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Small business owners: What you need to know about sustainability

Small businesses in Nordics have room for improvement when it comes to sustainability, according to a Nordea Business Insight ESG study. While many small businesses consider sustainability important, they aren’t necessarily taking concrete steps towards a more sustainable future. So where to begin?
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For many business owners, sustainability can seem amorphous and even intimidating, with no clear guidelines for how to start working with it. According to a Nordea Business Insight ESG study, Nordic businesses with 0-19 employees struggle to understand their ESG risk and development areas, in particular when it comes to “governance” part of ESG. On the plus side, small businesses do consider sustainability important, but there is room for improvement when it comes to integrating sustainability into their business operations.

Over half of small businesses consider sustainability important, while only 40% of businesses with 0-19 employees think they’ve actually transitioned to a sustainable future.

Over half of small businesses consider sustainability important, while only 40% of businesses with 0-19 employees think they’ve actually transitioned to a sustainable future.

Why should a small business work with sustainability?

Customer demand and reputational concerns are among top reasons why Nordic businesses focus on sustainability. Consumer behavior is rapidly changing. While consumers used to equate big, established brand names with quality, small businesses and local products are the new black. Customers, particularly millennials and younger generations, are looking for local brands with a story and products that reflect their values and convictions. A small business with a sustainable story is more likely to attract the modern consumer, making sustainable business good business.

Another important aspect to consider, one closely tied to consumer behavior, is changed employee behavior. People want to work for a company whose values reflect their own. Being sustainable fosters internal pride, making it easier to attract and retain talented employees who want to make a difference. We all want to work for companies we feel proud of, however big or small, and employee engagement can have a significant impact on a company’s reputation and success.

What’s more, showing that your company strives to make a difference could attract potential investors. Small businesses and entrepreneurs that have a clear sustainability agenda or aim to make a positive social or environmental impact are more likely to attract sustainability-oriented impact investors and green business angels.

Even if a small company may not seek to make a thundering impact, prioritizing ESG tends to lower a company’s risk profile, which is an advantage when trying to secure financing. Banks and financial institutions are also looking at how businesses have integrated sustainability into their strategy and operations when it comes to financing.

Read more: Why should a small business bother with sustainability?

 

How to get started with sustainability?

To give some ideas for how to get started, we have listed some key aspects for small business owners to consider. There is no one-size-fits-all process for transitioning a business to sustainable future, but the below ideas are intended to help business owners get the thinking process started.

Ylva Hannestad, Deputy Head of Group Sustainable Finance suggests small business owners ask themselves the following questions:

  • What are the megatrends affecting our business?
  • How can we make our supply chain more resilient by choosing a more sustainable path?
  • How can we reuse or redesign our products and services to ensure that the demand for them remains?
  • How can we ensure our supply chain is sustainable?
  • Can we become more efficient by reusing material, look at alternative sources, renegotiate supplier contracts, and at the same time strengthen our brand’s sustainability image?

Environmental

Climate change, pollution, and decreased bio-diversity have driven the “environment” part of ESG high up on both business and government agendas. Investors, employees, customers, regulatory bodies and society at large have ensured that the environment becomes a priority rather than a niche interest.

There are several attractive opportunities for a small business owner. Switching from paper receipts to digital ones to reduce paper waste, using non-disposable coffee cups, changing to renewable energy, re-using recycled product materials, improving waste management can all make a significant financial difference for a small business, while at the same time decreasing its carbon footprint.

Key questions to ask yourself:

  • Is my product or offering delivered to the customers in an environmentally friendly packaging or format?
  • Can my products be reused, recycled or composted?
  • Does my company prefer energy-efficient LEDs for indoor and outdoor lighting?
  • Do I know my company’s carbon footprint, or water footprint?
  • Does my company set reduction targets for these footprints?

Social

Businesses have a responsibility to their employees as well as the society around them. Working conditions, labour rights and diversity-related matters are some of the key areas a small business should consider. It is all about being a “good corporate citizen.”

Some companies run community engagement programs, giving employees the opportunity to give back to their local community. At Nordea, for example, we aim to have a positive impact on society by volunteering at schools and educating children about financial skills.

Key questions to ask yourself:

  • Do I offer safe and healthy working conditions for my employees?
  • Does my company promote diversity?
  • Does my company offer equal pay and equal opportunities for its employees?
  • Do I know what the working conditions are like for my suppliers?
  • Are my suppliers committed to sustainability?

Read more about how impact entrepreneurs seek to make a positive impact in society and how the impact investing industry is developing.

Governance

Governance stands out the area least known among small businesses. It consist of a range of themes, such as board and management structures, policies, information disclosure and transparency. For example, potential investors want to know that your business practices are ethical and may rule out companies where governance is neglected.

The Nordea Business Insight ESG study reveals that Nordic businesses consider ownership structure, transparency, and board composition and independence as their top risk and development areas under “governance.”

Key questions to ask yourself:

  • Is sustainability part of my company’s written mission statement?
  • Is my company’s board diverse?
  • Is my company’s accounting done accurately and transparently?
  • Are my company’s business practices ethical?
  • Is my company committed to environmental and social responsibility?

If you’re interested in learning more, check out our podcast where the people behind impact investor fund Norrsken VC Fund discuss ESG investment criteria and what a business owner should do in order to get their business ESG compliant.

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