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  • Writer's pictureLucy Boreham

The role ESG plays unlocking growth for SMEs

Updated: Nov 29, 2023


Elbow Beach Portfolio Event: Unlocking Sustainable Growth

Last week BayNel were delighted to attend Elbow Beach Capital (EBC) Portfolio Showcase event. EBC are a leading private investment company who focus on investing in technology innovation in Decarbonisation, Sustainable Energy and Social Impact.


The focus of the event was on unlocking Sustainable Growth, and we had the pleasure of presenting with Dr Marc Lepere (lead in ESG & Sustainability, Executive Education, King’s Business School, London and co-founder of Ommevue), on the vital role that Environmental Social and Governance (ESG) plays in sustainable growth for SMEs.


SMEs are the lifeblood of the economy, representing 95%+ of all businesses in the British economy. In 2020-2021 alone, over 800,000 new companies were registered. For these companies building the strong foundations for sustainable growth is key, placing ESG central to your growth strategy presents a significant opportunity.


Tackling all aspects of ESG


With the current legislative and regulatory focus on Net Zero, as well as it being the biggest challenge society has ever faced, all too often businesses can focus their ESG approach almost entirely on the 'E'. But it's vital that companies address all three elements that make up ESG.


A comprehensive (not complicated) approach to ESG demonstrates that as a business you are not only managing your impacts, but you are proactively managing the risks and seeking the opportunities that it presents to your business.


By integrating an ESG approach from the outset, you are creating a culture that prioritises sustainable growth. Retrofitting such an approach into your business and its culture can be much harder.


Taking a strategic approach to ESG


A strategic approach to ESG that's communicated effectively can provide access to new markets or help you grow in existing ones. It can help you diversify your client base and ensure that you are meeting their compliance demands and it can help you attract and retain diverse talent into your business.


Managed poorly, it can cost you money through increased operating costs, regulatory fines, losing your customer base or failing to secure talent or result in a high churn of colleagues. This is why developing a thorough sustainability strategy is important.


For many SMEs and start-ups, the notion of ESG can be overwhelming. There are so many issues to address, alongside trying to establish and grow your business.

Although much of the ESG regulation doesn’t directly impact smaller businesses, we’re seeing an increase in compliance demands from clients on their supply chain with targets and mandatory disclosures on issues from GHG emissions to Diversity and Inclusion being pushed down the value chain. With clients expecting their suppliers to meet minimum standards on sustainability performance ratings platforms or making a public commitment to SBTis.


Remembering Social and Governance


The S and G pillars of ESG, particularly for smaller businesses, can often be overlooked. There's less regulation, and they can be harder to quantify. Whilst the focus on ESG shouldn’t just be on reporting, there is certainly less standardisation in the metrics association with Social and Governance than on the Environmental agenda.


Social issues are about a business’s relationship with people whether that be its employees, stakeholders or broader society and covers a broad range of specific topics such as:

  • Diversity, Equity & Inclusion

  • Human Rights

  • Labour practices

  • Supply chain management

  • Employee health, safety and wellbeing.


We see the impacts of these issues for SMEs as much as we do for larger companies. From companies struggling to attract and retain top talent through a failure to embrace flexible working or policies or through the lack of diversity within a business, all of which can be catastrophic to start ups or growing SMEs achieving their growth plans.


Governance is an issue that can often be overlooked, particularly in the start-up phase when focus is on growth and customer acquisition. But Governance at its core is about resilience.


Ensuring there's good and effective decision making to allow your business to grow, manage risks and cease growth opportunities for your business. Poor governance, even at the start up stage can lead to reputational risk, loss of customers and ultimately business failure.


Policies are a great way of demonstrating your approach to corporate governance, and externally signal that you have the right processes and minimum standards in place to protect the value of your company.


But Governance isn’t just about policies, it’s about diverse and inclusive decision making that takes into consideration the impacts of your business to prioritises long term sustainable growth.


Benefits with an integrated approach to ESG


There are many benefits for ensuring an integrated approach to ESG in your business from the outset. That said, it can feel overwhelming knowing where to start or just how you will find the bandwidth or budget within your business to start to formalise your approach.


So if you are thinking about making a start here are our top tips in taking those steps:


  1. Don’t try to do it all. Try to identify the core E,S &G issues that impact your business and start with those

  2. Set an intent, and put in place an action and accountability plan to manage those impacts.

  3. This shouldn’t be a side project, the management of E,S&G issues should be the responsibility of everyone in the business. Make it everyone’s responsibility and integrate it into everything you do as a business, every decision process.

  4. You should measure and track performance to demonstrate progress. Once you have identified your impact areas, gather data to understand your baselines and start defining your metrics. Much of the data probably exists in the business, but consistent and regular data collection & reporting is key. An ESG reporting partner, such as Omnevue, can support you in generating accounting grade data for non-financial metrics.


If you're looking for more information, take a closer look at our ESG strategy development page.



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