6 Reasons ESG is so Important for Small Businesses

Many large companies already have their ESG strategies underway. They are creating sustainable businesses that will be able to adapt easily in this time of change. Now, it’s time for small businesses to follow. But with fewer resources and less capital to work with, as a small business owner, you may be thinking “Is it worth getting on board with ESG?”

We’re going to look at the three pillars – environmental, social, and governance – and the reasons why ESG is so important for small businesses.

What is ESG?

ESG is a term first used in the Principles for Responsible Investment. This was created by investors to increase the relevance of sustainability and ethical issues when looking at investment opportunities. It looks at the environmental and social impact of an organization, as well as its governance efforts.

Many larger companies choose to create annual ESG reports showing their sustainability efforts. Although it is not currently mandatory, it is something that smaller businesses should also consider doing. ESG reports promote transparency and show a forward-thinking mindset. 

Helpfully, an ESG report can be done easily by using ESG reporting software.

Today, ESG has become a global indicator to evaluate businesses on their sustainability and ethical practice. Below, we will look at each of the three pillars (environmental, social, and governance) and how they are evaluated, in more detail.

Environmental

This pillar relates to the impact your business has on the environment. The main factors considered are carbon footprint, energy consumption, greenhouse gas emission, waste management, and pollution. However, depending on the nature of your business, there may be other areas that aren’t as obvious. Some other examples include deforestation, biodiversity loss, and water usage. 

Social

Social responsibility relates to things like fair pay, health and safety, and employee rights within a business. It can also look at employees’ mental health and wellness. Companies should also ensure that their workplace policies cover diversity, equity, and inclusion.

But the social responsibility of a company doesn’t just relate to the impact within the business. It should also look at the wider community. This can be creating jobs for local people or supporting community projects. Companies should also ensure their business choices don’t have a negative impact on the local community. This could also cross over into environmental factors, e.g. losing local green spaces.

Governance

Governance covers how a business is operating. This could be from assessing work rules and policies to looking at how a business manages its legal considerations. It is also a good idea to look at management practices and directors. A look at an organization’s business practices can give you a full picture of its ethics and principles.For example, The Federal Risk and Authorization Management Program (FedRAMP) is a compliance program set up by the US government. It was created to make sure that cloud systems used by government agencies are secure and monitored correctly. Looking at an agency’s FedRAMP compliance management would come under governance.

Why is ESG so important for small businesses?

1. It makes financial sense

In the past, some ESG efforts may have not been financially practical for smaller businesses. Buying ethically and looking at environmentally friendly practices can be expensive. But companies are now finding that being more sustainable actually makes financial sense, too.

For example, companies can be energy-efficient and save money by putting lights on timers, reducing energy usage at peak times, and using recycled materials.

This is also true for companies working on their governance efforts. If a company wants to improve its privacy and data protection policies it may decide to adopt a zero trust security model. 

This model uses authentication and authorization to lower the chance of security threats. This may be a large initial investment, but it offers higher protection in the long run. As a result, the costs associated with potential security breaches will decrease.

1. It will help you attract the right kind of investors

As a small business owner, you may rely on investment to fund your company’s growth. So, it’s reasonable that you want to make yourself as attractive to investors as possible.

PwC’s latest Global Investor Survey (2022) shows that investors are becoming more ESG-focused. Data security, corporate governance, and reducing greenhouse gas emissions were high on their list of priorities. 36% of investors also chose responsible supply chain practices, including avoiding modern slavery, as one of their top 5 priorities.

It was investors that first decided to use ESG issues as a part of the guidelines for decision-making. The link between ESG efforts and financial performance is becoming more obvious. But investors are no longer just looking at what will bring them the highest ROI, they want to know that your business is sustainable and ethical.

For that reason, it’s essential that entrepreneurs and small business owners communicate ESG policies to potential funders. A business plan writer can help you do this so your company stands out.

2. It will attract better employees and boost productivity

Employee onboarding is becoming a more difficult process for companies that aren’t prioritizing the needs of their staff. Workers are looking at the ethics and social responsibility of companies before they consider taking jobs.

Yes, potential employees are looking at sustainability and values when looking for employment. But they are also looking at the work environment as a whole. According to a recent survey, mental health and wellness, and diversity and inclusion are amongst the top 5 things to invest in to improve company culture. These are also the factors that seem to help boost productivity in employees.

1. You will create a more loyal customer base

It’s not just investors who care about environmental and social issues. Shoppers are increasingly looking for more ethical and sustainable brands to make their purchases. These customers are more likely to remain loyal to these brands as they turn away from unsustainable products.

In a recent survey, 70% of consumers said that sustainability has become more important to them in the last two years. This is mainly due to growing awareness of environmental issues, and feeling that their lives could be affected by climate change.Consumers are also growing more interested in the ethics of a company, which is great for smaller businesses as they tend to be seen as more ethical. Although a specific ethical culture definition hasn’t been set, looking at your rules and policies, your risk management, and how you treat your staff is a good place to start.

1. It will put you above your competitors

If you are transparent about your sustainability efforts, this will build your brand’s strength and increase your position in the market. By committing to becoming more energy efficient, ethical, and sustainable you will look better than competitors who aren’t doing the same.

Imagine you are looking to expand your clothing company to Singapore. You’ve already bought your .sg domain name from OnlyDomains, and are looking at some local competitors. There are larger companies in the area that have a history of unethical practices. So straight away you have put yourself above more established businesses in that area.

If small businesses are focused on issues like climate change, they are showing that they are already looking to the future. This will put them above bigger rivals who are not ESG-focused.

Remember to communicate your ESG practices as part of your digital marketing strategy. By creating genuine content that shows off your efforts and impact, you can build trust among customers and stand out from competitors even more.

2. It will make your business more sustainable

Imagine you are a small business owner who is looking into legacy systems migration. You have been using the same old, outdated system to store your data for years and have decided it is time for an update. Not only would this new cloud-based system be more secure, but it would also allow you to consider remote working. Good governance efforts create better sustainability.

Sustainability is so important to small businesses as it makes them future-proof. New policies and laws are being created all the time. So, it is better to stay ahead of the times and work out what you can do to make your business more sustainable. 

As companies are trying to become more environmentally responsible they are also looking at hosted sustainable call centers. But what is a hosted call center? This kind of call center is hosted by a third-party provider, which means you don’t need extra office space or the energy costs that go with it. It’s usually regulated through a unified cloud contact center.

Developing an ESG Strategy

If you have a good ESG strategy, you will be able to grow your small business and ensure it has a sustainable future. To develop your strategy, you must first do a complete evaluation of every area of your company. Then, create measurable goals for your ESG program, including timelines and milestones.

This may be easier for small business owners as they tend to be more involved in every area of their company. Highlight your current practices that meet ESG requirements. Look at areas that need improvement, considering environmental, social, and governance issues.

When evaluating their governance efforts, many small businesses find that paperwork isn’t up to scratch. Zegal’s library of templates can help you to create compliant legal documents, aiding your business growth. For example, GDPR compliance can be hard to get your head around. But this GDPR Compliance Checklist will ensure you haven’t missed anything important.