Sustainability is a minefield for SMEs – 5 steps to know where to start
Covid-19 has rocked the small business community like never before and despite the financial support that has been given to keep the economy afloat and support small and medium-sized enterprises (SMEs), around 234,000 UK SMEs have gone out of business for good. , and only 56% accessed available government assistance. However, the end is finally in sight and with cautious optimism we see the surviving SMEs slowly starting to rekindle their lights.
While many SMEs have had to transform their businesses over the past eighteen months to include e-commerce, outdoor premises, and improved cleaning protocols, a few essentials have not changed: making money and attract and retain customers. There was a time when those business goals were influenced by things like a good customer experience and high margins and while that still matters, there is another powerful force at play that SMBs should take note of.
Rich Lesser, global CEO of the Boston Consulting Group, summed it up well when he said, “For businesses to thrive in the 2020s, they will need to understand the forces that will shape the next 10 years and use them to their advantage. There is no doubt that issues of sustainability and societal impact will be a driver of value creation.
The cost and the opportunity
To date, Environment, Social and Governance (ESG) has largely been the preserve of large companies, until now. Driven by public and investor pressure, the financial and reputational risks of not taking their ESG credentials seriously were too great to be ignored by the global giants.
And it turned out to be a good deal as those who stepped up were rewarded considerably. According to a McKinsey study of 2,000 companies, ESG was found to impact operating profits by up to 60%, while companies that were among the “100 Best Companies to Work For” Fortune were generating stock returns up to 3.8% higher per year than their peers. . Being motivated and showing that you care pays off – but right now it’s the biggest companies in the world that are reaping the rewards.
So how can SMEs get a slice of the lucrative pie?
Break the challenge
ESG was once a ‘good to have’, but consumers have become more aware, and the spotlight is now on the world’s largest employer – the thriving small business community. It is increasingly expected that every business, regardless of its size, should operate in the most sustainable way possible and prioritize social value with the same rigor as economic value.
This may sound revealing and has surprised a few companies for their greenwashing or “social good” claims that do not stand up to scrutiny. However, with careful consideration comes the opportunity. Many SMEs have integrated social responsibility into their core strategy, but faced with complex and expensive reporting tools, they have struggled to prove it.
In this article, we outline the first three steps SMEs can take to get their ESG wheels in motion.
Talk to your people
Engaging your stakeholders is the first step – not only so that they can see the company take the process seriously and be accountable, but also to create a common goal. The goal is the bed of productivity, engagement, and loyalty, so nailing it from the start will help meet other core business goals.
The GSS may seem vague and high, so it’s important to be clear about the goal, results, and timeframe. Clear, open and regular communication highlighting ESG reporting as a business priority alongside financial reporting will help allay fears of greenwashing and encourage conversations within the company outside of management.
And finally, encourage ownership – ESG can be one-person-only, but it shouldn’t be one person’s responsibility to drive. Everyone must feel engaged and empowered to play their role. Setting up “ESG champions” or creating working groups is a good way to ensure that knowledge – and the objective – does not become a side project of “good”.
Knowledge is power
Once you have your team on board, you can begin to look at the larger industry in which you operate to understand the material sustainability issues that matter most to your key internal and external stakeholders so you know what to measure and report on. . ESG priorities should not be agreed in a vacuum or by management – it requires a process of in-depth stakeholder mapping and engagement to ensure that the priorities are genuine and relevant.
It might seem like a laborious task, but luckily there are tools that have done the heavy lifting in bringing together data from existing sustainability reports to provide insight into the issues that most commonly affect certain industries. This baseline will give SMEs a solid starting point from which to determine the social issues they have the authority and the resources to focus on.
And finally, once you know which hardware issues to focus on, you can start to see how your business is performing right now. There are voluntary frameworks such as the world-renowned Global Reporting Initiative (GRI) that allows companies to measure a range of ESG issues from carbon emissions to human rights and compliance.
It should be remembered that data is much more than numbers and reports – its value ranges from risk reduction to investment opportunities, enabling SMEs to attract more capital and obtain favorable loan terms, to building business resilience and brand loyalty.
It is now
People expect more from SMEs, but they don’t expect them to be perfect. SMEs that measure their positive impact and voluntarily share their ESG data will be the ones that grab the attention of consumers, investors and time-constrained employees.
There is no doubt that the business landscape is changing, but the forces that Lesser says will shape the next decade are already here. Smart small business owners need to tackle them head-on while they can still be tapped to help accelerate growth and secure their business.
By Mark Blick, CEO of Diginex Solutions