The aim of this guide is to help small and medium-sized companies (SMEs) improve their corporate sustainability and responsibility in the environmental, social and governance (ESG) fields in practice. With the development of the ESG market, legislative updates and changes in the expectations of customers, partners and investors, the field of sustainability plays an increasingly important role in building a strong and competitive business.
Welcome to our ESG guide for small and medium-sized enterprises! Over the next 10 parts, we'll guide you through setting up, implementing, communicating and reporting your ESG strategy. We'll cover everything from ESG legislation to writing reports. Stay tuned as we begin our journey with a question: What is ESG and why is it important for SMEs?
Why ESG for small and medium-sized businesses
For small and medium-sized enterprises (SMEs), adopting a well-structured sustainability and ESG (Environmental, Social, and Governance) strategy is critical to long-term success. This strategy is a guiding framework, helping SMEs navigate and mitigate potential risks, innovate in products and processes, and engage with employees and customers more effectively. It also plays a crucial role in attracting investors and opening doors to international markets.
Although small, SMEs make up a substantial part of the global economy. In the EU, 99% of all businesses are micro, small and medium enterprises, employing approximately 100 million people. These companies provide two out of three jobs in the private sector and contribute more than half of the total added value created by businesses in the EU. SMEs are also the basis of national economies and the supply chains of large companies and represent the most significant source of innovation.
However, that also means their products, activities, and services have significant environmental and social impacts. Their joint share in total emissions is high – amounting to 63% of all CO2 emissions of all companies. However, as the recent European Eurobarometer survey shows, 89% of SMEs are already implementing at least one measure to become more sustainable – using primarily renewable energy, recycling or minimising waste. The survey shows that 24% of EU SMEs already have a specific plan to reduce their business's carbon footprint, and 32% have green products in their range.
Given their crucial role in the European economy and environmental impact, SMEs must embrace sustainable practices. Our guide equips SMEs with practical advice on crafting and implementing ESG strategy, which will help them focus on the most effective activities for achieving their sustainability goals. This approach enables them to make a positive societal and environmental impact and supports their sustainable growth and resilience.
What is ESG?
ESG (Environmental, Social and Governance) represents three key areas that shape new standards in corporate sustainability and responsibility. These three pillars are the basis for measuring and evaluating companies' impact on people's lives and the environment (see Figure 1).
Along with increasing pressure on companies from investors and society, governments worldwide are mandating corporate transparency in ESG topics and disclosures. In the EU, the Corporate Sustainability Reporting Directive (CSRD) requires all companies with more than 250 employees to publish sustainability reports according to the European Sustainability Reporting Guidelines (ESRS) starting from 2025. Under this new legislation, companies should consider social, environmental and governance-related impacts, risks and opportunities and incorporate these into their business decisions and strategies in close cooperation with interested parties (i.e., stakeholders). This is all with the aim of:
- Creation and maximisation of value beyond traditional financial gains to benefit owners, investors, stakeholders and society as a whole
- Identification, prevention and mitigation of possible negative impacts of companies' activities.
Figure1: ESG pillars and topics according to the EU ESRS framework:
Coming up in part 2, we'll explore ESG Legislation for SMEs. You'll get insights into the legal requirements and how they influence your business in the world of ESG.
We would be happy to help you with your social and environmental responsibility and sustainability. Don’t hesitate to get in touch with us!