How ESG Can Save Costs for SMEs

The contemporary business landscape is dynamic and business stakeholders are aware of the ESG prospects. With environmental social and governance practices being incorporated in every level of business, ESG for small businesses has become ubiquitous as the implementation applies to businesses from small-scale to large-scale corporations with global reach. From regulators to investors and consumers, everybody has shifted to an operational spectrum where ESG practices are a mandatory inclusion. Gradually SMEs are recognizing the long-term value of ethical and environmentally friendly business practices that are sustainable and socially responsible.

Originally ESG has been linked to investor confidence, brand enhancement and compliance with regulatory norms. Currently many stakeholders are finding that ESG is more of a practical business need than a reputational choice. With the help of the ESG strategies, businesses can be measured and impactful benefits can be derived through which decision-making is done from the investor side. This entire ESG shift can reduce the cost of operations, lower energy bills and reduce carbon emissions, boosting infrastructure and fostering a healthy work environment. As such, through ESG initiatives, SMEs are able to unlock opportunities that are cost-saving in the entire value chain.

 How ESG Saves Costs for SMEs

Initially, ESG might seem to be an expense which is an add-on; however, in the true sense it tends to minimise waste production, lower the cost of utilities, and reduce inefficiencies thereby managing risk factors and controlling brand damage if any.

•       Resource and energy efficiency: By shifting to energy-efficient means like LED lighting, solar panels one can significantly reduce the energy bills. Even an act of turning the equipment off or optimizing the heating or cooling system can cut down the cost by up to 30%. Also, by adopting processes like water recycling the monthly utility bills can be reduced and also there can be a reduction in local tax incentives. By putting motion sensor lights or thermostats one can save big time. Using low energy sources enhances the brand image of the company and attracts eco-conscious investors.
•       Waste reduction: In a circular economy reusing material waste can decrease landfill problems and also minimize packaging waste. With actions like going paperless, a company can reduce both transportation and material costs. Because a company has decided to reduce their waste management the raw materials required will also be less saving on procurement expenses. Leveraging digital tools that manage inventory can help avoid overproduction. With these programs, companies can also generate revenue streams by using scrap materials.
•     Supply chain optimization: If the company sources the raw materials from local sites it not only reduces transportation costs but also optimizes the overall carbon footprint. Procurement that is aligned with ESG for SMEs helps to build a cost-effective supply chain that is more resilient. Also working with suppliers that are ESG compliant helps to minimise reputational risks. Local supply chains that are ESG compliant are less prone to international disruptions and price fluxes.
•     Enhanced employee retention: With businesses that adhere to ESG compliance there is a  flexible work culture with a focus on the mental health of the employees which in turn enhances employee satisfaction and therefore lowers turnover of resignations. This becomes a major expense that can be potentially saved by SMEs. Employees that are happy can be innovative and more productive, staying loyal to the company and benefiting the SMEs.
•       Better risk management:  With the help of ESG standards, businesses tend to reduce non-compliance and prevent lawsuits. With the help of ESG reporting for small companies, transparency is improved and risk factors are detected in advance preemptively cutting any loss. This becomes one of the primary benefits of ESG for small businesses. With the help of proper waste disposal businesses can prevent costly liabilities and with safety work practices accidents are also taken care of. In today’s world, most investors and clients require a transparent ESG reporting disclosure making compliance a benefit for the business.

 Steps for SMEs to Implement ESG & Save Costs

Below are some of the practical steps that SMEs can take to start integrating focused outcomes that are there to save costs.

•       Step 1, Set targetable ESG goals: Start with specific and timeline-driven goals that are achievable and measurable and are also relevant. For instance, decreasing paper consumption in the next quarter, reducing electricity consumption in the following year by 15%, or hiring local communities and ensuring gender balance in teams are some good examples.
•       Step 2, Run a baseline analysis: There are multiple tools or free online software that can help you assess the current ESG portfolio. These tools will help one analyze where the company stands presently on the ESG practices. This can provide a solid starting point. Where one can plan the costs and how to reduce them.
•       Step 3, Prioritizing high impact initiatives with low cost: Shifting to energy efficiency means implementing a waste management plan that includes recycling, hybrid work mode, staff training and wellness programs that are encouraged to save costs to a great level.
•       Step 4, Engage employees and stakeholders: Conduct workshops that help employees engage with your ESG-compliance goals. Invest in your employees brainstorming to ideate cost-effective implementation plans. This can also help create better bond among the employees and create a healthy work environment.
•       Step 5, Progress tracking and report transparency: It is important to meticulously track the progress using dashboards, AI software, spreadsheets and automated tools. To reduce manual risks, share the learnings and build brand trust and confidence among the investors.
•       Step 6, Leveraging initiatives and grants: There are various government bodies that offer green technology subsidies and provide incentives to companies that use energy-efficient means. Avail of such programs to reduce upfront costs.

Common ESG Challenges for SMEs and How to Overcome Them

SMEs often face different hurdles in adopting ESG practices. To navigate these challenges here are some solutions:

• ·        Limited budget: At times for small-scale businesses, ESG exploration might seem a resourceful engagement however starting small and focusing on direct cost-saving methods can be a great initiative.
• ·        Limited knowledge and expertise: SMEs might lack the right kind of expertise to develop robust ESG reporting strategies; therefore, it is important to get access to free ESG playbooks, avail esg consulting services or access webinars and industry association meetings that enable expert support networks and can enlighten SMEs with the right knowledge base.
• ·        Balancing profit and purpose: At times the perceivable trade-off between sustainability and profitability might seem more key and in this case it is about running a business not only efficiently but also ethically. If done so then the business has to get back to profitability.
• ·        Supply chain resistance: At times SME vendors might not share ethical values and are resistant to ESG compliance. In such cases engaging suppliers through hard work, collaboration and knowledge partnering can help them engage and be a part of the growth journey. Also, rewarding partners and investing in such programmes can help boost their moral core.
• ·        Difficulty in measuring the impact: It may sometimes be difficult to quantify or measure non-financial performance without having robust ESG management. However, using basic KPIs like volunteer hours, kW saved, or retention rate, or frameworks like SASB and GRI can provide a template that can be adopted by SMEs to measure ESG metrics efficiently.

Conclusion

By adopting ESG goals SMEs can do better business. From avoiding compliance fines to cutting energy bills and reducing operational costs, SMEs will definitely benefit from adopting ESG strategies. It is not only a differentiator but also a great start on their financial performance and reputation. Whether it is a tech startup or a garment manufacturer, investing in ESG can have significant positive impact and future-proof your business like no other.

FAQ

What are some quick ESG initiatives SMEs can start with?

Switching to LED lighting, going paperless, setting up work-from-home options, implementing basic recycling options and ensuring safe working conditions with fair wages policy – these are a few of the quick ESG initiatives that SMEs can start with.

How does ESG help SMEs attract better financing and investment?

ESG can help attract investors who are business and purpose-driven and help SMEs get bulk amounts for a project. Attracting these impactful investors also increases trust-building and brand reputation. Also, ESG-compliant businesses become eligible for sustainability grants and government incentives therefore investors are increasingly putting their funds into such companies.

Can ESG help SMEs avoid legal penalties?

By ESG frameworks and evolving regulations like labor laws and other data protection laws or environmental laws, SMEs can proactively manage risks and also avoid penalties.