Why ESG is More Important Today Than Before in Small Business Strategy

Published on:
by Jithin Joshey Kulatharayil

The policies adopted by businesses today have displayed an unprecedented transition, mainly driven by conscious consumerism across the world. All kinds of stakeholders—investors, consumers, governments—are evolving on a daily basis in terms of understanding sustainable business practices. So, it is significant from an organisation's perspective—both small and large—to incorporate developing changes into their businesses to be better off in their respective sectors.

A significant number of companies display their commitments, including carbon emissions reduction, net-zero goals, and other forms of environmental targets, through their ESG reports. Here we consider ESG from the point of view of small and medium enterprises (SMEs), which make up more than 90% of the businesses globally, and how they deal with the huge changes. 

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Why is ESG gaining momentum?

For the past couple of years, the pandemic has taken a toll on many businesses. As a result, stakeholders are worried and looking for stability in investment decisions. In addition, global warming—although keeping a lower profile during the earlier part of the pandemic—has also added to their miseries.

The realisation of a give-and-take relationship between the environment and business has gained popularity across the globe, particularly after COVID-19-induced lockdowns and the subsequent repercussions. In the US alone, ESG funds have increased from more than USD 20 billion to almost USD 50 billion at present. Asia also witnessed an increase in sustainable investment, with funds touching USD 35 billion in 2021.

So, ESG has turned out to be a significant factor that all organisations, regardless of their size, must incorporate into their policies, and if not addressed properly, their businesses cannot continue to prosper effectively.

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Relevance of ESG in SMEs

Unlike large companies, small businesses can effectively make use of their ‘size’ as an advantage and take quick decisions regarding their strategy. For example, their flexibility and close contact with customers allow them to understand their needs better than departmental outreach from larger organisations.

To start with, many simple sustainable changes can be adopted by SMEs on a daily operational basis, and include:

  • Promoting online receipts

  • Prohibiting plastic usage in day-to-day operations

  • Supporting renewable energy sources

  • Incorporating best practices in effective waste management

These simple and effective steps could significantly reduce operating costs and carbon emissions, create durable habits for staff, and most importantly be integrated into the identity and, therefore, the value proposition of the company as it grows. Making well considered ESG decisions early will build stronger foundations for future growth.

Business policies - where to begin

Every business operates differently in its areas of operation, so it is critical to identify where your business stands and what needs to be done.

If you are adopting ESG measures for the first time:

  • Prioritising your area of focus from the beginning could save time and energy

  • Conducting studies and surveys on business-related topics to learn more about the stakeholders and what they want 

  • Identifying several policies, frameworks, and standards ensures more compliance

  • Investing in areas that are top priorities for your business saves money through better allocation of resources

If your business is already established:

  • Collaborating with other businesses will enhance benchmarking

  • Adhering to changing regulatory standards attracts investor interest

  • Keeping up to date with the latest updates on changes in the market helps in effective decision-making

  • Following up on your ESG measures and regular assessment will expose existing loopholes 

SME outlook

SME strategies play a critical role in deciding our net-zero future. Their policies often fail due to ineffective decision-making at the start, coupled with the view that sustainability is only meant for big businesses, something beyond their remit. Lack of guidance and awareness has also led to their poor performance in terms of sustainability.

However, ESG influences the prospects of every business, irrespective of its size. Conscious consumerism has shaken even the giants in the market, so if implemented with due consideration, smaller businesses can use their agility and speed to make noteworthy ESG policy changes, especially when it comes to the environmental side of the business, to stand out in contrast to the larger competition.

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