Embracing ESG principles holds these six benefits for small businesses

There are many benefits for small businesses that embrace ESG principles. Caring about the environment, social circumstances and governance is not only for big companies with lots of money and small businesses can also play their part.

The acronym ESG stands for Environmental, Social and Governance and the term is used to measure a businesses’ impact on social and environmental issues and looks at how it practices good governance.

It also looks at how seriously it takes this beyond generating revenue or making a profit. While big corporates have more money to put an ESG strategy together and source the right people to spearhead the project, nothing stops small businesses from getting involved in any way that they can, says Alex Appleby, head of treasury for Retail Capital.

He gives the following reasons why small businesses should think about adopting ESG principles:

Attracting talent

Appleby says ESG principles are increasingly becoming more important among employees. Good governance is often scrutinised by new employees. A study by Mercer found that 75% of South African corporates report ESG as a focus and highlighted that ‘employees want to work for companies that care’.

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Attracting more customers

Embracing ESG principles is about creating a better environment for all, but it has become so important now that it also affects the bottom line, Appleby says.

Research also shows that the Covid-19 pandemic has altered consumer behaviour permanently, with an Accenture survey in 2020 indicating that nearly half (45%) of consumers make more sustainable choices when shopping and would carry on doing so.

Attracting more funding

Whether you are seeking investment from a major lender or an individual, a small business will be more successful if it has a set of ESG principles or ambitions they can realistically abide by.

Lenders will have their own policies and want to ensure investor funds are appropriately invested in good quality assets that demonstrate a commitment to ESG principles.

“It also gives you greater bargaining power if you have strong governance and can show that you can meet ESG targets with specific detail,” Appleby says

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Supply chain access

Customers increasingly care about where products come from. They ask questions such as ‘Was this food grown with the environment in mind?’ and ‘If I buy this product, am I inadvertently supporting child labour?’

“Knowing that products were ethically sourced and that people were treated and paid fairly has become vital and therefore supply chains are being scrutinised more than ever before. If you cannot prove that you embrace any ESG principles, your company may be in danger of being omitted from the supply chains it feeds into and out of, which could in turn hamper productivity and cost.”

Increased sustainability

Companies of all sizes have a responsibility to the environment. “We have all seen the impact of climate change abroad and locally with the increase in temperatures, storms and floods. We all have to do our bit and contribute to building a more sustainable future for all.”

Appleby says companies that do not embrace ESG principles risk losing customers, talent, funding and access to certain supply chains. “It is therefore not a stretch to conclude that if ESG is not embraced, even on some basic level, the company’s sustainability itself is in danger.

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ESG can be simple

Creating a set of ESG principles or goals can be simple, he says and adds ESG principles can be attainable, realistic and affordable. It could, for instance, start with governance.

“Ensure your small business has a good working culture in place where there is respect between staff and managers. With governance, this could involve investing in employees if there are funds to do so or it could mean focusing on creating a culture of belonging first.”

To support environmental issues, you can switch to eco-friendly packaging or use an alternative energy source to power your food truck, for example.

Appleby says embracing ESG principles will not necessarily save money overnight but it is about ensuring that you are ahead of the curve in the future and that you have a sustainable business that will outlast the competition, attract investors and good employees while doing more to protect our planet.