In this blog post, we will explore why SMEs should have an ESG strategy, the potential advantages this strategy could offer their business and how to develop a strong ESG strategy.
What is an ESG strategy?
An ESG strategy is a business model which emphasises Environmental, Social and Governance responsibilities. Organisations can use an ESG strategy to guide their decisions, making their business more sustainable and ethical. The purpose of a business’s ESG strategy is to reduce the negative impact or increase the positive impact on the environment, society and governance bodies.
Environmental Strategy
The Environmental aspect of an ESG strategy considers the impact of a business on the environment and how environmental risks are addressed. According to ESG agencies, environmental factors include climate change, natural resources, pollution and waste, and environmental opportunities. A company’s direct operations, as well as its supply chain, will contribute to this.
Social Strategy
The social component of an ESG strategy refers to how a business manages people interactions, including its relationships with employees, suppliers, stakeholders and consumers. It requires a business to consider human rights, working conditions, inequality and transparency of the supply chain.
Governance Strategy
The governance aspect of an ESG strategy addresses the internal practises and systems of a business and how it uses them to govern itself and make decisions. It considers how a business manages important topics, including corruption, audits, cybersecurity, tax avoidance and many more.
ESG strategies are becoming more of a priority for SMEs, with 95% implementing an ESG strategy, according to Barclays Corporate. Recent external factors, including Climate Change, had a huge impact on the popularity of ESG strategies. Before, ESG issues were a niche thing.
Why should SMEs have an ESG strategy?
Do consumers care about ESG?
In recent years, consumers have become more aware of the importance of an ESG strategy. According to a report created by American Express, 91% of consumers believe that sustainable packaging, doing social good and the brand’s ethical reputation are important to consider when deciding who to purchase from.
By implementing a strong ESG strategy, you will be proving to your consumers that you are conscious of the environmental, social and governance impacts your business is having, giving you a competitive edge above others.
Do Investors care about ESG?
Investors are also becoming increasingly interested in a company’s ESG rating as it can give them a broader and clearer view on the company’s performance and how they manage risks. In a study conducted by PwC, it was found that 79% of investors will consider ESG risks before making investment decisions, 49% would divest from companies who are not taking ESG issues seriously and 75% believe it is worth sacrificing short-term profits in order to address ESG issues.
By implementing an ESG strategy, you will be proving to investors that your business is engaging in sustainable and ethic business practices, reducing risks and making you a better investment.
Do Employees care about ESG?
Employees also believe in the importance of having a successful ESG strategy. According to a study conducted by IBM, 70% of employees find employers more attractive when they have strong ESG objectives, and with retaining staff being one of the biggest challenges for SMEs, developing an ESG strategy could help with this.
Can ESG help to reduce costs?
Having an ESG strategy is not all about improving reputation, but it can also lead to an increased financial performance. The smallest of efforts toward sustainability, such as reducing the use of paper or becoming more energy efficient, can reduce spending. By regularly measuring and updating its ESG strategy, a company will be more aware of cost-efficient methods.
How to develop an ESG strategy
- Identify Your ESG Objectives: Before you can develop an ESG strategy, it is important to identify the specific goals that you want to achieve. This will help you determine the best approach for achieving those goals, as well as the resources that will be required. You will want to consider your company’s values, industry trends, and customer expectations.
- Analyse Your Company: Once you have identified your goals, it is important to conduct assessments to determine the current state of your operations. This will help you identify any areas where improvements can be made in order to achieve your ESG goals.
- Implement Strategies: Once you have established your goals and conducted assessments, it is time to implement strategies to achieve those goals. This may include setting targets, developing policies, and investing in new technologies.
- Monitor Progress: It is important to monitor the progress of your ESG strategy to ensure that it is meeting your goals. This can be done through regular reviews and assessments.
By following these steps, you can ensure that your ESG strategy is effective and meets your goals.
How can Newable help you create an ESG strategy?
Here at Newable, we have a team of experienced advisers passionate about helping SMEs by providing fully funded advice. We give a range of external support and can help you create an ESG strategy. Find out more about how Newable can help you with your ESG strategy.
We can also help you in other areas of your business. Whether it be Money, Advice or Workspace, Newable provides the essential resources businesses need to take the next step.
Find out more about how Newable can help you and your business.