Environmental, social, and governance (ESG) criteria have become essential for businesses of all sizes to consider when shaping their operations, strategies, and missions. With investors, customers, employees, and stakeholders increasingly considering ESG factors, implementing sustainable and ethical practices is no longer just optional but imperative for the long-term success of small and medium enterprises (SMEs).
This comprehensive guide examines realistic ways for SMEs to improve their ESG standards and credentials step-by-step, leading to a more sustainable, responsible, and profitable business.
What is ESG, and Why Does It Matter?
ESG refers to the three central factors for measuring the sustainability and societal impact of a business:
Environmentally sustainable practices related to energy, waste, pollution, natural resource conservation, and climate impact
Social: policies regarding labour practices, diversity, workplace environment, data privacy, and community engagement.
Governance: leadership ethics, accountability, transparency, anti-corruption, risk management, and board diversity
Consumers now actively seek out brands that align with their values. 88% of consumers are more loyal to transparent, ethical companies. 71% expect companies to publicly speak out on social and political issues.
A strong ESG proposition also leads to a healthier bottom line through:
- Increased sales: Consumers overwhelmingly buy from brands that stand for more than profit.
- Better talent retention: 78% of employees want to work for responsible companies.
- Greater productivity: Workers are 13% more productive in responsible businesses.
- Lower operating costs through reduced waste, energy efficiency, and process optimisation.
- Greater access to capital: Financial institutions favour businesses with excellent ESG credentials.
Early adoption of ESG best practices positions SMEs to lead their industries towards more conscientious capitalism.
Conducting an ESG audit
The first step for SMEs is to evaluate current processes and operations against ESG criteria. This enables identifying areas for improvement, highlighting accomplishments to promote, and providing a baseline for measuring future progress.
Extensively gather data and metrics across all business activities related to:
- Energy usage
- Water consumption
- Material sourcing
- Waste generation
- Greenhouse gas emissions
- Diversity and inclusion
- Employee compensation and benefits
- Workplace health, safety, and wellbeing
- Job creation
- Community engagement
- Governance structures
- Value chain monitoring
- Data privacy and security
Evaluate against ESG Frameworks
Compare the collected information to standardised ESG reporting frameworks such as:
This highlights areas of action across the environmental, social, and governance realms.
Based on audit findings, prioritise 3-5 manageable ESG goals to immediately pursue according to impact feasibility. These may relate to:
- GHG emissions reduction
- Energy efficiency
- Waste minimization
- Renewable energy
- Responsible sourcing
- Water stewardship
- Diversity and equal opportunity
- Gender pay equity
- Employee health and wellness
- Governance frameworks
- Data security
Establish key performance indicators (KPIs) to monitor advancement towards each goal over time. This facilitates quantifying achievements to communicate with stakeholders.
Environment: Greenifying Operations
Mission-driven branding matters more than ever, with environmentally conscious consumers favouring companies that match values with action. Adopting sustainable practices reduces operating expenses while meeting customer expectations.
- Switch lighting to energy-efficient LED bulbs.
- Install smart thermostats and upgrade HVAC systems.
- Ensure equipment is Energy Star certified.
- Seal air leaks and insulate properly.
- Utilise sleep settings on computers and machinery.
- Phase out inefficient equipment.
- Source clean electricity through renewable energy credits or direct procurement.
- Consider on-site solar installations to supply operations.
- Leverage available tax credits and incentives for renewable energy projects.
For commercial buildings or offices owned by:
- Obtain LEED green building certification.
- Use sustainable building materials.
- Install eco-friendly insulation and windows.
- Implement passive solar design.
- Add green roofs or living walls.
- Adopt low-flow faucets, toilets, and showers.
- Adjust irrigation schedules based on weather.
- Capture rainwater for landscaping usage.
- Fix any leaky plumbing.
- Consider reusing water where possible.
- Institute paperless processes and digitise records.
- Eliminate single-use plastics and implement reusable alternatives.
- Provide centralised recycling bins and signage.
- Compost food waste and use it as fertiliser.
- Safely dispose of hazardous waste like batteries and e-waste.
- Favour minimal, recyclable, or compostable packaging.
- Source raw materials and components from eco-certified suppliers.
- Favour local vendors to reduce miles travelled.
- Specify sustainably produced goods in supplier contracts.
- Require environmental criteria in the supplier selection process.
If unable to directly reduce scope 1 and 2 emissions sufficiently, invest in high-quality carbon offsets to counterbalance the remaining impact.
Emissions reporting and disclosure
- Calculate the total greenhouse gas footprint.
