Regulatory requirements and a growing public concern with the chilling consequences of climate change, greenhouse gases, exploitation of natural resources, water risk, decreased bio-diversity and human rights issues have placed sustainability high up on both corporate and government agendas. Investors, customers, regulatory bodies, NGOs, employees, and society at large have ensured that ESG becomes a priority instead of a niche interest.
While the regulatory requirements and risk management remain important, ESG should not be seen as merely something a company must do to fulfill a business requirement, but as a door-opener for new and exciting possibilities. A chance to become a better company in several aspects. Businesses that can envision and seize the opportunities linked to becoming ’greener’ are undoubtedly tomorrow’s winners. ESG spells opportunities, especially for smaller companies.
The small company’s advantage
While large companies have the advantage of resources and big sustainability teams to draft up policies and guidelines, develop green products and enter into high-level agreements, small businesses tend to have swifter decision-making processes, less bureaucracy, more flexibility and are sometimes closer to the customer. Entrepreneurs and small companies often have the advantage of being local, with a story the consumer can identify with. Going green just makes it better. Smaller margins mean a small business could save a lot through relatively simple changes such as switching to digital receipts, using non-disposable coffee cups, change to renewable energy, use recycled product material, improve waste management, and so forth. Adjustments that could make a significant financial difference for a small company, while simultaneously decreasing its carbon footprint.
Changing consumer behaviors may feel challenging, but bring opportunities for streamlining, cost-efficiency, innovation, and brand-enhancement. As a result, new products and ways of doing business are likely to emerge and hopefully, the business becomes more resilient as regulatory requirements are likely to increase in the future.
“The questions small businesses may want to ask themselves are: ”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 these remains? How can we ensure our supply chain is sustainable? Is there a possibility to become more efficient by reusing material, look at alternative sources, renegotiate supplier contracts, and at the same time strengthen our brand’s sustainability image?” says Ylva Hannestad, Deputy Head of Group Sustainable Finance.
Small businesses and entrepreneurs that have a clear sustainability agenda or aim to make a social or environmental impact with its products and services are more likely to attract sustainability-oriented impact investors and green business angels. Showing that a company, big or small, strives to make a positive impact could attract potent sustainability-oriented investors. But even though a small company may not seek to make a thundering impact, tending to ESG lowers the risk profile and is an advantage when investors review the company or when the business must negotiate financing at some point.
Targeting tomorrow’s consumers
Consumer behavior is changing rapidly and while customers used to look at big, established brands as guarantors for quality, small businesses and local products is the new black. Customers – Millennials (born between 1981 and 1996) in particular – tend to turn to local brands with an interesting story and strong ideals. Consumption has become more value-reflecting than ever before. We are not satisfied with simply good products or services but require companies to share and reflect our values and convictions. According to a Global Future Consumer Study by A.T. Kearney from 2017, the younger generation of consumers define themselves more by what they do than by what they own. In 2019, nearly one-third of the world’s population belonged to Generation Z (born between 1997 and 2012), a target group that prioritizes social justice, action against climate change, and who let their individuality shape their purchasing behavior. Consumption will be driven more by personal values than the inherent value of the product or service purchased. Trust, personalization, and online influencers will decide consumer behavior, rather than big billboards and TV-ads by established brands. “Business as usual” belongs to the past. The customers of tomorrow are likely to hold companies accountable for their environmental and social impact and expect businesses to ’walk the talk’ contribute positively.
Another important aspect to consider, one closely linked to changed consumer behavior, is how ESG can attract talent. Having a clear sustainability agenda generates internal pride. We all want to work for companies we feel proud of being associated with. Millennials, in particular, want to work for companies committed to values and ethics. According to the 2016 Cone Communications Millennial CSR Study.1, 64% of Millennials consider a company’s CSR (Corporate Social Responsibility) commitments when looking at potential employers, and the same percentage would not accept a job if the company had not got strong CSR practices. Whether as consumers or employees, Millennials want to associate themselves with companies that do good, and there is reason to believe Generation Z shares that mindset. Apart from employee engagement having a significant impact on corporate reputation, a company whose employees are able to contribute positively to social or environmental issues finds itself with more loyal employees, according to Cone’s study.
Integrating ESG into a company’s business model is a smart move from a business, environment, social and human resources perspective.
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