What is ESG and why is it relevant to SMEs?

In this article, WRM intern and University of Leeds Masters student, George Clarke, explains what ESG is and shares the outcomes of his research on how this changing landscape is impacting SMEs.

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Summary

1. ESG Importance: ESG (Environmental, Social, Governance) is crucial for SMEs to ensure business continuity, growth, and attract investment.
2. EU Standards: The EU has introduced mandatory ESG reporting for large companies, with voluntary standards for SMEs in development.
3. Barriers and Opportunities: SMEs face resource challenges but see ESG as a long-term cost-saving and competitive advantage.
4. Research Outcomes: It is important that SMEs start ESG initiatives early, because having a clear strategy can provide a commercial edge and demonstrate accountability to stakeholders.
5. WRM Services: WRM offers tailored ESG implementation services, including assessments, strategy development, training, and performance reporting.

What is ESG and why is it relevant to SMEs?

ESG stands for Environmental, Social, Governance and is a framework used to measure and report on an organisation’s impact in these areas. ESG was initially a way for investors to assess the impact of a company they were looking to invest in, but with the growing concern for climate change and other environmental and societal challenges, many organisations are now being held to account by consumers, employees and supply chain members.

In fact, some companies are now required to report on their ESG impact annually, in the same way that many companies are required to report on their financial performance. The EU has recently introduced mandatory reporting standards for large companies operating within the EU, of which there are approximately 50,000. A simplified voluntary version of these standards for SMEs is in the process of being created, as the EU aims to align the many different standards available into one comprehensive set.

Whilst there is no mandatory ESG reporting standard in the UK currently, many companies report on their ESG impact and choose to publish a strategy regardless, as it often brings the promise of investment and increased commercial opportunities.

In this research project, a selection of WRM’s SME clientele base were interviewed, and all cited the importance of ESG for business continuity and growth. Some companies were required to implement an ESG strategy for tendering and procurement processes, and others saw the attraction of potential investment as the main driver. All of the interviewees, however, felt that ESG was going to have a significant impact on their business in the future, as more requirements for monitoring and reporting are introduced.

WRM’s Current ESG Service Offering

WRM, offer a comprehensive ESG implementation service that is designed to help organisations enhance their sustainability performance. Their approach is tailored to each organisation’s unique needs and involves a series of steps that aim to identify, address, and improve various aspects of their ESG performance.

Initially, WRM conduct an assessment to understand the organisation’s current ESG performance and stakeholder priorities. Based on this, they develop a bespoke ESG Policy & Strategy that focuses on areas of improvement identified during the assessment.

To ensure the successful implementation of the strategy, WRM also provide ESG training to the organisation’s workforce. This helps to foster a culture of responsibility within the organisation and encourages employees to align their actions with the strategy.

Following successful implementation, WRM then assist organisations in compiling and presenting their ESG performance data in a clear and concise manner. This enables them to effectively communicate their efforts to their stakeholders.

The Barriers and Opportunities

Interviewing organisations that had already undergone ESG implementation processes, allowed us to better understand the barriers and opportunities SMEs are subject to. The main barrier identified was the substantial requirement to commit resources such as staff time and intial financial investment.

Whilst committing these resources may not be an urgent priority for SMEs, those interviewed also reflected on the growing requirements to report on their impact. They felt that investing now would save money in the long run. Implementing changes within an organisation to enhance its ESG performance in a measured manner, rather than hastily meeting legislative deadlines, can be more cost-effective than delaying until new regulations are enforced. Interviewees also suggested that investing in ESG was actually an opportunity to stay ahead of competitors.

“ESG is not always a priority for SMEs, but this research suggests starting now will mean your business is better prepared for the future”

George Clarke, Masters Student at the University of Leeds

The discussions highlighted the advantage of establishing a baseline for current ESG performance prior to strategising. Interviewees recommended assessing existing practices and aligning them with key stakeholder expectations to chart a definitive course for sustainable business growth. This approach also enabled organisations to identify which ESG elements were pertinent to their operations and inspired them to consider the unique contributions they could make as SMEs.

Research Outcomes and SME Advice

The outcomes of this research have helped to define the experiences that many SMEs have when creating an ESG strategy, and how WRM can continue to deliver and improve upon its existing ESG service offering.

Key ESG research outcomes:

  • Stress the need to start as soon as possible. Many organisations can be put off and feel ESG is not relevant to their business, but this research has shown that its relevance is only increasing, and it will be more cost effective to start now.
  • ESG can be confusing, but with the right team of consultants, understand this complex topic is possible.
  • Investing in an ESG strategy ahead of your competitors can provide your organisation with a commercial edge.
  • Implementing ESG showcases to stakeholders that your organisation can be held accountable and is dedicated to continuous improvement.
  • ESG is not an overnight fix, continued conversation and a realistic timeline of targeted actions will make positive impact possible.

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