- Report figures through CDP or other standardised disclosures.
- Commit to science-based emissions reduction targets.
Social: Cultivating Connection
A diverse, equitable, and inclusive company culture is proven to drive performance while attracting top talent. Prioritising employee satisfaction and community relationships future-proofs the business.
- Provide skills training and continuing education stipends.
- Offer development programmes such as mentorship and stretch assignments.
- Reimburse tuition for advanced certifications or degrees.
Diversity, equity, and inclusion
- Formulate and communicate diversity goals.
- Expand recruitment channels to reach diverse candidates.
- Require diverse interview panels and structured interviews.
- Offer implicit bias and diversity management training.
- Support employee resource groups and mentoring.
- Ensure inclusive policies and benefits for women, POCs, and LGBTQ+
- Offer wages above industry averages and living wage standards.
- Provide generous health insurance, retirement plans, and vacation time.
- Institute profit-sharing bonuses or employee stock options.
Health, wellness, and work-life balance
- Allow flexible scheduling and remote work arrangements.
- Provide gym membership discounts or on-site fitness facilities.
- Sponsor mental health days and counselling services.
- Organise office parties and team-building activities.
- Offer ample ergonomic equipment and movement breaks.
- Donate a portion of sales or services to local causes.
- Allow employees paid time off for volunteering.
- Sponsor scholarships or donations to community organisations.
- Host fundraising drives centred on the company’s mission.
- Share facilities for neighbourhood events or meetings.
Responsible Supply Chains
- Vet suppliers for fair labour practices, workplace safety, and ethics
- Avoid business relationships complicit in human rights abuses.
- Commit to improving transparency and equity across the full value chain.
Governance: Leadership and Oversight
Maintaining high ethical standards comes down to committed leadership and proactive risk monitoring. Prioritising good governance and transparency safeguards the company’s future.
- Craft an inspirational purpose that articulates company values.
- Integrate ESG priorities into corporate strategy and identity.
- Reflect commitment to all stakeholders: employees, community, and environment.
Codes of Conduct
- Outline acceptable behaviours and integrity expectations.
- Address issues like harassment, discrimination, and conflicts of interest.
- Provide confidential channels for raising ethical concerns.
- Establish robust anti-retaliation protections for whistleblowers.
- Designate the Chief Sustainability Officer role to manage ESG strategy.
- Create an ESG committee on the board of directors for accountability.
- Link ESG metrics to executive compensation decisions.
- Conduct regular ESG assessments and audits.
- Install antivirus software across systems and keep them updated.
- Require strong passwords and two-factor authentication.
- Provide cybersecurity training to educate employees on threats.
- Control access to sensitive data and limit broader permissions.
- Develop a response plan for potential breach incidents.
- Identify and monitor material risks across ESG factors.
- Evaluate the probability, impact, and speed of onset for the top risks.
- Define mitigation protocols and emergency response plans.
- Disclose the risk assessment analysis to provide transparency.
Responsible Tax Strategy
- Comply fully with tax obligations in all jurisdictions of operation.
- Avoid artificial tax minimization schemes and loopholes.
- Disclose taxes paid transparently in public reporting.
Reporting progress and performance
Communicating ESG efforts through formal reporting demonstrates commitment to stakeholders while unlocking access to capital.
- Follow established ESG reporting frameworks, such as GRI.
- Disclose quantitative metrics and achievements annually.
- Get external assurance for added credibility.
- Promote reports on the website and social platforms.
ESG Ratings and Rankings
- Monitor the company’s scores on ratings like MSCI, Sustainalytics, and ISS.
- Target inclusion in sustainability indexes
- Leverage ESG credentials in shareholder communications.
Integrated Financial Reporting
- Incorporate ESG metrics and discuss initiatives in annual reports.
- Link sustainability to financial performance for investors.
- Quantify the ROI of activities such as renewable energy projects.
Certifications and labels
- Obtain reputable seals like B Corp., Fair Trade, and LEED.
- Display trustmarks prominently on packaging and online.
- Register products in sustainability databases.
Media and Advertising
- Proactively pitch ESG efforts to media contacts.
- Dedicate a section of the website to sustainability commitments.
- Consistently highlight ESG messaging in marketing campaigns.
- Sponsor industry conferences and events on ESG topics.
By instilling ESG criteria across operations, small and medium enterprises can future-proof their success, tap into purpose-driven demand, attract talent, and access responsible financing. While the sustainability journey requires commitment and investment, the long-term gains outweigh the costs. Most importantly, advancing ESG standards accelerates the shift towards ethical economic systems that benefit both businesses and society.