While ESG is still predominately a matter of concern for large companies, small and mid-size businesses can benefit from an awareness of the trend. Below, we offer an introduction to the ESG components:
Environment
When measuring a business’s impact on the environment, one must consider topics such as climate change and sustainability. This includes questions like, “How many natural resources does the company use, and are they replenishing them as they use them?” and “If the company is creating pollution, how is it offsetting, or working to eliminate, its pollution?”
Social
The social impact of a business is the broadest umbrella of the three categories. It includes many topics, from diversity and inclusion (in the workforce and with suppliers) to consumer protection related to their product. Human rights issues like overseas working conditions, minimum wages, and animal welfare in product research and development also apply.
Governance
The area of governance measures the quality of leadership within the company as it relates to the topics of ethics, transparency, compensation issues for both executives and employees, and employee relations as a whole.
Accounting for ESG
The accounting industry is developing and adopting standards for measuring a corporation’s sustainability performance. As of this writing, the IFRS (International Financial Reporting Standards) Foundation has proposed the creation of the Sustainability Standards Board, which will help set standards for ESG in 140 countries.
This move will better align the current financial performance of a company with the new sustainability measures. However, all of this is many years off, as many organizations have developed standards for numerous components of ESG that need to be consolidated and adopted.
In the meantime, we do know that positive sustainability performance by a company drives positive financial performance. There are many ways small businesses can participate in ESG’s benefits.
ESG and Small Business
ESG can positively impact your company’s value, culture, hiring process, the vendors you select, and the customers who select you.
For example, if you plan to do business with a large company, mirroring their ESG values can help you align with them, giving you an edge in the selection process. Similarly, when you communicate your ESG values and contributions, you are more likely to attract employees with the same individual values, making for a better fit.
While there are many efforts a small business can make to improve ESG, here are a few ideas to get started:
- Disclose your starting hourly rate, if it’s well above your state’s minimum wage, to attract better-quality candidates.
- When purchasing vehicles, consider electric or hybrid.
- Match employee nonprofit contributions, and give them time off to volunteer.
- Practice transparency when it comes to executive salaries or financial results.
- Write and post a diversity and inclusion statement.
- Conserve electricity by closing off unused spaces, turning off lights when not in use, and switching from gas to electric appliances when possible.
- Optimize service routes to reduce fuel consumption.
- Donate excess food to shelters (in the case of restaurants).
- Protect customers’ private information with privacy processes and policies.
- Make product components recyclable, purchase recyclable supplies, and train employees to recycle.
Add your own ideas to the above list, and ask yourself how your business measures up when it comes to ESG.