The better question is not “Do we have to report?” It is “What does this mean for the value, competitiveness and future-readiness of our business?”

For many business owners, ESG can feel like another compliance requirement arriving at exactly the wrong time. Margins are under pressure, the cost of doing business remains high, finding and retaining good people is difficult, technology is changing quickly and customers are more demanding. At the same time, there continues to be political debate about climate policy and ESG reporting.

It would therefore be understandable for a small or medium business owner to think: “We are not required to report yet, so why should I spend time or money on this now?”

But that may be asking the wrong question. Rather than looking at ESG as a reporting exercise, businesses should look at it through a strategic and commercial lens. Could the expectations of your customers, employees, financiers and potential purchasers change before the legislation ever applies directly to you? And, if they do, is your business ready?

Start with your strategy, not an ESG checklist

The objective should not be to create another layer of administration. Start with your existing business strategy.

Where are you trying to take the business over the next three to five years? Who do you want as customers? What contracts do you want to win? Will you need additional funding? Are you planning to acquire another business, bring in new shareholders or eventually sell? What will your future workforce expect from you?

Once you understand those objectives, you can determine which ESG issues are actually relevant. A business wanting to become a preferred supplier to major corporations may have very different priorities from a family business preparing for succession.

ESG should support your strategy - not become a strategy of its own.

Your customer’s problem may become your problem

This is probably the most immediate consideration for many small business owners. You may not be required to prepare mandatory climate reporting, but some of your larger customers already are - or soon will be.

Those businesses need to understand what is happening throughout their supply chains. That can mean asking suppliers for information about emissions, energy, sourcing, workforce practices, governance, risk and other sustainability matters.

The question therefore is not simply “Do we have to report?” It is “Could our ability to provide this information affect whether someone wants to do business with us?”

Think about your top ten customers. Which are large organisations? Which are government-related? Which have public sustainability commitments? Which are likely to introduce more stringent procurement requirements? And importantly: how much of your future revenue depends on them?

That turns ESG into a customer concentration and revenue-risk conversation - not merely a compliance conversation.

Could ESG become part of your competitive advantage?

Now turn the question around. If your competitors are not prepared and you are, could that help you win work?

Imagine two businesses tendering for the same major contract. Their pricing, capability and service are broadly comparable. One business has already considered its environmental footprint, supply chain, workforce practices, governance and business risks. It can readily provide credible information and evidence. The other business has never considered these issues because it was not legally required to.

Which supplier creates less work and potentially less risk for the customer?

Being prepared does not necessarily mean having the lowest emissions or the most sophisticated ESG program. It means understanding your business, having reliable information and being able to demonstrate what you are doing. That can become a competitive advantage.

Look for the dollars hidden inside ESG

In a difficult economy, every investment needs to make commercial sense. So rather than beginning with “How much will ESG cost us?”, look for areas where better sustainability and better business performance overlap.

Energy use is an obvious example. Reducing unnecessary energy can reduce emissions and costs. Reducing waste can improve environmental outcomes and identify inefficient processes. Reviewing your supply chain may identify sustainability risks, but it can also expose over-reliance on one supplier, geographic concentration, excessive freight costs or poor purchasing practices.

Reviewing workforce practices may form part of the “social” discussion, but it can also improve attraction, retention, productivity and culture. Improving governance may satisfy a customer’s expectations, but it can also create a business that is less reliant on the owner.

Those are business improvements regardless of what happens politically with ESG.

Think about ESG through the value of your business

This is an area that business owners can easily overlook. If you were selling your business in five years, what would a potential purchaser want to understand?

They would look beyond the balance sheet. They may consider customer concentration, key-person and owner dependency, quality of management, workforce stability, supply-chain resilience, regulatory and environmental risks, governance, reputation, systems and data, major contracts and future capital expenditure requirements.

Many of those issues intersect with ESG. A purchaser considering two similar businesses may place greater value on the business that has identified its risks, has reliable information, has good governance and is not dependent on one person knowing how everything works.

So, the ESG conversation can also become a business valuation and succession conversation. Ask yourself: could an ESG issue reduce the future value of our business? And equally: could getting ahead of these issues increase its value or make it easier to sell?

What about the politics?

There is no doubt that ESG and climate policy remain politically contested. Governments change, policies evolve and aspects of regulation may change over time.

But businesses make strategic decisions in an environment where legislation is only one factor. The current climate-related financial reporting framework is legislated and is being progressively implemented. More importantly, your major customers are not necessarily going to reverse their own strategies every time there is a political debate.

Banks will continue to assess risk. Insurers will continue to price risk. Large corporations will continue to manage their supply chains. Government and corporate procurement will continue to evolve. Employees will continue to make choices about where they work. And potential purchasers will continue to assess the risks and future sustainability of businesses they acquire.

So rather than trying to predict the political outcome, concentrate on the things you can control.

The conversation you need to have with us is:

It should begin with your business plan.

• Where are we taking this business?
• Who will we need to do business with to get there?
• What will those organisations expect from us?
• Where are our biggest risks?
• Where could we improve profitability or efficiency at the same time?
• What could affect the value of our business?
• What should we start doing now rather than waiting until somebody asks us for it?

You may discover that there are areas where you need to do more. You may equally discover that your business is already doing many of the right things - you simply have not identified, measured or communicated them.

Don’t make ESG bigger than it needs to be

For Small business owners, ESG should not automatically mean another large compliance project. Think of it as another lens through which to challenge your business strategy.

• Does it help you reduce risk?
• Can it improve efficiency?
• Will it help protect an important customer relationship?
• Could it help you win a tender?
• Does it make you a better employer?
• Could it improve access to finance?
• Does it make the business more resilient?
• Could it help create a stronger, more valuable and more transferable business?

If the answer to some of those questions is yes, then ESG deserves a place in your business planning - regardless of the politics surrounding it.

If you would like to discuss this with us, please reach out and have a chat with us!