ESG. It’s the new normal
ESG (Environment, Social and Governance) criteria; it’s the hot topic right now and unlikely to be a passing trend. The world is rapidly catching on to climate change and social inequality has been thrown into stark relief through the pandemic. Over the past few years we’ve seen a virtuous circle of growing awareness among consumers and corporates subjected to increasing regulation. ESG is no longer a nice to have, it’s a must have.
However, there’s “ESG” and then there’s authentic ESG. At the one end of the scale there’s greenwashing and completing compliance checklists. At the other end of the scale there are businesses focusing their very purpose around ESG.
Authentic ESG wins hands down.
The world is wising up to greenwashing as evidenced by the EU strengthening regulations on green claims, the introduction of a new Green Claims Code by the UK’s Competition and Markets Authority (CMA) and global NGOs taking to the courts.
Furthermore, there are significant commercial and cultural benefits to be had from focusing on ESG. To reap these you have to buy into the concept wholeheartedly, no prizes for greenwashing! Research has found that:
- Top performers on ESG achieve valuation multiples 3% – 19% higher than median performers
- Those who take an authentic ESG approach, placing this at the heart of their purpose, are more than two times as likely to rank in the top 50% of 10-year total shareholder return performance than low-purpose businesses.
Corporates are leading the charge
Change is happening at a corporate level because they’ve worked out that if you’re not focusing on ESG you’re on the wrong side of history. ESG is where the smart money is.
But research by Sage has found that a significant number of SMEs feel it’s hard for them to focus on sustainability:
- 33% of SMEs see cost as a barrier
- 27% feel they don’t have the necessary time to spare
- 25% don’t think they have the skills in house
Change is hard for SMEs
And corporates too! Let’s face it, change is hard for everyone!
For corporates it’s like turning a tanker. Implementing change takes lots of planning, change programmes, refocusing, reorganising, shareholder management, senior time, junior time, lots of time!
On the other hand, corporates have big budgets, can bring in the big consultancies to provide them with a blueprint. They can even appoint a hotshot CSO (Chief Sustainability Officer) and plant that living wall in the boardroom which signals ESG loud and clear.
While SMEs don’t have the budgets to focus on ESG in quite the same way, this is no different to any other issues that businesses face. If you’re old enough to remember, then a good example is Y2k. For everyone else then GDPR or Making Tax Digital. SMEs have fewer resources and may well lack the in-house expertise to push this through. However once they decide what to do, they have less to change and can bring change about faster.
Plan ahead to drive change
The critical factor that holds SMEs back is an absence of formal strategic planning. This starts with defining a clear vision for your business and how ESG fits into that. Where do you want your business to be in 10 years, 5 years, 3 years’ time? And what do you need to do in the next 18 months, the next year, the next quarter, the next week to make that happen?
Taking the time out of working in your business to work on your business is the first critical step. The summer holidays and a change of scene offer the perfect opportunity to start the ball rolling. Take some time to step away from the business and get a fresh perspective.
6 tips for ESG success
1. ESG will not be sustainable for you if it is unprofitable; look to identify the opportunities in more sustainable/ethical solutions. A great way to do this is to understand how ESG requirements are impacting your customers and see what you can do to better support that.
2. For many of us, ESG means doing things differently, so you need to be open to change. Challenge norms, be open to making multiple and fundamental changes to your business model.
3. The best solutions will come from clear and transparent communications across your ecosystem. Collaboration and cocreation with staff, suppliers and customers will get you further than going it alone.
4. To understand where to focus, change requires true understanding of your current impact. Benchmark and then measure the impact of any changes, but choose any 3rd party measurement solutions wisely. You don’t need a sledgehammer to crack a nut.
5. Make ESG a core element of your future vision and you will achieve more.
6. ESG is more likely to fail if it is treated as a special project, the responsibility of one individual or a department. You need to live and breath your ESG vision be ensuring that:
a. The CEO leads the charge on this vision
b. The whole business is pulling together to achieve this
c. ESG is built into your culture and brand story
Kate has over 25 years’ experience as a business consultant specialising in B2B global value chains with a particular focus on tech, industrial and logistics. Kate is adept in challenging constructively, using agile thinking and horizontal innovation to help businesses identify strengths and weaknesses to adapt and flourish commercially.