Why SMBs Should Adopt ESG Frameworks

20 March, 2023

Small and mid-sized businesses (SMBs) are deceptively powerful. Their role in the context of the local economy may appear minuscule, but only after beholding the millions of firms dotting the landscape of India can one truly grasp the magnitude of their impact on the Indian economy.

A glance at the numbers stated below will showcase their importance:

According to the Ministry of Micro, Small and Medium Enterprises, in 2020, MSMEs contributed approximately 30% to the GDP of India.

They generated total revenue of INR 82.05 lakh crore in 2019-20.

They create an estimated 11.10 crore jobs in India. in 2019-20.

There is no doubting the importance of SMBs. With such a high number of people engaged and a wide array of industries involved, their impact on our environment and social welfare is massive. Lack of governance can severely impact them, causing economic destabilisation locally and upstream in the supply chain.

Today only a few proactive small-and-midsize firms that understand the importance of incorporating sustainability into their business practices, or in responding to customer and investor pressures, are taking action on ESG by aligning with ESG reporting frameworks such as Ecovadis and CDP. There is an opportunity for others to adopt ESG reporting and achieve accelerated growth.

What do SMBs stand to gain?

Increased transparency and accountability

SMBs incorporating ESG frameworks to report on sustainability performance find that higher levels of transparency and accountability benefit them and their key stakeholders. Most, if not all, ESG frameworks also monitor KPIs that provide cost and efficiency benefits. Cumulatively, a firm can keep a close tab on its expenses and emissions while ushering in more operational clarity.

Improved reputation and brand image

Compliance with ESG frameworks signals that a firm is conscious of its responsibility towards the environment, the society and creating a better-governed world of tomorrow. Further, these initiatives go a long way in crafting employee ownership and identification with the company. For the consumers, ESG practices can make the brand more appealing and help forge a sense of community and connection with the company.

Better decision-making capabilities through data and insights

Technology to manage and monitor ESG data, extract insights for decision-making, and reporting helps record and report performance improvements to key stakeholders. Once the data collection is automated and integrated into a single platform, leadership can make decisions to improve operational efficiency.

Increased competitiveness in the market

ESG Ratings help SMBs differentiate themselves from the herd. It aids SMBs to position themselves as more environmentally and socially aligned to governments and large MNCs and positions them more competitively in tenders and projects.

Potential cost savings through resource efficiency

Integrating the ESG framework helps a firm to level up to better unit economics and tamp down on cost pressures. With expenses under control, a firm can achieve a strategic cost advantage for its product and systematically capture a larger market share.

Risk of ignoring ESG measures

While the benefits of adopting ESG practices enumerated above should convince any business owner to adopt ESG practices, ignoring them can cause an adverse business impact on SMBs.

Operational Risks

Ignoring ESG considerations can lead to increased operational risks, such as workplace accidents or environmental disasters, impacting productivity and the bottom line.

Labour Risks

Ignoring stakeholders, such as the workforce, and their issues can lead to labour unrest, with potential strikes leading to revenue loss. Building a healthy relationship with the community also provides a social contract.

Legal Risks

Not keeping with compliance frameworks can expose the company to legal risks or put undue pressure to demonstrate compliance when needed. Keeping pace with the changing dynamics is the easiest way to avoid such risks.

What are the costs of adopting the ESG Framework?

While it may seem that the costs of implementing and embracing an ESG framework might be prohibitive, a new wave of SaaS-based cost-effective platforms makes it easy and affordable for SMBs to start incorporating ESG into their operations. Incredibly user-friendly, with a plug-and-play approach requiring minimum training or resource divergence, these platforms can help jumpstart an SMB's ESG journey.

The benefits of the ESG framework outweigh the cost.

In the long run, with the insights that an ESG framework provides and the potential operational efficiencies it can create, a firm would be hard-pressed to find a reason to deny the integration of ESG into its operations. If prioritised and executed correctly, the ESG framework can yield a multiplier effect boosting a company's potential to scale up and grow its business operations and the top line.

The final word

In the day and age of technology, innovation and digitally-powered manufacturing practices, SMBs should orient themselves to ESG norms and become more efficient, agile and competitive, leading to faster but sustainable growth. However, such a change needs professional expertise and domain knowledge. Treeni and its SaaS platform resustain™ SMB can help you re-imagine your business fundamentally. With resustain™ SMB dedicated to delivering real-life solutions to sustainability challenges, simplifying the response to the ESG needs of the key stakeholders is just a click away!

Ask for a resustain™ SMB demo