By Professor Richard Blundel, Director of the Centre for Social and Sustainable Enterprise, The Open University Business School
Environmental, social and governance (ESG) issues have dominated the business news agenda for some time now. From meeting consumers’ expectations when it comes to business values, to realising Net Zero targets, ESG is top of mind for many business leaders.
The Open University’s recent report ‘Educate, Measure, Speak up: How businesses can get ahead with ESG’ supports this, as nearly four in five (77%) businesses agree that ESG factors impact their organisation’s brand or reputation. But less than a tenth (8%) have a fully realised ESG strategy, highlighting the disconnect between awareness and action.
Big businesses have tended to dominate the ESG debate so far but SMEs also have a vital role to play. Now is the time for smaller firms to build on these conversations and turn them into effective, practical actions. While they may not have a large individual impact, the combined effect of many millions of SMEs changing their practices can make a huge difference to our planet and communities. ESG performance is also critical for the long-term success of modern organisations, driving improvements in reputation, profitability and attractiveness to customers, investors and potential employees.
So how can SMEs get ahead on ESG and ensure they stay competitive?
- Break down the ESG principles
Employers need to educate themselves and their employees about the core principles of ESG. Initiating the learning process begins by developing skills and raising awareness within the leadership team, and then the wider workforce. It involves gaining a deeper understanding of how ESG principles specifically relate to your business context. SME leaders could take each of the ESG components and start asking probing questions, such as:
- Environmental: What measures have we taken to reduce our carbon footprint, or how can we embrace circular economy principles?
- Social: Could we implement more initiatives to promote diversity and inclusion in the workplace, or what policies are in place to encourage a healthy work-life balance for employees?
- Governance: To what extent does our board of directors reflect the diversity of the local community?
By implementing ESG principles, SMEs can position themselves as responsible and forward-thinking contributors to a more ethical, equitable, and environmentally conscious business landscape.
- Invite experts in – and let them upskill your team
Large businesses often have dedicated ESG roles, but this is less likely for SMEs, often due to financial constraints. However, bringing in an external expert could help SMEs get started on their ESG journeys. Keeping a consultant for extended periods may not be sustainable, and that’s why SMEs can take this opportunity to get the ESG expert to upskill the teams through training and education and ensure that when the expert leaves, the team are able to continue driving the ESG initiatives on their own.
The recent OU report revealed that a lack of skills is the second biggest blocker for businesses when looking to implement an ESG strategy, so hiring a specialist could provide a great opportunity to bridge the gap in the short term and support efforts to create a culture of continuous learning within the workplace.
- Integrate ESG into your business strategy
When looking into ESG, organisations should assess and identify the key ESG issues most relevant to their industry and stakeholders. Organisations should educate employees about the importance of ESG and how their roles contribute to the company’s overall sustainability goals. Encourage their involvement in ESG initiatives and request their ideas for improvement.
The OU report highlighted that nearly a third (30%) of SMEs aren’t offering training, so it’s vital that employers become more aware of their options and invest in appropriate training programmes through partnering with an organisation such as The Open University to help keep on track with achieving ESG objectives. Businesses can choose from a number of different approaches, including continuing professional development courses, microcredentials, degree apprenticeships, undergraduate and postgraduate qualifications. There are also plenty of free courses and other learning materials on our OpenLearn platform, including this 10 hour course on reducing energy use in your buildings.
- Set clear ESG goals for your organisation
Establish specific, measurable, and time-bound ESG goals that align with the business objectives and define KPIs to track and measure progress toward these goals. To ensure the successful implementation of ESG strategy, it’s vital that SMEs continuously monitor progress and improve processes where necessary.
Through clearly outlined ESG goals, employers can provide a competitive edge, which can help support investment efforts. Furthermore, defining ESG objectives can help improve operational efficiency and promote employee satisfaction, which in turn can support retention.
Moreover, achieving ESG goals positively impacts the company’s reputation, positioning it as a socially and environmentally responsible player in the market, which can lead to increased market opportunities and long-term resilience.
- Speak up – everyone has a role to play
It’s estimated that the 400 million SMEs account for 13% of the world’s carbon emissions and consume about 50% of its commercial and industrial energy, so the UK’s six million small and medium-sized enterprises all have a part to play. Collectively, a few small changes could make a mighty difference.
SMEs in the UK have the potential to play a crucial role in addressing major global social and environmental issues, simultaneously creating value for their own businesses. Through initiatives such as setting clear ESG goals, developing a culture of sustainability, and engaging with stakeholders transparently, SMEs can not only mitigate risks and comply with evolving regulations but also enhance their reputation, attract investment, and positively contribute to their communities.