Friday, March 29, 2024 | Ramadan 18, 1445 H
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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

ESG in small-to-medium enterprises

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ESG is that part of sustainability which has a commercial value. ESG is the umbrella term to describe a company’s impacts on social and environmental issues, as well as their management, in addition to just revenue generation or profits.


Commitment to pursuing an Environmental, Social and Governance (ESG) strategy is taking on increasing prominence for smaller businesses, with investors, stakeholders and customers placing the ESG approach in the spotlight. We are going to take a look at how smaller businesses can enhance their ESG strategies, looking at three of ESGs core pillars, Environmental, Social, and Governance.


While small and medium-sized enterprises have less resources than larger, listed companies, the scale of small and medium-sized enterprises does mean faster decision-making and a more dynamic execution of ESG strategies. Without embedding ESG and resilience in the core of their businesses, many leaders in small-to-medium size companies are not aware of the success they are already having. Making the business more focused on ESG and sustainability might sound like a tall order. I probably would advise any organisation, regardless of size, to consider ESG as something that both increases in value over time (opening doors for investors that are starting to use ESG as a filtering tool) and could make business more sustainable.


For big companies, supply chains are especially critical to making their sustainability policies and actions happen. Many small-to-medium-sized enterprises can be challenged to determine just how far up their supply chains should extend in terms of sustainable enterprise practices.


If SMEs fail to do so, they will not meet the minimum requirements, and they will run the risk of losing contracts to businesses that can prove they are taking action on environmental sustainability. This also means that if SMEs are trying to get ahead in terms of ESG, but are just trying to emulate large companies, they are likely going to fail. While the SMEs might not have had ESG at the top of their agenda right now, in order to compete, they would have felt a push top-down from their customers to act.


While many of the world’s biggest corporations are now committing to shifting their practices to address the ESG wave, it is the small and medium enterprises that will make the real difference.


SMEs make up 90% of all global companies, contribute to roughly 70% of employment worldwide and 52% of turnover. SMEs also drive up to 70% of the global GDP, which makes them very important for economic growth. Affecting a change in sustainability that really makes a difference is therefore practically impossible without the cooperation of small businesses.


Employees are increasingly looking for environmental and sustainability of prospective employers (something that Generation Z, specifically, is concerned with). Recent research from the FCA has identified one of the trends of the future for employers to focus on how they are approaching being sustainable, accountable businesses, with clear social values and purpose. When businesses start thinking about their responsibilities towards the environment, it is often overlooked that climate change not only needs to motivate them to adopt sustainable practices, but that this will also directly impact on the way they do business.


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