Published: Aug 07, 2023
Focus:
Insights
SMEs that can showcase their ESG commitments have a competitive advantage in a number of ways.
Customer demand is moving more towards sustainable companies and products. Bloomberg estimates that ESG AUM is expected to exceed $53 trillion by 2025, and within the UK market, ethical and sustainable goods was worth £41 billion in 2019 showing the potential revenue growth for companies to take advantage of. Therefore, understanding your ESG metrics is essential to building a reputable business, and increasing customer satisfaction.
Employees, more than ever, want to work for sustainable companies. There is evidence to show that employees, especially younger workers, would leave a role to move to a more environmentally friendly company. Additionally, research has shown that 82% of 18–44-year-olds consider working for companies that are more aligned with their own values. If you want to attract and retain high-quality staff, then you must invest in strong ESG credentials, and/or begin to understand where your companies can improve. This will motivate employees, contributing to the overall success and productivity of your business.
As your company begins to grow and expand, regulatory rules will become more influential within your company. ESG regulations are continuously developing and adapting with more responsibility being placed on companies. Therefore, it is in your interest to track your ESG data whilst you are growing so that you are ready to adapt to future regulations.
There is increasing demand from investors to have a clear understanding of where their money is going. This was initially driven by younger retail investors, but now some large institutional investors are aligning with ESG alternatives. This means that asset managers will start to adapt to investors preferences and evaluate their strategies to align with responsible goals. Therefore, incorporating ESG credentials into your business strategy will allow your company to keep up with changing preferences.
By tracking and analysing your ESG data, this indicates how your business will adapt to risk in the long-term. Taking ESG risks into account at the initial investment process has become mainstream due diligence for many investors. This allows future investors to clearly understand the risks and opportunities involved in your business and this will create a more transparent relationship. Therefore, if you are unable to provide clear ESG data then this can hinder your chances of an investment.
Furthermore, if your company is growing internationally, then you must take ESG factors into account. Large corporations have already started ensuring that their supply chains are ethical and sustainable. This means that large corporations with SMEs in their supply chain need reliable ESG data from those businesses in order for reporting to be accurate. If your company does not align with these values, then you risk struggling to break out into a global market which is dominated by sustainability choices.
Sources:
An ESG strategy for small businesses - British Business Bank (british-business-bank.co.uk)
The importance of ESG for SMEs | Insights | HSBC
ESG: why SMEs should care and how to get started | CBI
Sustainability reporting: why should SMEs care? | ICAEW
The challenge and opportunity of ESG reporting for SMEs - Maddyness UK
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