What is ESG?
According to Wikipedia, ESG refers to the three central factors in measuring the sustainability and societal impact of an Investment in a company or business. These criteria help to better determine the future financial performance of companies (return and risk).
E = Environmental
S = Social
G = Governance (Corporate)
ESG standards are a set of criteria used to measure a company’s performance on things such as how the company is impacting the environment, how it manages relationships with its employees, and how the company runs internally.
Many in the business community see ESG metrics as a concrete way to advance stakeholder capitalism, the leading economic theory today that says companies are responsible to all stakeholders, including their employees, customers, the environment, as well as their shareholders.
Why is ESG important for small business?
Consumer behavior is changing rapidly and while customers used to look at big, established brands as guarantors for quality, small businesses and local products provide the interesting stories and strong ideals they believe in.
In 2019, nearly one-third of the world’s population belonged to Generation Z (born between 1997 and 2012, the group that prioritizes social justice, action against climate change, and group culture that influences their buying behavior.
Trust, personalization, and online groups influence consumer behavior rather than big billboards. Facebook ads have more relevance than TV-ads. And customers of tomorrow are likely to hold companies accountable for their environmental and social impact and expect businesses to walk the talk.
Does ESG attract workers?
People want to work for a company whose values reflect their own. Being sustainable fosters internal pride, making it easier to attract and retain talented employees who want to make a difference. We all want to work for companies we feel proud of, big or small, and employee engagement can have significant impact on a company’s reputation and success.
Investors and ESG
Showing that your company strives to make a difference could attract potential investors. Small businesses and entrepreneurs that have a clear sustainability agenda to make a positive social or environmental impact are more likely to attract sustainability-oriented impact investors and green business angels.
Prioritizing ESG tends to low a company’s risk profile, which is an advantage when trying to secure financing.
Climate change, pollution, and decreased biodiversity have pushed the environment section of ESG up the ladder for both business and government agendas. Investors, employees, customers, regulatory bodies, and social at-large have ensured that the environment becomes a priority rather than a niche investment.
Key questions businesses should ask themselves?
- Is my product or offering delivered to my customers in an environmentally friendly packaging or format?
- Can my product be reused, recycled, or composted?
- Does my company prefer energy-efficient LEDs for our lighting?
- Does my company set reduction targets for these footprints?
Companies are under tighter and tighter scrutiny for working conditions, labor rights and diversity-related matters. It is all about being a good corporate citizen. Every company needs a core value that all stakeholders can buy into. That should then relate to a noble cause everyone can donate time and money to.
Getting everyone to work together makes for a better “social environment” and have a cause and core value provides that guidance.
Small businesses have the hardest time with governance. It consists of a range of themes, a board and management structures, policies and procedures and transparency. A small percentage of small businesses have policies and procedures for sales, returns, complaints, and general operating. This leaves them in a position without transparency or much accountability.
Create a set of business policies that reflect your core value, noble cause, and general operating procedures. Yes, it takes to refine and produce them, but your stakeholders will respect your efforts knowing you are interested in treating all stakeholders with respect.
How to Get Started
There is no one-size-fits-all answer or process for transitioning a business to a sustainable future. But the Norrsken VC Fund created a set of questions for their clients that might help.
- What are the megatrends affecting your business?
- How can you make your supply chain more resilient by choosing a more sustainable path?
- How can you reuse or redesign your products and services to ensure that the demand for them remains?
- How can you ensure your supply chain is sustainable?
- Can you become more efficient by reusing materials?
Brian Moynihan, Bank of America CEO, commented at the World Economic Forum and the International Business Council meeting in September, “We have to deliver great returns for our shareholders and help rive progress on society’s most important priorities. That is stakeholder capitalism in action.”
Does your content strategy include ESG? If not we should talk.