De-risking your growth journey the ESG way

Richard Singleton at accountancy firm Menzies LLP outlines importance of strategic preparation and defining a sense of purpose that means something for all business’ stakeholders – customers, investors and employees

 

It’s no secret that ESG strategies are becoming more important than ever before for businesses of all sizes.

 

Whilst SMEs do not currently need to report back on metrics in the same way as larger firms, those that embark on an ESG journey now could gain an early-mover advantage; experiencing benefits such as increased staff retention, high levels of customer loyalty and even improvements to the bottom line.

 

By their nature, ESG strategies are broad, encompassing everything from processes and procedures, through to targets and opportunities. For SME businesses, it can seem difficult to know where to begin. With both workers and the public more attuned to these issues than ever before, if a strategy is not properly planned, pitfalls can include risks to a business’ reputation, for example through accusations of ‘greenwashing’.

 

However, with so many benefits on offer for those that get it right, what do businesses need to know about developing a successful ESG strategy?

 

A business leader looking for a way to begin planning their ESG strategy might turn to one of the many frameworks on offer. However, such planning tools can quickly become overwhelming in terms of the volume of tasks to complete.

 

Even if the process is completed, the final plan may not match the needs of the business and its activities. It is important to remember when beginning to plan an ESG strategy that every business is unique, and whilst a framework may work for some, it won’t work for all.

 

As a first step, it is vital to take the time to understand why a business needs an ESG strategy, where the pressure points are coming from and how the strategy can help to alleviate these.

 

Asking such questions at the start will help the business to avoid common pitfalls such as taking on too much at once, leaping to a solution that doesn’t suit their needs or failing to secure ‘buy-in’ by not consulting with workers.

 

For example, one risk that a business might be facing could be one of high staff turnover due to a perceived poor culture. If a business leader chooses to address this through a short-term solution such as a basic online training sessions, employees could feel that their concerns are not being heard and that the business is using a ‘tick-box’ approach.

 

However, by seeking to understand the root causes of why employees may feel dissatisfied rather than applying a short-term ‘sticking-plaster’ solution, employers can build an ESG strategy that takes their employees opinions into account and changes the organisation’s culture for the better.

 

It makes sense to create an ESG strategy, which can be measured. By implementing staff surveys, for example, employers can track satisfaction, gender pay or diversity year-on-year and measure progress over time. These surveys can also yield data-based insights showing which initiatives have worked, and which require improvement.

 

Equally, a business should begin to measure environmental outputs such as carbon emissions and build up a bank of data that can be used to set six-monthly or annual KPIs.

 

By conducting due diligence to uncover pressure points, a business can begin to make changes or track results in a bespoke way. For example, some companies may find that they need to improve gender pay parity, whereas others may not have this problem. Some could be conducting social responsibility checks throughout the supply chain, whereas others haven’t yet gone this far.

 

Another consideration for businesses looking to begin their ESG journey is time. Implementing a successful strategy is not a quick fix, and it often takes between 18 months to 2 years to fully implement.

 

This may seem like a long time, particularly considering the challenges that many businesses are facing at the moment, but decision makers should bear in mind that new reporting legislation could be introduced at any time. Any business that starts to measure and monitor their ESG performance could find that they avoid a surprise scramble for this data in the future.

 

For businesses with an ESG strategy already in place, it is important to review it closely, going right back to its conception and analysing the findings. What may have worked for a business two years ago could now be out of date, and it is important that reviewing the strategy remains a board priority.

 

Finally, instead of seeing increased ESG awareness as a problem that needs to be solved, decision makers should see it as an opportunity to lead the way; future-proofing their business model as they do so.

 

Making improvements now can help to strengthen stakeholder relationships – from customers and suppliers, through to investors, lenders and employees too. Customers understandably want to spend their money with businesses that treat their workers well, are responsible throughout their supply chain and work to reduce their environmental impacts.

 

By understanding this and making it part of the organisation’s culture and processes, SMEs could gain an ESG advantage.

 

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Richard Singleton is finance and sustainability director at accountancy firm, Menzies LLP

 

Main image courtesy of iStockPhoto.com