Sustainability and Environmental, Social, and Governance (ESG) have made the leap from soft measures to hard metrics.
Now more than ever, there is pressure – driven by customers, stakeholders, partners, and suppliers – for ESG to be reported on as a core business issue by Finance at Board level, and communicated in company results and marketing.
At the same time, Finance teams have become increasingly responsible for identifying sustainability considerations, incorporating them into the budget, and calculating how they can futureproof the business and grow the bottom line.
So, how can EFM help Small and Medium Enterprises (SMEs) with small or limited Finance resources get it right, and protect their businesses’ credibility, credentials, and reputation?
SMEs are in the frame too
Firstly, if you think this is only a big business issue, think again. SMEs are also coming under increasing scrutiny in this respect.
The UK Companies Act’s provisions for sustainability and ESG have recently been updated and apply to medium-sized businesses too. Sustainability reporting legislation in the EU is set to expand in scope to include all SMEs by 2026 – a path that the UK, with its commitment to demonstrating carbon-neutrality by 2050, will have little choice but to follow.
And as many of the initiatives that must form part of a sustainability and ESG strategy will require capex investment, there are potentially significant impacts on a smaller business’s cashflow, reserves, and working capital. These must be considered, projected, and carefully managed for risk versus return, and payback periods.
This is where Finance expertise is indispensable.
Sustainability and ESG: cost versus benefit
Let’s look first at some “quick wins” on the sustainability front.
EFM’s outsourced Financial Directors (FDs) and other Finance professionals can, for example, quantify the contribution that recycling products – or indeed using already-recycled products to reduce carbon footprint – can make to a business on all three fronts: sustainability, ESG, and bottom-line.
But we’re also seeing our Associates tackle much more complex sustainability and ESG initiatives on behalf of our clients: detailed projections of risk and return on switching to green energy providers, for instance, or analysing the benefits of moving to electric versus hybrid vehicle fleets.
And the potential here for sustainability to support ESG, and vice versa, to further benefit the bottom line, is immense. Investing in more energy-efficient and controllable heating and ventilation systems, for example, can reduce energy use and lower costs, but also create a more comfortable and healthier environment for employees to work in.
Putting in place policies and investing in technologies that support remote working to some degree, likewise, can reduce energy and consumables costs in the workplace, but also deliver enhanced team wellbeing, which can translate into greater productivity for the business.
Fully understanding the true value and outcomes of sustainability and ESG initiatives like these over time, as compared to the cost and resources involved in implementing them, is how our Associates enable businesses to make and report on decisions not only in good conscience, but to the benefit of the balance sheet.
What investors, stakeholders, and employees want
There can be no question that businesses are now ever more frequently judged on their sustainability and ESG record. Getting it wrong can have hard financial consequences – not least because many investors and lenders now regard ESG and sustainability performance as key viability criteria.
Seen from a more positive angle, there is also the potential to contribute more effectively to ESG and sustainability outcomes than larger companies, as there is a greater volume of SMEs, employing more people. This, in turn, argues strongly for SMEs to address ESG and sustainability issues sooner rather than later, and certainly before legislation eventually obliges them to (which, as we observe above, it will).
Nonetheless, ESG and sustainability is a complex topic, and it’s often not within the grasp of small-firm Finance teams or accountants.
Meaningful sustainability cost savings and reporting require considerable experience and expertise – and they’re important enough for the fortunes of your business and our planet to warrant your going outside your organisation to seek help with them.
For more information on how EFM can help you, contact us.