What SMEs need to know about ESG
What is ESG?
ESG describes what a business does with respect to the environment, their social purpose, and governance and it’s an imperative for small and medium sized businesses to plan for and implement.
The environmental aspect is about carbon neutrality, net zero and the wider sustainability agenda. It could include energy and carbon use, carbon off setting, recycling and the list goes on.
Social purpose is about what you stand for, good business practice and what you need to be seen as an employer of choice. People want to belong to a business that’s got some wider raison d’etre than just a commercial one. You take into consideration for instance human rights and labour standards, inclusion and diversity, equal pay, health and safety.
Governance is how you manage and control your business – that’s something that we’ve always had a keen eye on through our virtual non-executive director process (vNED): all driven by the importance of this ESG agenda. You could review your board composition, diversity and structure, business ethics, risk management and data privacy as some of the challenges that could be included in the agenda at monthly board meetings.
Why is it important?
If you are a listed business, you have certain obligations through section 172 of the Companies Act and over time it is becoming incredibly important for all businesses. It can’t be ignored and in future, it will be the norm in the way that health and safety is today.
The legal and regulatory requirements under the Companies Act start with larger organisations. However, small to medium (SME) businesses will start to see these requirements filter down as part of supply chain activities. This could be in questions and responses to tenders, or preferred supplier programmes. We will begin to see them being biased towards requests and prompts for information and evidence. Not just token efforts or greenwashing but real evidence of policy and practice in this ESG agenda.
How is ESG important?
ESG is also very important as it helps create value in your business. If you’re looking to raise money, investors will want to see that you’ve got good evidenced ESG policy and practice in place. Potential acquirers or investors will also want to see the same if you’re looking to sell your business.
As we go forward, particularly in the SME market, it is clear, that it will help to drive your sales, reduce your costs and be something that is subject to different taxation. All of this is already starting to hit the marketplace.
When do you need to start doing something about ESG?
Ideally two years ago. We know that many businesses are behind the curve in terms of collecting scientific data. Now is a really good time to start before you are forced to do it. Start making plans, capturing evidence and updating your processes. And of course, organisations live and breathe and there is an obvious need to protect the planet.
Who can help you?
Elephants Child with our collaboration partners. We can audit your business to get a score or ranking around the ESG elements in partnership with a company called Avery. Then look at planning and strategy, which is of course our core competence. What you do as responsible business, with the environment, social purpose and governance at your heart, to drive performance and to drive culture.
We believe that a new role will emerge in organisations around that individual that leads and is responsible for sustainability.
There is also a wider consultation piece that Elephants Child can also lead depending on what your business needs. What we’re trying to do is really to make sense of a lot of discussion, a lot of rhetoric that’s happened around this narrative. We want to turn that into tangible actions – solid and achievable outcomes for our SME business clients.
Want to know more?
Get in touch to see how we can help you to get started on your ESG journey.
There’s more information about why sustainable businesses are more attractive in this article.