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Why is ESG important for small businesses?

Published January 20, 2023 (last updated on November 23, 2023) | Adam Wyatt - Copywriter and Content Creator

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Environmental, social, and governance (ESG) was first discussed in the 2006 United Nations Principles for Responsible Investment report. The 2020 Davos Manifesto established 22 metrics to provide a consistent framework in alignment with the United Nations 2030 sustainable development goals.

With net zero emissions as the target for United Nations 2030, stakeholders are putting pressure on companies to adopt sustainable approaches.

ESG is a term used to represent an organization’s corporate financial interests that focus on sustainable and ethical impacts. It sounds complicated and something that only corporations should be concerned about, however, sustainability is something small businesses should seriously consider. ESG is a non-financial performance indicator that ensures accountability to manage a corporation’s impact, such as carbon footprint. If small businesses fail to utilise ESG for growth, they can lose trust and have trouble retaining consumers.

ESG and New Zealand

New Zealand was the first country in the world to legally mandate climate change. The Government has also passed legislation making climate-related disclosures mandatory for certain financial market participants. The requirement applies to large publicly listed companies, insurers, banks, non-bank deposit takers, and investment managers. While it is limited to larger corporations, it indicates a need to ensure that the effects of climate change are considered in business and build a sustainable, low-emissions economy.

Why is ESG important for small business?

Consumers are becoming concerned with ESG performances and goals for small and mid-sized businesses. 43% of consumers expect businesses to be accountable for their impact on the environment.

  • Leads to a reduction in costs-By integrating ESG practices, business owners can achieve a potential reduction in operating expenses.  If you’re reducing your carbon footprint, then you’re being energy efficient, saving money that can be used and reinvested. 

  • Attracts talent and boosts employee productivity- Sustainability creates value. By integrating sustainability and environmental values, you indicate your belief and vision to future employees. It also builds an atmosphere of trust and resilience among staff thus boosting employee productivity.

  • Adds to the top-line growth- When small businesses set ESG targets and commit to energy efficiency, social governance, climate change, etc, they display a strong commitment to future goals and growth.

  • Makes good business sense- From droughts to raging fires, environmental issues are going to continue to affect us, unless we take immediate action now. If businesses don’t take ownership of their practices, they perpetuate irresponsible business practices.

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How to start developing your ESG structure and policies?

Businesses are adopting ESG approaches by creating structures and policies. Investors and stakeholders are also developing ESG-targeted funds and investments.

Let’s see a breakdown of ESG structure:

  • Environmental criteria include the impact your business has on the environment. Performance indicators include carbon emissions, water consumption, energy use, waste, etc.

  • Social factors look at the social responsibility of every business. This can mean supporting the local community, building local relations, and managing labour relations. In a wider sense, it can also include employee diversity, health and safety, human rights, data protection, and privacy.

  • Governance refers to rules, processes, and policies that ensure the board of directors governs and oversees a company, complies with the law, and maintains transparency.

Climate change is real, and these issues will keep on rising unless everyone becomes careful and responsible. You can develop your business ESG structure and policies by simplifying your goals and values. For a small business, it can be something as straightforward as switching to energy-efficient appliances/processes. Give your team a deadline and an approach to managing that goal.

What is ESG reporting and why is it important?

ESG reporting is not mandatory for businesses, however, there are benefits to ESG reporting. It can be a stand-alone annual report that shares the environmental or social impact of your business. By creating an ESG report your business displays a proactive approach, a vision that suggests forward-thinking and planning.

Other benefits of ESG reporting include:

  • Creates transparency- Consumers, investors, and stakeholders have access to records and data that helps in creating transparency.  

  • SWOT analysis- By creating an ESG report you have an opportunity to identify strengths, weaknesses, opportunities, and threats for your business. You can also identify areas of operational management that may need improvement.

  • Creates accountability- When you start reporting on your ESG goals or targets, you enable accountability toward your investors, consumers, and stakeholders.  

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Employsure has worked with 30,000 businesses across Australia and New Zealand. We understand the challenges facing small business owners. Call our 24/7 Advice Line to get your tricky questions answered.

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