Whatever kind of business you own and run, your operations will have some form of environmental and social impact on the land and communities around you.
Being a good business owner means being aware of this impact and putting structures in place to minimize the negative outcomes. This is where Environmental, Social and Governance (ESG) strategies become a vital part of your business plan.
What are Environmental, Social and Governance (ESG) reviews?
ESG stands for Environmental, Social, and Governance. ESG gives you a framework to manage the risks and opportunities related to your sustainability and ethical practices as a business. This framework helps you reduce your negative environmental impacts, strive for more sustainable processes and take an ethical approach to running the business.
Let’s break down each of the three areas:
E (Environmental): Environmental reviews focus on your company’s impact on the planet. This will include analyzing your energy use, waste management, pollution levels, conservation of natural resources and your overall carbon emissions as a business.
S (Social): Social reviews look at the human impact of your business, including how you manage relationships with your employees, suppliers, customers and the wider communities where your business operates. This includes analyzing areas in the business such as workplace rights, diversity and inclusion, human rights and consumer protection.
G (Governance): Governance reviews take a microscope to how you run and manage the business. This can include assessing your leadership of the business, the internal controls you have in place, how you manage executive pay and the rights of your shareholders. In a nutshell, governance is about how you lead the company, how transparent you are and whether business decisions are made in a fair, open and ethical way.
Why should your small business be concerned about ESG?
ESG isn’t just a checklist that only applies to large, corporate organizations. ESG is just as relevant for small and medium-sized enterprises (SMEs), giving you a powerful tool to refine and expand your business growth, risk management, cost reduction and company values.
Here’s a breakdown of where ESG could be helping you run a better business:
1. Attracting and keeping talent and people
You can prioritize the social pillar by offering fair wages, good working conditions and career opportunities to your employees. This makes you more attractive as an employer and improves the happiness, motivation and satisfaction levels of your workforce.
It’s also beneficial to have a diverse workplace, with more voices and cultural viewpoints helping you to reduce any cultural bias and make more-informed business decisions.
2. Improving your customer loyalty
Increasingly, consumers and business clients prefer to buy from businesses that align with their own values, especially around sustainability concerns. Failing to meet your customers’ environmental and social expectations can lead to a drop in sales, revenue and overall customer loyalty.
To boost this loyalty, it’s important to be transparent about your environmental and social practices, and to do everything you can to be a leader in these spaces.
3. Driving cost savings
Looking for ways to cut your energy usage isn’t just good for the planet. It also helps you cut your spending on energy bills and put more money back into growing the business.
Applying the ESG framework to your operational activity helps you optimize your energy usage, reduce waste and shift your focus to more local suppliers. This can directly lower your operating expenses, helping you stretch your working capital and improve your cash position.
4. Accessing capital, funding and investment
Large investors, financial institutions and business lenders are increasingly including ESG factors in their funding decisions and outlook on potential investments.
Having strong ESG practices in place makes your business a more attractive proposition to investors and lenders, making it easier to access the funding you need to expand. A robust ESG strategy reduces risk levels and opens the right finance channels when you need them.
5. Keeping your supply chain sustainable
ESG doesn’t stop with evaluating your own results as a business. It’s also vital to understand the ESG credentials of your suppliers and how they measure up against your own values.
The last thing you want as a brand is to be linked to ethical or environmental violations. Be sure to carry out ESG reviews of all existing and potential suppliers in your supply chain and work only with those that meet the required values and levels of transparency.
Managing your regulatory and reputational risk
Good governance isn’t a ‘nice to have’. It’s a vital part of running a business that sticks to its values and meets all the required regulatory and compliance rules.
This means being an ethical boss who leads from the front, as well as being transparent about your financial management, supply chain management and environmental impacts. It’s also key to managing your reputational risk, preventing legal issues and safeguarding your brand.
Helping you review and enhance your ESG strategy
Environmental, social and governance concerns are a fundamental part of managing your business. And, as with most areas of running a business, it’s important to have a workable strategy and clear advice around how to maximize your ESG tactics.
Book some time with our team to talk through your current awareness of ESG and how we can help you create and refine a workable ESG strategy.
The following content was originally published by BOMA. We have updated some of this article for our readers.