Demystifying ESG for SMBs

03 February, 2023
ESG & Sustainability

Awareness. Transparency. Inclusion. These three parameters play a crucial role for businesses in today’s rapidly changing world. With a dynamic shift in consumer preferences and ways of doing business, a company’s credibility and acceptability no longer depend solely on profits. Investors, employees, government, and customers expect businesses worldwide to build a road accommodating inclusive, sustainable growth. And the three cornerstones shaping the foundation of an accountable business are environmental sustainability, social responsibility and Corporate governance.

The ESG Triangle explained

McKinsey describes the ESG as follows -

E in ESG, environmental criteria, includes the energy your company takes in and the waste it discharges, the resources it needs, and the consequences for living beings as a result. Not least, E encompasses carbon emissions and climate change. Every company uses energy and resources; every company affects and is affected by, the environment.

S, social criteria, addresses the relationships your company has and the reputation it fosters with people and institutions in the communities where you do business. S includes labour relations and diversity and inclusion. Every company operates within a broader, diverse society.

G, governance is the internal system of practices, controls, and procedures your company adopts in order to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders. Every company, which is itself a legal creation, requires governance.

The SMB connect: Time to get ahead of the ESG curve

In the last couple of years, the question, “How does a company fare in adhering to environmental, social and governance (ESG) compliance?” has gained prominence. Over 90% of S&P 500 companies and nearly 70% of Russell 1000 companies are publishing ESG reports in one form or the other. Although large corporations are required to be ESG compliant, there is little or no regulation for small and medium-sized businesses. However, more and more SMBs are proactively getting a handle on ESG issues, let's understand why they are doing so.

Here is why SMBs should consider ESG compliance:

Happy Investors - Managing ESG risks plays an important role in investment decisions. Investors are increasingly using an ESG lens to evaluate companies they want to invest in, based on studies that suggest that ESG-focused companies outperform those that are not.

Conscious Customers & Competitive Advantage - Today’s conscious consumers trust and identify with companies that give back to society and who build their brands based on sustainable principles. Initially, it might be challenging for SMBs but, in the long run, such businesses stand out and create a trustworthy brand that promises longevity and becomes the preferred choice for progressive consumers.

Stakeholder Engagement - Businesses need to work harder to build a lasting positive reputation. Adhering to ESG compliance assures all key stakeholders of the brand's intention to nurture trust, by demonstrating inclusive, sustainable growth.

Loyal Employees - Attracting and retaining employees is one of the biggest differentiators for SMBs, focusing on ESG demonstrated through the right set of values, and improving ESG KPIs including diversity, equity and inclusion (DEI) communicated effectively through branding and digital marketing initiatives will ensure that SMBs can attract talent and retain employees.

Know the common ESG Standards & Frameworks:

ESG frameworks offer principles-based direction to structure and prepare your sustainability information with relevant topics. ESG standards provide specific, detailed, and replicable requirements for what should be reported for each topic, including metrics.

UN SDGs: It is a list of 17 Sustainable Development Goals (SDGs) with interconnecting agendas to serve peace and prosperity. 193 member countries of the UN General Assembly embraced the 2030 Sustainable Development Goals to transform the world towards inclusive, sustainable growth.

Emissions Scope 1, 2, 3: Scope 1 are emissions that the company owns or controls. Scope 2 is where companies have partial control, and scope 3 is emissions that come from the company’s supply chain activities (both upstream and downstream), where they do not own or have control over the sources of emissions.

Materiality Issues: It refers to the significance or relevance of a particular issue or factor to a company's operations, performance, and overall impact on stakeholders. Material ESG issues are those that have the potential to significantly affect the financial or reputational performance of a company and are therefore considered important to be addressed by the company in its ESG reporting and management. The determination of materiality can vary depending on the specific industry, company, and context.

Health and Safety: Employee health and safety can be ensured by ESG KPIs aimed to monitor hazards, manage safety risks, take corrective actions and have a corporate safety policy.

Stakeholder Engagement: It refers to the process of actively communicating and collaborating with stakeholders such as investors, customers, employees, suppliers, local communities, and regulators to understand and address their concerns, expectations, and interests related to the company's ESG performance. It opens up opportunities, as well as helps build trust and credibility, important for maintaining the company's reputation and long-term financial performance.

Workforce Diversity and Inclusion: All employees irrespective of their caste, race, ethnicity, gender, or sexual orientation should be treated equally, and should feel supported and engaged. Clear articulated policies to ensure each has a voice at the table should be part of ESG KPIs, as well as in the hiring process, thus ensuring inclusion and helping provide opportunities to upskill by mentoring and training.

Equator Principles: These are a set of environmental and social risk management guidelines to help evaluate and manage environmental and social risks associated with project finance transactions. Using them, the financial institutions assess the potential impact of a project on communities, the natural environment, and biodiversity, as well as consider the rights of indigenous peoples and other marginalized groups and address the risks associated.

How Treeni Shows the Way

Treeni, an ESG consulting-led SaaS platform company, helps businesses redefine sustainability by minimising ESG and supply chain risks and building a sustainable and resilient enterprise. Many SMBs are often suppliers to large corporations and many are start-ups looking for funding, to address their unique needs Treeni has designed and built resustain™ SMB.

resustain™ SMB:

  • It is a cloud-based SaaS platform with a 0 touch, 0 code, 0 deployment fee approach that helps SMBs deploy easily, rapidly and at a low cost

  • It automates data collection using templates and enables decision-making with insightful analytics with custom dashboards

  • Provides out-of-the-box frameworks such as CDP, EcoVadis, GRI, SASB etc that SMBs need to engage and communicate with key stakeholders

  • Provides SMBs visibility into the carbon footprint across their company and the supply chain for long-term goal setting and performance management

With resustain™ SMB dedicated to delivering real-life solutions to sustainability challenges, simplifying the response to the ESG needs of key stakeholders is just a click away!

Ask for a resustain™ SMB demo