ESG issues moving up the agenda for SMEs


ESG issues moving up the agenda for SMEs

This page was last updated on September 22, 2023
In this article we look at why environmental, social and governance (ESG) considerations are increasingly becoming essential necessities for all sizes of business.

No longer viewed as a luxury, ‘tick-box’ exercise or merely the preserve of larger companies, implementing an ESG strategy is a business priority that all business leaders and employees need to be engaged in.

While regulations such as the UK climate-related financial disclosures (TCFDs) and the EU corporate sustainability reporting directive (CSRD) put the initial onus on the largest organisations to report their climate-related risks and opportunities, SMEs are also feeling the ESG heat.

Increasingly, public sector bodies are requiring businesses they work with to adhere to various ESG criteria, and this trend is firmly establishing itself in the private sector too.

Growing numbers of businesses are already asking the SMEs in their supply chains to provide assurances about their ESG practices, and ESG is also becoming a key focus when raising finance, through the likes of sustainability-linked loans.

With ever-increasing public scrutiny around the way businesses operate, there is a growing focus on the ‘S’ as well as the ‘E’ in ESG. Popular areas of interest fall on diversity, equity and inclusion in workforces.

Clearly, SMEs can gain a real competitive advantage when they can demonstrate strong ESG credentials. Businesses that are seen as values-led, with caring leaders, will have an advantage in attracting and retaining employees who share those values and are likely to be more engaged in ensuring the business is successful.

Tackling ESG challenges will be different for every SME but considering the impact and actions of your business across each of the three pillars of ESG is vital in establishing effective policies and practices.

In terms of environmental factors, this may, of course, involve looking at ways your business can cut waste, reduce water and energy consumption and reduce CO2 emissions. (See these tips for helping your business get greener).

Social considerations, aside from encouraging greater equality, diversity and inclusion in your own workforce, may mean engaging more with your supply chain over their working practices.

And even relatively small businesses also need to take steps to embed effective governance from the top down, to deliver on their ESG commitments and measure their effectiveness.

Many of the points above were discussed at a recent AGN conference. Shipleys is a founding member of AGN International, a global association of separate and independent accounting and advisory businesses.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

Copyright © Shipleys LLP 2023

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