News analysis
Are SMEs neglecting ESG?
ESG for small businesses is an important topic according to experts. However, new survey results from the UK suggest that, at least in Britain, the answer is yes.
In some ways, we expect this. ESG can be a mammoth investment. It commands time, money, and expertise – things which small businesses could easily not have access to.
But global bodies as crucial as the World Economic Forum continue to stress how vital SMEs are to the ESG movement. So, love it or hate it, it seems they’re already a key player.
What’s the latest?
New UK survey results paint a bleak picture of the level of engagement in ESG for small businesses.
Of 1,124 companies surveyed, just 19% (less than one fifth) were aware of what ESG involved. Among them, only 12% said they had actually integrated it into company strategy to some degree.
This means that 92% of UK SMEs have yet to implement any ESG strategy and have no plans to do so soon.
Is this bad?
It depends on who you talk to. Like any other significant movement, ESG has its supporters and haters. But if we put ourselves in the mindset of investors, lawmakers and consumers in a place like the UK, then yes, by and large, this is bad.
All three of the above stakeholder groups are increasingly concerned about how companies tackle ESG.
Consumers’ and lawmakers’ values increasingly align with the movement’s core pillars of not harming the environment, people, or the company.
Meanwhile, investors see more and more financial potential from long-term investment in ESG because they believe it will steer companies away from losses and toward success over the next several decades.
Why aren’t SMEs engaging with ESG?
It depends on the jurisdiction, but one of the primary reasons is the effort involved. That’s not to suggest that SMEs are lazy about ESG; they just can’t place it high on the to-do list.
Quite simply, SMEs are far more likely to prioritise more immediate financial and expansion concerns than they are to develop a long-term ESG strategy.
Lauren Wilson-Smith, CEO of ID Crypt Global – the organiser of this latest survey – said that ESG remains “inaccessible” for many SMEs.
“The cost of obtaining and improving a score is certainly one factor, as well as a lack of prior knowledge on the subject,” she said in a statement this month.
“But there is also a lack of transparency due to the numerous score providers operating within the space.”
Is she right?
Absolutely.
A business model incorporating ESG definitely involves short-term financial pain for longer-term gain. Bigger companies have the capital to absorb these costs. SMEs don’t.
In addition, ESG is a new idea. SME owners might be trained in business or management, but they don’t have the same expertise in ESG. This means their knowledge is fuelled only through experience. It’s a “learn by doing” mentality.
And lastly, as big corporations will agree, there remains no universal standard for scoring ESG progress. So, even if every SME in the UK took ESG seriously from tomorrow, it’s hard to compare them without a single scoreboard.
Is ESG for small businesses important? It’s a global movement, and they’re tiny parts of it.
Global leaders think so, and that may be important enough.
Only this month, the World Economic Forum acknowledged that SMEs are “not yet fully engaged with the movement, despite being “key to a more sustainable world.”
It accepted the typical reasons, admitting that SMEs frequently run out of time, money and capacity, but stressed that SMEs still needed to get on board “for their own sake and for everyone.”
“Change is coming for SMEs whether they like it or not,” wrote Sanda Ojiambo, CEO and Executive Director of the UN Global Compact.
“SMEs that fall behind on ESG risk losing valuable opportunities with big companies, particularly where regulation or capital depends on it unless they can match the ESG standards of their customers.”