ESG for SMEs: Investment or Expense? A Carbon Expert's Perspective By shifting the perspective from expense to investment, we can encourage more businesses to take those bold steps towards a sustainable future.
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I recall sitting in a conference, listening to an SME owner from the retail industry who had taken a bold step- he decided to assess the impact of their business activity by quantifying their annual emissions to address the diverse environmental impact stemming from their operations. Initially, the internal stakeholders of the company questioned whether this was truly necessary.
Fast forward two years, and the results speak for themselves. The carbon footprint assessment enabled the online retailer to note areas of improvement, in this case optimizing transport routes. The initiative aided the SME to reduce their environmental impact by grouping orders and opting for less polluting modes of transportation. Additionally, consolidating orders further led to cost savings with logistics. This begs the question: was this an expense or an investment?
The answer depends on your perspective. As the old adage goes, the glass is either half full or half empty. To walk the environmental, social and governance (ESG) path or not is very much the same – the lens through which you view it matters significantly.
At elementsix, a Dubai-based advisory firm that offers turnkey solutions in the fields of sustainability and carbon abatement, our carbon measurement experts guide clients through their ESG journey and have thus witnessed, firsthand, the transformative power of sustainable practices in SMEs.
For those focused solely on short-term gains, ESG might indeed seem like an unnecessary expense. Initial costs can be substantial, and immediate returns aren't always apparent. This viewpoint, however, fails to account for the long-term benefits that often accompany well-planned ESG strategies.
On the other hand, forward-thinking SMEs increasingly recognize ESG as a strategic investment. Beyond the obvious environmental benefits, ESG initiatives can lead to cost savings through improved resource efficiency, enhanced brand reputation, increased customer loyalty and better risk management and resilience, all ultimately impacting the bottom line.
Related: ESG For Entrepreneurs: A Path To Business Success
Moreover, as regulations tighten and stakeholder expectations evolve, ESG is becoming less of a choice and more of a necessity for long-term business viability. For instance, the Dubai government requires all publicly listed companies to report on their ESG performance. Similarly, the Saudi government, as part of its Vision 2030 agenda, is pushing for a circular economy to develop sustainable diversification and growth.
However, it's crucial to acknowledge that not all ESG initiatives will yield immediate or quantifiable returns. The key lies in strategic planning, careful implementation, patience and reporting.
Studies have shown that in their hearts, SMEs do earnestly pledge to be more sustainable, but they often struggle to qualify or quantify their achievements. A report released during 28th edition of the Conference of the Parties of the United Nations Framework Convention on Climate Change (COP28) last year, which surveyed more than 16,000 SMEs, highlighted that while 83% of SMEs prioritize sustainability, only eight percent report on their impact. This gap underscores the challenges SMEs face in translating their sustainability commitments into measurable outcomes - while they may have pledged to be more sustainable; they still struggle to quantify how they've achieved it.
Sustainability and ESG reporting can serve as a strategic roadmap for SMEs. This plan outlines your chosen goals, methods for achievement, and evidence of progress. It provides a clear picture of the actions and investments needed to meet your ESG objectives.
Moreover, this roadmap offers transparency to customers and potential investors, demonstrating how your company manages and prioritizes ESG targets. It allows stakeholders to assess whether your sustainability efforts align with their values and expectations.
It's important to note that a company's commitment to sustainability can significantly influence both consumer and investor decisions. Businesses that demonstrate genuine dedication to sustainability through concrete actions often have a competitive edge. Conversely, those that rely on empty promises without clear implementation plans risk accusations of 'greenwashing', potentially damaging their reputation and credibility.
In conclusion, while the initial outlay for ESG initiatives may appear as an expense on the balance sheet, the long-term perspective often reveals them to be valuable investments. As we face increasing environmental and social challenges, the question for SMEs should not be whether they can afford to invest in ESG, but rather whether they can afford not to.
The emission assessment example for the online retailer illustrates this perfectly. What began as a questioned expense and time-consuming activity transformed into a multi-faceted investment, yielding financial savings, environmental benefits, and likely reputational gains. So, a small step, such as assessing one's activities and understanding the associated environmental impact easily aids SMEs make smart and informed decisions.
As we guide SMEs along their ESG journey, it's our role as experts to help them see beyond the initial costs and recognize the potential for long-term value creation. By shifting the perspective from expense to investment, we can encourage more businesses to take those bold steps towards a sustainable future.
