Integrating ESG into business practices
The integration of ESG issues into business practices depends on the nature of a given business and its goals for impacting society and the environment, as well as its own governance structures. However, the general approach for integrating ESG issues proceed as follows:- Set ESG goals and strategies for the business. Having well-defined goals and strategies is crucial for businesses to achieve success, and this holds true for ESG matters as well. Addressing the most critical ESG concerns, mitigating risks, and promoting long-term sustainable growth requires the establishment of impactful ESG goals and strategies. To create such goals and strategies, it is important to formulate clear and measurable objectives. Here are some practical examples:
- Environmental goals:
-
- Increase the relative use of renewable energy by 20% next year.
- Reduce energy consumption by 30% over the next three years.
- Reduce waste generation by 20% per unit of production by 2025.
- Social goals:
-
- Improve employee engagement and increase satisfaction by 15% by 2025.
- Implement a comprehensive diversity, equity, and inclusion (DEI) plan.
- Establish a community engagement program.
- Governance goals
-
- Strengthen the board of directors with expertise in ESG and sustainability.
- Develop a comprehensive code of ethics and conduct.
- Develop and implement risk management framework.
2.1 Environmental
- Goal: Increase the relative use of renewable energy by 20% next year.
- Policy: Migrate to renewable energy sources such as solar, wind, or geothermal power.
- Action plan:
- Conduct an assessment to identify potential energy savings.
- Develop a renewable energy procurement strategy.
- Install renewable energy systems on company-owned or leased properties.
- Partner with renewable energy providers to secure a reliable supply of renewable energy.
- Monitor and track the progress of renewable energy adoption.
- Goal: Reduce energy consumption by 30% over the next three years.
- Policy: Implement energy-saving measures throughout the business.
- Action plan:
-
- Upgrade to energy-efficient lighting and appliances.
- Implement smart lighting controls and occupancy sensors.
- Improve building insulation and energy-efficiency ratings.
- Train employees on energy-saving practices.
- Monitor and track energy consumption regularly.
- Goal: Reduce waste generation by 20% per unit of production by 2025
- Policy: Adopt a zero-waste approach to operations and increase the circularity of material streams.
- Action plan:
- Implement waste reduction strategies, such as source reduction and reuse.
- Establish a recycling and composting program for all waste streams.
- Use sustainable packaging materials.
- Follow a sustainable procurement strategy.
- Educate employees on waste reduction practices.
- Track and measure waste generation and recycling rates.
2.2 social
- Goal: Improve employee engagement and increase satisfaction by 15% by 2025.
- Policy: Foster a positive and inclusive work environment.
- Action plan:
-
- Conduct regular employee engagement surveys to assess satisfaction levels.
- Provide opportunities for career development and training.
-
- Promote a diverse and inclusive workplace culture.
- Recognize and appreciate employee contributions.
- Address employee concerns and complaints promptly.
- Goal: Implement a comprehensive diversity, equity, and inclusion (DEI) plan.
- Policy: Promote equal opportunities and respect for all employees regardless of background.
- Action plan:
-
- Form a DEI committee to review the existing policies and procedures to identify and eliminate any potential biases or discriminatory practices.
- Adopt inclusive hiring practices.
- Engage employees in formulating policy and decision-making processes.
- Foster a company culture that supports psychological safety to benefit from diverse points of view.
- Track and monitor diversity metrics through digital tools and employee surveys to measure progress.
2.3 Governance
- Goal: Develop and implement a risk management framework.
- Policy: Identify, assess, and mitigate ESG-related risks.
- Action plan:
-
- Develop own risk management criteria based on e.g. ISO 14001, ISO 26000, SDPI, ESRS, or other appropriate standards that offer guidance on ESG-related risk management issues.
- Identify and assess potential ESG risks faced by the company.
- Develop and implement strategies to mitigate those risks.
-
- Monitor and update the risk management framework regularly.
- Goal: Develop a comprehensive code of ethics and business conduct.
- Policy: Establish clear ethical standards and guidelines for all employees.
- Action plan:
-
- Align your code of ethics and business conduct with accepted national and international standards. For the latter, the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines on Multinational Enterprises would be good choices.
