HELPING SMEs TACKLE SUSTAINABILITY CHALLENGES

Businesses can’t afford to avoid tackling sustainability issues. Consumers are becoming increasingly aware of the environmental impacts of their consumption habits. Investors and regulators are demanding action. And proof that companies account for their impact.

Focussing on sustainability can drive both consumer satisfaction and sales. SMEs are realising that monitoring and addressing environmental, social and governance factors (ESG) is crucial to their growth.

A number of complex tools and frameworks have become available to regulate ESG (Environmental, Social and Governance). Sustainability audits are becoming more common place. But those resources are mainly focused on large corporations. There’s hardly anything for SMEs.

Given SMEs make over 50% of the UK economy we think it’s wrong not to focus on SMEs efforts to tackle sustainability issues. Why only look at half the equation by focussing on resources for large companies.

We wanted to better understand the challenges facings SMEs when it comes to sustainability issues. So we carried out some research. We talked to clients, partners including attendees registered for our annual FD Seminars due to take place next month. Those conversations revealed some interesting results.

We asked: ‘why do SMEs need to be on a sustainability journey?’ Our survey said…

67% of respondents are unaware of their business’ total carbon emissions – but 38% of them do have a plan in place

Currently there is no legal requirement in the UK for SMEs to measure and report their emissions. Large or quoted businesses are required to report under the Streamlined Energy and Carbon Reporting (SECR Framework).

SMEs should be mindful that the UK’s net-zero target is legally binding, so further legislation is likely to be introduced in the coming years.

It’s worth noting that improving your sustainability performance can also help lower operating costs. In fact, McKinsey found that ESG efforts can affect operating profits by as much as 60%.

Main barriers usually are cost or a lack of in-house understanding. The government has published guidance for SMEs on how to measure and report emissions. And if you struggle you can always come and talk to us.

For those who measure, only 12.5% have it 3rd party verified

Carbon footprint, especially when it comes to Scope 3 emissions, can be a complex exercise. Given that only 18% of respondents have or are planning to recruit a sustainability professional, it’s important to ensure that your corporate commitment is accurate and free of error.

If the carbon accounting is carried in-house, we strongly recommend an audit of the carbon footprint calculation. This requires a Limited Assurance report in accordance with ISAE 3402

Only 21% of respondents have a sustainability/ESG report

Although not mandatory, the reality is that the demand and practice of ESG reporting have increased. Companies that don’t provide these reports show a lack of transparency. Their customers will take note.

The varying ESG reporting standards and frameworks with different associated costs to collect and report data can hamper efforts.

As a starting point, companies don’t need to over-engineer reporting. Just get started: focus on 2 or 3 objectives important to your company. Be open and transparent. Tell people about your progress. There’s nothing wrong in saying you’re still working on improving things. The point is you’re tackling ESG issues.

Final thoughts

We asked our clients and partners how they perceive sustainability on a scale of 1 to 5. With 1 being a reporting obligation and 5 being an opportunity. We had views from one spectrum to another, landing on average somewhere in the middle, at 3.3.

Integrating sustainability into a company’s overall strategy is a way to grow both the top and bottom line. It will also drive innovation.

In the words of Ray Anderson, seen by many as one of the greenest CEOs in America, sustainability is “a better way to bigger profits” and if “done right, sustainability doesn’t cost. It pays”. And in the process there are other benefits. You’ll have better customer satisfaction. Employee engagement and retention. And who wouldn’t want that? Afterall tackling sustainability is good business sense.