It's time to start your ESG journey

What was until recently described as climate change, is now a climate emergency. There is an urgent need to inject environmental, social, and corporate governance (ESG) into our lives to protect both our health and wealth in the future.

Wondering what you can do as small and medium-sized business owners? There are many strategic opportunities for you to make a difference, while also future-proofing your long-term commercial viability. Let's take a look at some of the key steps you can explore.

It's easy to adopt the sense of urgency that leaders and activists worldwide are increasingly using in the messages about our planetary future. The impact of overpopulation and pollution, damage to our ecosystem and high carbon emissions tells us there are many challenges to address at once. But that does not mean you need to take them all on at the expense of a smooth-running operation.

Take some time to consider your function, what you do and what you make, and evaluate the impact of each stage in the process. That way, you'll quickly conclude what is the most appropriate challenge to address. If manufacturing forms part of your output, you may focus on energy reduction or conversion to renewables. But if you provide consultancy services, the emphasis may be on diversity and inclusion, or ways to optimise your intellectual capital in the long term.

Becoming 'sustainable' isn't restricted to environmental damage mitigation, either, though that is a positive outcome. It filters through to every aspect of our lives and needs to be ad-dressed at a social and community level as much as in the professional sphere. Sustainability is no longer a vague ideal, but something tangible you need to put at the core of your business today to help future generations meet their needs.

The coronavirus pandemic has been the catalyst for many businesses re-examining their approach to sustainability, according to James Ghaffari, Director of Growth & Product at B Lab UK, a company that provides certification for businesses looking to maximise their ESG performance. "A lot of businesses have been severely impacted by the pandemic. But what we're seeing is that all of those businesses are really thinking deeply about their sustainability," he says. "They want to make sure that their business is strong and resilient enough to ride out the big crises. And I think the idea of sustainability really being weaved into this idea of resilience has been fantastic for us to see."

Sarah Mui, Co-Founder and Design Director of One Bite Design Studio in Hong Kong, agrees that the pandemic has accelerated innovation in sustainability. One initiative that they developed for the business – called Wonderfold – was an eco-friendly reusable mask holder that could replace single use systems and reduce waste. "It's designed with different patterns on each one, which is very trendy, but it has a durable surface that can simply be wiped clean after every use."

But it's a product that has also seen social benefits, with production deliberately focused on employing local workers who had become jobless as a result of the pandemic. "They were recruited to help us prototype the product… and assemble the units. Since April we have sold over 7,000 units – something we think is a win-win situation."

The challenge for corporates is that we're moving into a period of tough international commitments to net-zero carbon targets. Governments who have signed up to the Paris Agreement have issued ambitious zero-carbon targets based on their individual responsibilities – but the overarching aim is to "limit global warming to 1.5 degrees Celsius compared to pre-industrial levels" . Faced with these targets – which are enshrined in law – large firms are now battling to redefine the way they work after decades of doing things 'the old way', which can be expensive and painful for those involved.

The beauty of being a small and medium-sized business, however, is that you're either flexible enough to make far-reaching changes to established processes, or small enough to build your whole strategy on a sustainability-first model.

Once you have identified the core functions that your business needs to operate sustainably, it's important to understand, too, how this relates to your supply chain and customer base. Who are you buying from, and how 'green' are their own metrics? Your own resilience could (and should) rely on a supply chain that meets aligned sustainability goals, and this might mean negotiating with them to combine your efforts in a way that is commercially beneficial for you both.

At the other end are your customers. Increasingly, your profitability and reputation may be at stake if you are not demonstrating sustainable business performance and output principles that mean they can put their trust in you. Smart businesses are those that think laterally about how their price points and profit margins may take a hit at one end in the name of sustainable manufacture or consumption – but how they also help build a values-led case for their sales proposition in the long term.

Building a resilient, sustainable business is not a one-person job. As business leaders, you have a responsibility to your staff, those who have invested in you, and the community you're based in. While your staff may not always agree with the level of change you need to make, it is worth considering who you can empower to champion the cause on your behalf. This can be based on shorter-term green targets that are closer to home and which reveal quicker, tangible benefits.

If your investors haven't already negotiated a sustainability commitment from you, they may impose green performance criteria that will dictate their support in the future. It serves your reputation well to communicate your pledges in any case, as banks also take these into account when making lending-based decisions about your growth plans.

This is echoed by Robert King, Head of Sustainable Finance at HSBC UK, who argues that by taking action on things like energy-efficient lighting at premises or onsite renewable energy generation, you can both save money and make yourself more attractive to investors.

"Many investors are aligning their funds to ESG objectives, and banks like HSBC are aligning their lending portfolio to the aims of the Paris Agreement," he says. "We've seen, for example, in the green bond market, how that market demand has led to marginally improved pricing. So it's a huge opportunity for business, and aligning your business to the net zero aims is a way to make sure you fully embrace that change."

Going green is not just using less. There are key commercial decisions you need to take on the journey, but your relationship with stakeholders is no longer just a transactional one. Focusing on the things that you can uniquely do to make a difference can help you go a long way. Thus, building a resilient and profitable business that promotes your values and protects future health and prosperity.

Good luck on your journey!