Mark Lumsdon-Taylor, partner at business advisory firm MHA, argues that SMEs should lead, not follow, when it comes to setting and implementing an Environmental, Social and Governance strategy.
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LARGE companies, large limited liability partnerships and organisations meeting certain turnover, balance sheet and/or employee numbers criteria are obliged by law to take and report publicly significant climate change mitigation.
But what if your company is not a large company or LLP? What if you are a small company, perhaps even a sole trader?
You are almost certainly not (yet) mandated to address your carbon dioxide emissions, reduce your climate impact, improve your use of natural resources or address many of the elements of an ESG strategy. However, here are ten good reasons why not being mandated to do so should not prevent your business – no matter how small – from taking sustainability action.
Mark Lumsdon-Taylor specialises in the rural business, agriculture, horticulture, food manufacture, education and healthcare industries as well as supporting organisations from a wide range of sectors to develop and deliver impactful sustainability and ESG strategies.
mark.lumsdon-taylor@mha.co.uk.
SMEs, according to the Federation of Small Businesses, account for 99.9% of the UK business population, three-fifths of the employment and around half the turnover in the UK private sector. So not taking action makes a huge difference to the UK being able to meet or exceed its climate change and sustainability obligations which will affect every business.
All companies should be following an ESG plan. Although creating and implementing a plan may seem like a lot of work for little return, it really is not. In fact, it could be the best business decision you will ever make. Here’s why.
Being part of a supply chain If you supply goods or services to a large company or LLP, they will almost certainly be mandated to report their carbon emissions and take steps to improve them.
They will be reporting their Scope 1 (direct) and Scope 2 (indirect from purchased energy, steam, heat or cooling) emissions and in some cases their Scope 3 emissions. Scope 3 emissions include those from their supply chain, which means your emissions. So, if you are not reporting your GHG emissions and taking steps to better them, you are helping your customer fail in its reporting. I wonder how that might look in a contract renegotiation or competitive tender.
Government departmental work All government departmental tenders now require evidence of ESG compliance in order for a business to be eligible to tender. The weighting of this evidence within the tender is high – typically a minimum weighting of 10% is applied. In essence, no ESG actions, no tender.
Efficiency Put simply, less ‘take, make and throw away’; more sharing, repurposing, reusing, repairing, refurbishing, remanufacturing, leasing, recycling, composting and more.
Where there is waste there are efficiencies that can be gained. A strong ESG programme can help identify areas for improvement as well as engaging with staff and stakeholders as a critical part of the solutions. Your business can only benefit from the improvements that result.
Better loan repayment terms Not only will some lending institutions now refuse loans to ESG non-compliant companies but some can offer better terms to businesses actively engaged with ESG programmes, especially where loans are designated for ESG-related improvements.
Competitive advantage With an increasing focus on ESG among businesses, governments, customers, consumers and staff, your ESG programme could give you a competitive advantage in everything from tendering for work through to recruiting staff.
Impact investment Today’s investors seek financial returns but many will also be looking for strong ESG credentials and a business with a business plan that takes account of its impact on its people, the local community, the economy, the environment and climate change.
With the number of investors looking for this ‘return’ increasing, your investment could be lost to a lack of ESG action.
Attracting and retaining staff Increasingly, employees and candidates – particularly younger workers – are expecting more than a fair salary and good working conditions from their employers.
Your current and future staff will be examining your environmental record, your commitments to communities and to the planet’s health. Fall down on these and you limit your company’s ability to attract the right people and retain them.
Marketing and PR A strong ESG commitment provides great content for marketing and PR, both of which enable you to tell your future customers and staff about the very things that might attract them to buy from you or work with you.
Leading the way Businesses with a strong ESG programme can often use that to raise their voice above the rest by leading, not following.
The best you can be Your commitment to ESG is a strong indication of the way you do business and the things that are important to you. That commitment is a clear sign that you care about your clients, customers, consumers, staff, suppliers and stakeholders.
When your company is seen in its best light, it will be able to conduct its best business. The lack of a strong ESG programme can have the reverse effect.
Engaging with ESG and sustainability can not only help the planet and its people in so many ways. It can also help your business to be better, to improve its profitability and to secure its future sustainability. Surely no business needs to be mandated for that.
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