ESG goals are, increasingly, at the forefront of SMEs planning and strategic concerns. In recent years, ESG has seen a huge rise in prominence and professional awareness, and this spike in interest (and understanding) has seen more focus brought to the implementation of dedicated strategy, monitored by measurable metrics – clearly defined ESG goals.
In addition to a rise in voluntary ESG activities, we’re also seeing an increase in mandatory sustainability goals, being implemented across many countries. In March 2022, for example, the US Securities and Exchange Commission (SEC) proposed climate-risk disclosure requirements. These would increase the annual reporting requirements of all publicly traded companies.
Meanwhile, in the UK, large companies (defined as those with a £36 million annual turnover, £18 million balance sheet total or 250 employees) are required to report energy use and carbon emissions within their annual reports – and as of 2023, ESG reporting will be further enhanced via the Sustainability Disclosure Requirements (SDRs).
While each jurisdiction has its own approach to ESG reporting, general trends suggest that an increase in mandatory reporting can be expected in years to come. And this interest is starting to bring more focus to the practice for businesses of all sizes.
In this article, we’ll dig into some of the ways in which SMEs can leverage internal resources to best effect when it comes to improving their ESG performance.
Why SMEs Need To Get Strategic About Their ESG Goals
Whatever the size or growth stage of your business, the time for an “ad hoc” or “good enough” approach to ESG is over. Today, ESG either represents a mandatory aspect of reporting compliance (for larger companies) or a significant competitive advantage (for those who don’t meet mandatory reporting requirements.)
As a positive, differentiating factor that customers actively care about (83% of consumers think companies should be actively shaping ESG best practices) SMEs stand to gain an edge over close competition by leading in their field when it comes to ESG.
This applies not only to investment opportunities, but also to their recruitment strategy and staff retainment – 86% of employees prefer to support or work for companies that care about the same issues they do. As labour shortages become increasingly problematic, pre increase and cost per acquisition of new staff rises, this will become an increasingly important factor for SMEs.
Ambitious SMEs with a plan to scale need to get a good handle on ESG while they’re still in a growth state. Solid goals and processes now will help them to grow their ESG success in line with their businesses, in a manageable and cost effective manner.
What is Meant By Internal Resources?
So, how can SMEs leverage existing internal resources to aid their pursuit of ESG goals? Let’s start by identifying exactly what’s meant by internal resources. These are effectively any assets already in the possession of the SME.
Internal resources could include tangible aspects such as:
But also intangible assets such as:
Conducting an audit into existing internal resources is always an illuminating and helpful process. By taking time to clearly identify the assets already available to your business, the opportunities for more targeted and successful ESG actions.
How Can SМЕs Leverage Internal Resources To Achieve Their ESG Goals?
So, how can SMEs use internal resources to supercharge their ESG performance? Businesses sitting within this bracket, which are already battling with the usual growing pains of scaling, need to identify a strategy that plays to the strength of pre-existing resources and internal procedures - not rewriting the rule book or fighting against the current.
In terms of tangible aspects, advantage will tend to fall towards the environmental side of ESG requirements. Good examples might include:
Looking for ways to increase the energy efficiency of existing facilities – switching to green energy suppliers, establishing an offsetting program, harvesting rainwater, improving internal recycling practices or incentivising ridesharing or a cycle commute scheme.
Making significant improvements within preexisting supply chains – making more active demands of ESG policies within your suppliers, switching to more local or conscious suppliers, looking into the efficiencies of your delivery scheduling.
Adopting a more sustainable approach to your businesses digital footprint – considering the environmental impact of your software and storage choices. Carbon digital footprint is closely linked to your choice of hosting and data storage. Even the way your website is designed has an impact - especially if your brand sells online as well as offline. Dig into some thought-provoking, practical information on digital carbon footprint here.
Your workforce represents a resource that spans the full spectrum of ESG. It can be mobilised and motivated ie. for more volunteering and fundraising, but also to ensure better transparency and fairness within the organisation. This can be optimised with the right kind of digital infrastructure - amplifying the impact your employees can achieve, both as individuals and a wider team.
Intangible assets are also an important component of meeting ESG goals. Internal culture, for example, has the potential to have a big impact on your ESG goal success. Visibility and transparency of your ESG progress and policies are essential if your business is going to win buy-in from customers, employees and investors alike. This means that clear reporting and communication of your ESG achievements is essential, helping influence internal culture and external positioning and reputation.
SME ESG Goals: Potential Pitfalls
When harnessing internal resources to help achieve ESG goals, what are the issues that SMEs might run into?
The most common problems relate to accountability and accuracy. If businesses launch ambitious ESG strategies, but fail to put the right measures in place to keep track of goals and progress. This is a certain way to erode interest and belief in your ESG progress. As an SME, it's unlikely that ESG reporting is mandatory, but when it comes to maintaining motivation, this means there’s all the more reason to ensure that you do have a way of actively and accurately tracking your ESG goals.
Unrealistic expectations (or “walking before you can run”) are also rife within SMEs when it comes to your ESG goals. It’s important to set goals which are attainable, as you get a measure for your aptitude and capacity as a business to make improvements across the full ESG spectrum. As you learn more about the practices and measures that are getting results, you can expand your aspirations and start to increase the challenges that you set for your business.
Another issue can come in the form of low employee engagement. Again, this is where transparency comes into play. By maintaining great communication and clarity around your ESG strategy (explaining the why, as well as the how) and empowering employees to take their own autonomous action (i.e. through tools such as employee reward mechanism) you can optimise ongoing interest and engagement.
The Future Of ESG Goals For SMEs
What does the future of ESG look like for SMEs? For the SMEs that grow - mandatory reporting will, of course, be highly likely. But even for those businesses that continue to thrive at a comparably consistent size, we’d argue that ESG is still a worthwhile investment of resources.
Not only does a proactive approach to setting and meeting ESG goals help to establish important differentiation and advantage from close competitors - public opinion is also increasingly focused and informed. Thanks to a decade of greenwashing - ESG promises based on flimsy or jumped-up evidence - scrutiny of claims (and especially those made in a promotional capacity) is high.
For these reasons, it's important that solid methods for setting and recording progress towards goals are deployed. These will be critical to SMEs ongoing success and growth, helping to create a trustworthy and dependable reputation.
We should expect a bigger focus on the ability to communicate ESG publicly in the years to come. For businesses of all sizes, ESG-based claims will need to be substantiated by clear reporting and plenty of external transparency. SMEs can harness the internal resource of their own employees to help spread the word via personal social media accounts, linked to a shared internal platform such as KindLink. This helps to consolidate and add authenticity to the external promotion of your ESG and CSR endeavours.
We can also reasonably expect more standardisation of ESG scoring, as well as a growth in mandatory ESG tracking expanding to the SME sector as well as the larger enterprise end of business. The best time to start gaining experience and expertise in this important aspect of tomorrow’s business landscape is today.
Ready to set, meet and exceed your ESG goals?
ESG goals represent a real opportunity for business at all stages of growth – but SMEs in particular have the chance to put measures in place that will play to their existing strengths, scaling alongside them as they grow - future proofing their business.