ESG (Environmental, Social and Governance) is a generic term used in capital markets and by investors to evaluate corporate behaviour and determine the future financial performance of companies.
Small businesses have a tremendous impact on the Nordic region’s economy, making their role crucial in the transition to more sustainable economies and societies. In Sweden, for example, 96% of the country’s 1.2 million companies are small businesses with fewer than ten employees, according to the Swedish Agency for Economic and Regional Growth.
With increasingly frequent media reports on droughts, floods, wildfires and collapsing ecosystems, young people have begun protesting all over the world, calling for change. ESG-aspects are now rising up political and corporate agendas globally, making sustainability one of the hottest topics of our time.
Consequently, environmentally-conscious consumers now expect companies to have a positive impact on the environment and contribute to change. Increased awareness of the environmental and social impact of modern consumerism is changing the way consumers behave. This means companies that want to prosper in the future will have little choice but to become sustainable.
Sustainability has turned into a hygiene factor for the modern consumer.
Benefits and opportunities for small businesses
“All companies need to integrate sustainability into their business models to mitigate risks and identify opportunities. Even companies that might not have the customer demand today will need to address these issues, since suppliers, regulators and society will expect companies to manage sustainability,” says Poya Motai, Sustainability Business area lead in Business Banking.
Managing your sustainability risks will help your business:
- Avoid reputational damage
- Mitigate risk of sanctions, penalties and fines from regulators
- Identify physical climate-related risks, such as extreme weather, not only in your own operations, but throughout the entire supply chain.
- Detect transition risks such as taxes, technological changes as well as changes in consumer preference and behaviour.
However, becoming sustainable should not be seen as a troublesome demand from consumers and regulators. Transitioning to a sustainable future also gives small businesses the opportunity to:
- Improve brand image and thereby gain a competitive advantage
- Increase capacity to comply with existing or coming regulations
- Attract talent and investors
Also, banks and financial institutions are looking at how businesses have integrated sustainability, or what we call “ESG factors,” into their strategy and operations. A solid grip on sustainability can help a small business make a case for financing. From a bank’s perspective, it is all about evaluating risks.
Sustainability is important, but where is the action?
Sustainable business is good business, for us as a bank, for customers and for society at large. However, our Nordea Business Insights Report shows that there is a considerable gap between how important companies perceive sustainability to be for the business, and what they are doing to transition to a sustainable future. We see a clear attitude-behaviour gap.
The biggest attitude-behavioural gap is in Sweden, where 66% of respondents report that sustainability is very important, but only 45% say that they are performing accordingly.
In general, the bigger the company, the more likely sustainability is integrated into the operations. This leaves small businesses with room for improvement.
At Nordea, sustainability is at the core of our business and has become a key part of our corporate culture. You can read more about our work with sustainability in our most recent sustainability report. Reach out to one of our business advisors to find out what your company can do to become more sustainable.
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