Part 1: Why ESG is important for your small business

Sustainability is no buzzword. And it’s not only for big businesses to think about. 

In Part One of our ESG for Small Business Series, we’re breaking down what ESG is and why it’s so important for your businesses.

What is ESG?

ESG stands for Environmental, Social, and corporate Governance. It’s a set of standards for a company’s behaviour that shows it operates responsibly and sustainably.  

ESG was created to assess investment opportunities based on non-financial factors, said Bendigo and Adelaide Bank’s Head of Sustainability, Brooke Pettit. 

“But today, it’s become a standard for sustainable and ethical behaviour for business. This is why it’s so important for all businesses, including SMEs and microbusinesses, to understand their ESG impact,” she said.

Let’s break down each part.

Environmental

This looks at the impact your business has on the environment. 

This could include greenhouse gas emissions, waste management and energy and water use. It could also include climate change and carbon footprint.

“Natural resource conservation, biodiversity, treatment of animals, air quality, and deforestation may also be issues to consider, depending on your business.”

Social

Social responsibility looks at anything that impacts people. This could include diversity and inclusion, and mental health and wellness. It could also include health and safety, employee rights and fair pay. All over the world, companies are tackling issues like human rights, modern slavery, and labour rights.

Consider your operations in relation to your employees and the impact to the community.

“Local is a good place to start, but it shouldn’t be where you stop. Some businesses might keep their view local, while others might consider their community as the world. Your community might also be based on identity, interest and industry, not just geography.”

Governance

Governance is about the policies, procedures, and practices of a business. While some industries are regulated, many operate just with ethical requirements. Governance includes codes of conduct and bribery and corruption. It also includes values and ethics, discrimination, risk management protocols and disclosures. 

One question to ask is, how does your business create positive impact, and how does it go about minimising negative impact?

“There is crossover between ESG issues. For example, environmental impacts might also have negative social impacts. There will likely be a ripple effect in many things, so it’s a good idea to think about all three as a whole.”

Why is ESG so important for small businesses?

It will help you gain a competitive edge

Showing what your business is doing to create a positive impact will improve your brand’s position, especially considering 96% of Australians are familiar with sustainability¹. This could include where and how you source raw materials or how you manufacture products. It could also include how you consider the needs of your people and community. Telling your story builds trust with customers for the long term, especially if your competitors aren’t doing the same. 

Your customers will be more loyal

Customers today want to buy from brands that focus on ethics and sustainability as part of their business model. In a recent Mastercard survey² of 3000 business leaders, employees and consumers, almost half (48%) stated they would avoid buying from a business that did not source its products sustainably. One in ten (13%) also said they would only buy from a sustainable business by 2024. 

This is an opportunity for smaller businesses, who are often seen to be more ethical and sustainable because of their size.

According to a recent Deloitte UK survey³, the five most important environmentally sustainable or ethical practices according to consumers are;

• Sustainable products and packaging
• Reducing waste in manufacturing
• Committing to ethical working practices
• Reducing carbon footprint
• Respect for human rights

“No matter the type of business, your policies and procedures, how you treat your people and suppliers, and how your business is creating a positive impact in your community is a great place to start or revisit your ESG journey,” Ms Pettit said.

You’ll attract the right employees

In today’s environment, people are wanting to work for companies that are ethical, sustainable, and responsible.  They’re looking at workplace value, culture, commitment to health and wellbeing, and diversity and inclusive practices when choosing a job.

Of the Australians seeking new jobs (51%), almost half (43%) said they would not work for an employer that did not have an active sustainability plan in place, according to the Mastercard research². 

“Your employees will be your champions in sharing your sustainability story. This could make all the difference in attracting the right candidates for your business.”

It will help you attract investors

If you rely on funding from investors, let them know how you run your business beyond dollars and cents. After all, ESG was created because investors wanted to know about ethics and sustainability and how they might impact profit and loss.

Ensure your business stands out from the crowd and gets the ESG attention it deserves, especially if attracting investors is the next step on your business journey.

Your business will be more sustainable

Simply improving technology or updating policies and procedures can have a knock-on effect for how your employees can work, improving wellbeing and productivity.

Looking at your small business with a future focus makes sustainability sense and will create intended positive impacts, tomorrow and beyond. 

It could improve your bottom line

We’ve been talking a lot about ethics and sustainability, but we shouldn’t forget what ESG means to your bottom line when you can legitimately prove your ESG claim.

In a recent joint study from McKinsey & Company and NielsonIQ4, products with ESG related claims on their packaging had 8 percent greater growth over a five-year period than the products that did not make such claims.

Fortunately, sustainable products and materials are becoming more cost effective, making them ideal choices for cost-conscious small businesses who want to operate more sustainability. 

Reducing potential for negative impact also saves money in the long run, like improved physical and technological security measures.

“It’s easy for small businesses to make sustainable changes that directly create cost savings. For example, energy saving measures, such as timers for electricity and water, solar panels and using recycled materials – you’ll see the differences in your wallet with a few small changes.

“Overall, focusing on non-financial performance alongside financial performance will impact the bottom line and help you to maintain your social licence to operate, which is a priority for everyone.”

How can SMEs integrate ESG into their business?

Thinking about ESG for your business may seem like big job, but it’s easier than you might think. Chances are, you’re well on your way.

“Businesses are already managing ESG risks and opportunities every day. They’re making sure employees are safe, installing solar panels or supporting local sporting clubs – that’s all ESG”, Ms Pettit said.

“There’s no one size fits all model, and SMEs should be flexible in developing a plan that suits their business.

“It can be difficult to figure out where to start or where to pick up ESG for your business, especially if you don’t have an ESG expert in your business.

“Consider the knowledge of everyone in your business. There may be a few people that can come together to work out the best way forward. Their knowledge and interest may be your secret to success.”

In Part 2 of our ESG series coming in February 2024, we’ll look at how to integrate ESG into your business.

In the next article, we’ll cover;

• Where your business stands with ESG
• How to develop a plan suitable for your business operations, values and priorities.
• How to take specific actions to integrate ESG into business.
• How to measure and report ESG

Bendigo Bank’s approach to sustainability

Like many other companies, large and small, Bendigo and Adelaide Bank’s ambition is to drive action towards a resilient and sustainable future. We want to grow the prosperity of customers, communities, shareholders and our people. 

You can find out more about our approach to managing sustainability related risks and opportunities in the 2023 Sustainability Report.

Your Business Matters.