As the months and the years tick by towards 2030, implementing formal ESG practices is something that SMEs are not just more aware of, but increasingly feeling the pressure to do something about. However, according to ID Crypto Global’s survey of more than 1,100 business owners in the UK, only 12% have as yet formalised their ESG strategy.
If this survey is truly reflective of what is happening on the ground, what could it mean? It’s certainly true that for some, making the transition to having a formal ESG strategy will only happen when legislation changes to force them to do so, whereas, for others, a missional attitude towards the environment and society is already hardwired into their DNA (like Core3’s conscious finance model, for example). Opinions do vary around board room tables as to whether responsibility for ESG should fall to SMEs, but the truth is that even if a company is not that bothered about its impact, there is a danger to their reputation if they are seen to be doing nothing (especially if their impact could be construed to be negative).
If ID Crypto’s survey is representative of the UK as a whole, are the majority of UK business owners that have no formalised ESG strategy hedging their bets and seeing how long they can survive whilst keeping their reputation intact? It does seem a bit disingenuous for a company to adopt an ESG strategy if they don’t believe it’s that important, and some may not even believe that global warming/climate change, for example, is a ‘thing’ that they should have to factor into their business practice or that they have a responsibility to their community. Some of us accept the need for ESG as a given, but not everyone does.
So, why ESG?
Recycling has become second nature to us as a society, at home and work, and we can easily see the worldwide results of the overuse of plastics. However, the situation is changing rapidly for all of us when it comes to the usage of fossil fuels. It is accepted by most that when fossil fuels are burned, they release large amounts of carbon dioxide, a greenhouse gas, into the air and greenhouse gases trap heat in our atmosphere, causing global warming. What is changing is that SMEs may soon become obliged by law to do something about it.
Global temperatures have risen substantially over the past century and extremes of weather seem to have become more prevalent. Now, whether you believe that this is a result of solar activity, anthropogenic (human) factors, or a combination of both, the truth is that we cannot prove any of the three. Scientists don’t have meaningful data going back far enough to be able to say that fluctuations in global temperature can be attributed to solar activity or the earth’s orbit of the sun and neither can they discount the effects of human activity. In this situation, until we can prove where the fault lies, whether we like it or not, we have to accept that we could be (if partially) to blame for the current situation and we need to change our behaviour for our good.
Perhaps a lack of buy-in from UK businesses might be because they cannot feel any severe effects of climate change at home and thus cannot see an immediate need for a change in the way they operate. But why wait until it is too late? A frequently given example is that of data centres which are at risk above 40°C. What if your business has a data centre in London and it starts to hit 40°C every summer?
At the recent COP28 summit in Dubai, the Global Stocktake called for the tripling of renewable energy capacity by 2030, the doubling of rates of energy efficiency by 2030 and a general transition away from the use of fossil fuels in energy systems. The UK has agreed to quadruple its non-electric emissions reduction to 4.7% annually to meet these 2030 goals. This whole transition away from fossil fuels looks as if it will result in new regulations that we will need to comply with, potentially including emissions standards or requirements for energy efficiency.
Carbon-intensive industries will need to change their processes with all organisations needing to measure and minimise emissions in future, as the UK has now signed the Green Public Procurement Pledge. This commits us to adopt time-bound commitments for the public procurement for near-net Zero steel, cement and concrete and supporting the development of harmonised emissions accounting methodologies for low-emissions construction materials.
So, not only does it look as if a future obligation to follow a net-zero agenda is on the doorstep for manufacturers of steel, cement and concrete, but the world of finance will have to adopt new methodologies to account for and report on how it’s all going. We are pleased that our brand of conscious finance is catching on!
All of that only really deals with the “E” of ESG and yet there’s the “S” for SMEs to consider as well. That’s the social aspect of ESG. Some question whether philanthropic behaviour should be the responsibility of SMEs. Some might say no, but it’s worth considering that the way people behave towards each other has a profound effect on the whole of society. Any young person who has been given a break by a business person or company with a philanthropic mindset which helped them rise out of poverty or deprivation will tell you what a difference it made to them. Developing a positive work culture, performing altruistic acts and sharing the wealth we have made, benefits everyone, including the giver. The whole of society benefits from businesses that believe that they have a responsibility to help and support others with less.
And what about the “G”? The “G” in ESG indicate the rules and procedures for corporations, their purpose, the role and makeup of boards of directors, shareholder rights and how corporate performance is measured. The “G” element is often forgotten amid considerations over climate risk and societal implications. However, understanding governance risks and opportunities in decision-making is critical, as poor corporate governance practices have been at the core of some of the biggest corporate scandals.
However convinced (or not) that we might be on a personal level that care for people and the planet is everyone’s responsibility, the truth is that companies that do nothing risk being left behind. Doing nothing at all rather than making a start, albeit a small one, may well hurt a company’s reputation. A company that is deemed to have a detrimental effect on the environment or society or not making an effort to have a positive one may start to find it more difficult to not only find new business but also to attract and retain the best talent, never mind attracting valuable investment opportunities from financiers who are actively seeking to expand their ESG asset portfolios.
Building a meaningful ESG strategy doesn’t happen overnight but it’s something that any SME can start and bring about incremental change. At Core3, our conscious finance model helps us to find you the finance professionals who can help formulate an ESG strategy, for now, and for the future.
