-bribery and corruption, and modern slavery have risen to the forefront of the public agenda. And that's unlikely to change any time soon.
What Does ESG Mean For Small Businesses?
Regardless of your size, sector or industry, SME ESG is likely to become even more important in the coming years. The way ESG issues are considered and integrated into your business model can have a significant impact on the way your brand is perceived.
YouGov found in 2021 that global consumers are willing to spend more on products that are better for the environment. But it's not just with potential customers and clients that ESG plays its part.
Investors, banks and other financial institutions are increasingly assessing the impact a business is having on the world around them before making an investment.
Funds are now investing with ESG goals firmly in mind - whether that's increasing diversity in senior management positions or working towards the UN's sustainability goals.
So, there’s an opportunity for future prosperity from addressing concerns around ESG and your own small business – if it’s not already on your radar.
The SME ESG Barriers
If considering ESG for small businesses is so positive, why isn’t everyone building it into their company policy, you may ask.
It’s the three Cs. You may well be all too familiar with them, they’re: cost, complexity and competing priorities:
‘If we go green, it’s going to increase our costs and drive down our margins.’
‘Where do we start with a project that’s so complex – do we address sustainability, diversity and equality or safeguards first?’
‘We just don’t have enough hours in the day to focus on ESG in addition to business as usual!’
It’s a case of the problems of today vs. the problems of tomorrow – and when you’re a trying to run a small business with limited staff that can often mean today’s win out.
Reframing SME ESG Through the Benefits
Breaking down barriers and resistance can be as simple as taking a closer look at the transformative benefits change can bring.
YouGov’s findings have shown people are willing to pay more for greener products. This in itself opens up lots of opportunities for innovation, new product launches or fresh revenue streams – all of which you can sell at a higher price point.
Considering your business' environmental impact can help to drive down inefficiency too. For example, a small accountancy firm could go paperless by switching to a digital document management system. Of course, the switch would require an initial outlay. However, the money saved on wasted paper, printer ink and toners could span years and years of savings. Similarly with investments in energy efficient lighting or insulation – there’s an initial cost, but there’s also the potential to drive down inefficiency on a long-term level.
Organisations committed to social issues are likely to have a richer culture, which helps with staff retention, as well as helping to attract the best talent within the market. For SMEs this can mean less money spent on recruitment, a lower risk of high performers being poached by bigger companies, and greater potential for innovation.
Building considerations of all three of these elements into your business model, regardless of your organisation’s size, can ultimately encourage the long-term investment that could secure your growth for a happy and prosperous future.
This article was written for Handpicked Accounts by David Owen of Virtual Cabinet.
