ESG for SMEs: What You Need to Know

Last week, we hosted the 24^th Firestarter Forum, where we dug deeper into what exactly ESG is, and why it is becoming increasingly important for SMEs to engage with. We were also joined by Dr Sophie Taysom, Director of Keyah Consulting. Sophie is a multidisciplinary expert whose career spans central government, business and academic; her work focuses on ESG in real estate, health and the built environment. With Sophie’s expert support, we were able to create some insightful and informative break out group discussions.

What is ESG?

When you mention ESG to SME business leaders, most will have an idea of what it is and understand it’s importance today, and some will have already implemented some ESG initiatives, but how many will have recognized the importance of placing ESG strategies at the heart of their business planning?

Environmental, social and governance (ESG) criteria are sets of standards for an organisation’s operations that enable them to evaluate their performance. These evaluations are used by socially conscious investors to inform their decision-making, both from a moral perspective and a risk management perspective.

• Environmental (E), assesses how well a company performs as a steward towards nature and the environment. This applies to direct operations and across the supply chain. This includes greenhouse gas emissions, animal treatment and materials.
• Social (S), examines the company’s relationship with its employees, suppliers, customers, and communities. Focusing on diversity and inclusion and what steps to give back to local communities.
• Governance (G), relates to making sure we have the correct internal practices and policies that lead to effective decision making.

Why should we implement it in our businesses now?

ESG is an umbrella term for sustainable and responsible components in a business. Here are some of the many reasons why you should start implementing ESG into your business planning:

• Reputation: For businesses, this should be about recognising the wider role that it can play within the community it operates in. The public wants to hear about how companies support their employees, prioritize workplace safety and reduce their carbon footprint. This overall can make your company appear more trustworthy and improve corporate reputation. This can then easily be implemented into your communication strategy, allowing your audience to see what your company is doing to give back.
• Potential cost reduction: Implementing sustainable practices within your business can lead to lower costs. When more sustainable methods of the product are applied, they are often more efficient. Particularly as we are all aware of the increasing costs of doing business.
• The pandemic: The pandemic has given businesses the chance to reassess every aspect of their business, even if it started due to survival. Businesses must be prepared to constantly re-evaluate their operations- including operations, supply chains, resourcing etc. The pandemic also created a shift around lifestyle and consumption. Globally, 54% of those surveyed across the world believed it’s more important to reduce their own carbon footprint since COVID-19.
• Clients and consumers: As well as clients being considerably conscious of their own carbon footprint, consumers are also aware of the companies they are working with, or for and question whether their values are aligned or not. As individuals focus on being more environmentally conscious themselves, they also want to buy from that are also stepping up to do good. Meaning many consumers are leaving companies behind that no longer align with their values.
• Boost morale: Fully embedding ESG into purpose, culture and ways of working does not just better your overall business reputation, but it can also boost morale. This means there is a higher chance of attracting and retaining talent as there is a more positive workforce environment.
• No longer a trend: The efforts being made to sustainability and workplace environments are no longer part of a trend. This is something that consumers are expecting from companies, across the globe, particularly in the UK. For example, the UK has been the first major company to commit to net-zero by 2050. This target will not be reached without individuals and businesses doing their part.

Where should I start?

Throughout the forum, Sophie provided us with key questions for each individual break-out session to discuss. Answering these questions is a great way to see what gaps are missing in your business, so you know where you need to start when it comes to ESG.

1. At a headline level, why should my business focus on ESG strategies, why is it important to me?
2. What might ESG mean to a supplier or someone who has suppliers?
3. What does social value look like for my company (in terms of both internal and external impacts), are there areas for improvement?
4. Is there more that my business could be doing to promote diversity, equality and inclusiveness?
5. What might ESG look like in my business practices? I.e. selection of clients/suppliers/ partners etc.
6. How might I reduce greenhouse gas emissions across my business (including supply chains) and how can I measure this?

Therefore,  the integration of ESG factors in business planning and decision making is continuing to be crucial. Companies with ESG strategies will not only perform better in the long run in terms of financial goals, but they will also be adding to their top-line growth and reducing operational and regulatory challenges.

To take a further look into what steps you need to start to start implementing ESG into your business, rewatch the forum here and you can also find Sophie’s slides here which includes some free resources.

March forum: controlling the cost of doing business

In March’s Firestarter Forum, we’ll be examining what business owners and leaders can do to protect themselves from these threatening external forces, and exploring answers to the following questions:

• How can capital investment help shield my business from higher running costs?
• What financial planning measures can I take to reduce outgoings?
• What government support or grant funding is out there to support businesses that are striving to grow?
• How can I improve productivity, and do more with existing resources?
• What’s the future view on the cost of doing business, and what else can I do to prepare now?