What is the return on investment for paying attention to, and investing in Environmental, Social and Governance for your venture? And how can you unlock its true value?
In today’s world of sustainability and business, there are many acronyms that exist to work together to unpack the hidden value that lies beneath the discovery of understanding what they truly mean and their potential impact on business. From the goals of the SDGs (Sustainable Development Goals) to the management strategy that is CSI (Corporate Social Investment), and ultimately what underpins this article, ESG.
But what is ESG, and how can this acronym benefit your (small) business through considered implementation? It’s a pursuit not only coveted for medium to large enterprises, but also for smaller businesses, and over the next few paragraphs, we’ll unpack its generosity to the sustainability of your small business and the steps you can take to get started and reap its benefits.
An acronym for Environmental, Social and Governance (ESG) is a framework or tool that uses the pillars of the factors of the environment, societal responsibility, and governance to assess the impact of, manage the risk of and unlock true value creation for the business, no matter the size. It may seem a frightening and inconsequential topic of note for small businesses, but some of the value that is derived by implementing such a framework, include:
- Establishing sustainability in the company operations
- Reducing operating costs and improving financial performance
- Increasing the profile and credibility of the business
- Accessing capital (including DFI, angel and gender-lens investment)
- Engaging with robust talent and facilitating an ingenious recruitment strategy
- Incremental and transformative innovation and competitiveness and,
- Enhancing resilience and regulatory and legal interventions
I’m of the stubborn belief that such unprecedented opportunities are applicable to every trading business engaging in people, profit, and the planet.
In now understanding what ESG is and the value that it can unlock for your small business, regardless of the sector or stage of operation, you may be asking what’s next? What will now be the initial steps to take, to uncover its potential impact for my business, and do I have the resources to unlock it?
A materiality assessment is the first proactive step to activating ESG competitiveness for your small business. Once this step is assumed, then a strategy, implementation and reporting are in order. This kind of assessment invites the business to underline the environmental, social and governance factors, engaging stakeholders and other (external) events that are material and could affect in the long-term, the sustainability of your small business. Materiality explores the advisory of where a company can resume to identify and prioritise what could potentially impact their internal and external operations as they prepare to engage, strategize, perform, and report. This ultimately creates an environment of accountability that can be used to incrementally improve and innovate the business’s vision and strategy, decision-making, reporting, communication, future trendspotting as well its reputation and crisis management.
Here are some questions and scenarios that you can keep in mind as you embark on this ESG competitiveness journey for your small business, and articulating its strategic materiality objective:
- Does this align with our strategy, operations, and the resources that the business has available to allocate to carry this assessment, with the expectation of the societal impact, business needs and fluctuating market activities? Where and what are our business’s direct and indirect impact and risk in its business operations? This is where you are most evidently going to employ effort and define and set Key Performance Indicators (KPIs) to framework and report the value creation. Ensure that this prioritises the business strategy and its priorities as it would the ESG strategy.
- A materiality assessment with a breadth and depth of data, invigorates the intensity of the key stakeholders and factors to be engaged with, fostering in richer responses. This can be done through desktop research, surveys, discussions, and focus groups amongst other methods. It ensures that the objective of pursing trusting relationships, the priorities, and expectations of engaged stakeholders (from customer to suppliers) and collaborating with data touch points are assessed. Ensure to investigate who the stakeholders are in relationship with your business and how their business can impede or amplify and accelerate your ESG efforts.
- As mentioned earlier in the article, two important themes that a materiality assessment can be used for it in a business is for decision-making and driving accountability. For internal and external stakeholders, always keep in mind that not only will this tool be one of transparency, but also an opportunity to establish and foster a standardized and holistic reporting undertaking.
As daunting or voluminous as this undertaking of a materiality assessment may be, especially if you don’t have an extra set of hands or dollars to spare, there are countless of resources and standards, with further acronyms that will cushion the journey. These standards, like GRI (Global Reporting Initiative) provide detail, context, and criteria as to how an organisation’s information and data should be produced and reported. The standards are particular in their focus, whether its region or sector and look at different outcomes, including how business impacts society to extrapolating how ESG impacts business.
ESG is an alluring idea of practice and requires you to be practical.
The alluring idea is that of redesigning society and the way of doing business to create a blueprint for an equitable future for profit, planet, and people. However, the planet has different people with different realities, which means different convictions leading to different ideas and practices which each want to profit.
ESG is necessary, but it is not sufficient.
Your business, no matter how small is necessary and so is its role to doing good business, and that is more than sufficient.
This article was first published in the 2023 Edition of the Gordon Institute of Business Science (GIBS) Business School ESD Handbook.
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