- Communicate the code of ethics and conduct to all employees through training and orientation.
- Implement a process for reporting and addressing ethical violations.
- Goal: Strengthen the board of directors with expertise in ESG and sustainability.
- Policy: Ensure the board has the necessary knowledge and experience to oversee ESG and sustainability initiatives.
- Action plan:
-
- Identify and recruit board members with expertise in ESG and sustainability, where possible.
- Provide existing board members with training and resources on ESG and sustainability issues.
- Integrate ESG and sustainability considerations into board discussions and decisions-making criteria.
- Track and report on the company’s ESG performance to the board.
- Select and implement an appropriate ESG framework.
- Integrate ESG considerations into your decision-making.
- Empower and educate employees to foster a culture of sustainability.
- Promote transparency in stakeholder engagement.
- Add ESG metrics alongside traditional KPIs to track progress and continuously improve operations.
- Seek external verification and certification.
- Leverage technology and ESG data.
What are the ESG issues to consider in your SME business practices?
ESG encompasses a wide range of issues, and there is no single, universally accepted set of ESG practices. The specific ESG practices that are most relevant to your business will depend on your SME’s goals, strategies, and action plans, as well as the sector or industry in which you operate. The proliferation of frameworks and standards with confusing acronyms has jokingly been called an alphabet soup. Nonetheless, a few leading standards such as GRI, SDPI, and ESRS, have emerged in recent years. These all provide guidance on indicators or metrics and criteria for ESG practices.
In a separate article, we will delve into the metrics and criteria for ESG practice and reporting offered by the Sustainable Development Performance Indicators (SDPI), which was recently developed and launched by the United Nations Research Institute for Social Development. Our research work comparing the various standards has found the SDPI to be well-suited to SMEs. It provides a framework for authentically measuring sustainability performance while remaining relatively lightweight and avoiding the complexity and administrative overheads of older—and some newer—standards.
While the specifics vary, some general principles and practices for ESG are almost always applicable to most businesses, including SMEs. These include:
ESG Pillar
Principles
Example Practices
E
Protect the planet and its eco-systems & conserve natural resources
Reduce carbon emission & waste; use renewable energy; use resources such as water and minerals efficiently; recycle & reuse resources; employ sustainable supply chain partners; minimize pollution & protect the environment; conserve biodiversity
S
Promote social equity, foster inclusion, and advance ethical practices.
Respect workers’ rights; take care of employee well-being; provide living wages; promote gender equality; foster an inclusive work culture; ensure a safe work environment; engage with the external community; respect customers and partners; ensure product safety and avoid harmful product and services
G
Embrace ethical governance, leadership, and transparency in business.
Ensure inclusive governance structure; lead transparent & responsible business practices; assess and disclose material risks; maintain ethical conduct; avoid corruption; disclose ESG data; ensure data protection and security; comply with legislation; align or comply with appropriate standards
Final notes:
SMEs play a crucial role in climate action and the transition to a sustainable economy. ESG excellence entails integrating sustainable practices into every aspect of business operations, from reducing carbon emissions and promoting diversity to upholding ethical governance and management standards for your business. By embracing ESG, SMEs can contribute to a more sustainable economy and a liveable planet for future generations.
While current legislation like the EU’s CSRD only makes compliance mandatory for larger enterprises, SMEs of all sizes are increasingly expected to comply with at least a subset of regulations through their position in the value chain. By proactively embracing ESG excellence you can reap significant benefits now and position your business for long-term success in a rapidly changing economy. You stand to reap the following benefits by integrating ESG principles into your operations:
- improved access to capital, as investors and financiers increasingly emphasise ESG performance;
- competitive advantage and growth through meeting the compliance needs of large clients;
- engaged stakeholders including employees and customers;
- positive impacts on the environment and society;
- sustainable value and wealth creation; and
- reduced risks.
If your SME has not yet fully embraced ESG principles, embark with MorrowX on a journey towards ESG excellence, and help pave the way for business norms to be more environmentally conscious and socially responsible. Together, we can create a world where businesses prosper, communities thrive, and our planet flourishes.
Stay tuned for our next blog post, in which we’ll help you navigate the challenges of integrating ESG into your SMEs’ business practices.