Think your business is too small to justify making sustainability a priority? The market is telling you that it’s time to think again. Read on to find out how ESG can be a differentiator for the future, and to find out more about five important considerations that can help your SMB embrace ESG.
Sustainability is now a top priority for every business, regardless of its size and scope. That’s in large part due to growing public concern about the consequences of climate change and the exploitation of natural resources, as well as the human rights and inequity issues laid bare by the COVID-19 pandemic.
Investors, employees, regulators and the public are clamouring for more information about companies’ environmental, social and corporate governance — known as ESG - performance. ESG-oriented investing, in fact, has experienced a meteoric rise. Canadian responsible investment now tops $3.2 trillion — up 48% since 2017i.
ESG shouldn’t be regarded simply as an obligation — it can also lead to new business opportunities and bigger profit margins. Small and medium-sized businesses (SMBs) that embrace ESG are more likely to attract sustainability-focused investors and therefore more capital. Younger employees have a preference to work for companies viewed as having a net positive impact on the world. Businesses that can envision and seize those opportunities by embracing ESG will be setting themselves on a road to success — especially smaller businesses, which have some advantages over their larger counterparts.
Big companies clearly have the resources, including entire sustainability teams, to draft and implement ESG policies and guidelines, develop green products, and enter into high-level sustainability partnerships and agreements — but moving fast can be difficult due to layers of bureaucracy and red tape. Smaller firms, on the other hand, can make decisions faster thanks to less bureaucracy and more agility.
Another advantage? Small businesses are usually closer to their customers and are located in or near the local communities they serve. Many have a story, brand, product or service that those in their community know about, need and identify with. Think of your local coffee shop, for example, where you can catch up with neighbours and sip and nibble on goods often aimed specifically at your community or based on customer suggestions.
When a small or medium-sized local business goes green, smaller margins mean it can save substantially through relatively painless changes, like moving to digital receipts, using recycled or compostable packaging materials, improving waste diversion or making energy efficiency upgrades. Big savings mean bigger revenues.
Having fulsome ESG measures and policies in place can not only help attract new customers and top talent - it also enhances a smaller business’s bottom line and reputation while decreasing its carbon footprint. The business also becomes better able to handle the increasing regulatory requirements anticipated in the years ahead as citizens, employees and public stakeholders demand ESG improvements and transparency. In short, it’s a win-win for any company to embrace ESG measures to get ahead of the curve.
Embracing ESG also makes a small or medium-sized company more attractive when investors are looking at potential opportunities or when they need to negotiate or renegotiate financing. Banks are increasingly demanding ESG policies and performance from the companies they’re lending money to. As Canadian financial markets move to help businesses make the transition to a low-carbon economy, there is likely to be continued growth and interest in the green and sustainable loan market in Canada in 2021 and beyond.
So… how to get started? There are several considerations small businesses should grapple with as they beef up their ESG initiatives and enhance their brand’s sustainability reputation.
- Determine the trends that directly impact your business. You’re in the coffee business? Where do you source your product? Find fair trade suppliers that have good ESG practices that you can communicate to your customers.
- Determine how to make your supply chains greener and more resilient to sudden changes, environmental, regulatory or otherwise
- Figure out if you can redesign products to reuse materials, or look at alternative sources
- Ensure your hiring and wage practices promote a diverse workforce and offer a living wage
- Decide how you’ll measure the impact of your efforts on your bottom line
That last point - measurement - has proven one of the most challenging for businesses large and small. But the fact that the challenge is universal means that many stakeholders are working on ways to make ESG measurement better.
One such example is ROSI (short for Return on Sustainability Investment), a toolkit created by HSBC and NYU Stern designed to help businesses in apparel and other industries better measure the impact of their ESG effortsii. By benchmarking sustainable investments against nine mediating factors that drive business performance (like loyalty, media coverage, supplier relations and more) retailers like Eileen Fisher, H&M, REI and more have been able to quantify the impact of their investments, identify best practices and even monetize their sustainability efforts.
It’s clear that ESG is here to stay, and it's no longer just a game for the large corporations out there. SMBs still have time to make ESG a competitive differentiator and reap the benefits of making sustainability central to their success. Contact HSBC to get started.
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