As climate change becomes more of a pressing issue and society demands greater social responsibility, companies of all sizes are facing more scrutiny over their environmental, social, and governance (ESG) practices. Small and medium-sized enterprises (SMEs) often face more challenges when it comes to ESG due to limited resources and budget compared to bigger corporations. Nonetheless, ignoring ESG risks can negatively impact a company’s reputation and result in legal consequences, financial losses, and inability to attract customers and investors. Hence, to successfully operate in the long-term, SMEs must implement sustainable and responsible business practices. In this blog, we will be exploring the latest trends in ESG for SMEs and provide some tips to help you get started on your sustainability journey.
Trend 1: Integration of ESG into core business strategy
ESG is no longer viewed as an added feature but as a necessary element of the core business strategy. As such, integrating ESG considerations into a company’s operations, decision-making and reporting systems has become increasingly important. ESG considerations should not only be used to mitigate environmental and social risks but also to create opportunities for innovation and growth. SMEs can start by developing ESG policies tailored to their business goals, setting specific targets for improvement, and involving employees in sustainable practices. Doing so could help improve ESG performance, increase employee engagement, and drive customer retention and loyalty.
Trend 2: Introduction of ESG disclosure requirements
More SMEs are taking voluntary actions to disclose their ESG practices as sustainability reporting becomes increasingly prevalent. However, companies must also prepare for the introduction of ESG disclosure requirements, which are expected to become compulsory for SMEs soon. SMEs need to be clear and transparent on how they are managing environmental, social, and governance issues as this will increase the confidence of stakeholders such as investors, customers, employees and regulators in their business practices. SMEs should consider reporting their ESG performance through tools such as the Global Reporting Initiative (GRI) Standards, Sustainability Accounting Standards Board (SASB), and Task Force on Climate-related Financial Disclosures (TCFD), which are widely accepted by investors and stakeholders worldwide.
Trend 3: Embracing circular economy principles
A circular economy is an economic model that aims to minimize resource use, waste and pollution, while maximizing the value of products, materials, and resources. As companies aim to become more sustainable, more SMEs are incorporating circular economy principles into their business operations by reducing their waste and emissions, reusing and recycling resources, and extending the life of their products. For instance, SMEs can adopt new business models such as rental, leasing, or take-back schemes, which reduce the demand for new products, and promote the reuse of products at the end of their lifecycle. SMEs can also collaborate with other businesses to create circular value chains, which increase resource efficiency and reduce carbon footprint.
Trend 4: Use of technology to track ESG performance
Advancements in technology have made it easier for SMEs to collect and track data on their ESG performance. For example, digital tools such as environmental and social data management software, artificial intelligence, and blockchain can help SMEs identify environmental and social risks, measure their carbon footprint, and track their supply chains. By using technology to monitor their ESG performance, SMEs can improve their decision-making, reduce costs, and improve their credibility with stakeholders.
Trend 5: Integration of ESG into supply chain management
As SMEs are often part of larger supply chains, they must also consider their ESG practices when working with suppliers and customers. Sustainable supply chain management is crucial in ensuring that ESG risks are minimized throughout the supply chain. SMEs can conduct ESG due diligence on their suppliers, set clear sustainability requirements for their suppliers, and collaborate with suppliers on sustainable initiatives to minimize environmental and social risks.
SMEs must embrace sustainable and responsible business practices to stay relevant and competitive in the marketplace. By integrating ESG into the core business strategy, preparing for ESG disclosure requirements, embracing circular economy principles, using technology to track ESG performance, and integrating ESG into supply chain management, SMEs can effectively address environmental, social, and governance issues and create value for all stakeholders. It’s not just about doing the right thing for the planet or society, but also about meeting the expectations of customers, employees, investors and regulators. SMEs should seek expert advice and guidance where necessary to ensure they have the right ESG policies, practices and targets in place to create a sustainable business model for future growth.
To learn more about how The Disruption House can help your business, click here.
