To quote our guest speaker, Raymond Greaves, Head of Research at FinnCap Group, “we all want businesses to make money today, tomorrow and in ten years. This crucial point of sustainability is not just the environment but also the durability of the business model is the key issue and why ultimately companies should take ESG seriously”.
So ESG is not the latest business think fad. It is fact that today’s investors increasingly want to invest in sustainable businesses with good investment models and integrating ESG factors will set you on the journey that your investors will be wanting to see evidence of – and importantly this will increasingly include all providers of finance into your business be it a bank loan, direct investment or an equity finance arrangement.
The good news is that to get the basics of ESG right isn’t difficult – consider it a journey where there are clear benefits at every stage post:
- Environment – once you start measuring your environmental data, this will get you to start thinking of ways to cut energy, water and waste usage. So you are now on a cost saving exercise.
- Social – this will certainly help you in today’s war for skills and talent. Having an attractive business culture will help you to maintain low staff turnover and will also attract more easily the bright talent you need to secure growth. So you are still firmly on that cost saving exercise.
- Governance – focusing in on the governance of your business – and in particular devoting focus on risk management – will not only appeal to your investors but your customers and your supply chain. Good risk management practices will also bring their own costs savings in terms of insurance coverage and premium pricing.
A key fact is that SME investors will always look for investment returns where risk mitigation is strong. A few years ago only a minority of investors considered ESG factors. Today, around two-thirds of investors take into account ESG factors, according to EY’s Global Private Equity Survey 2021. Investors predict these numbers to grow in the future.
And if you are operating or looking to expand internationally, you need to recognise that ESG is a huge global issue. For the global investment community, incorporating ESG into investment process is now essentially mainstream, so global supply chains will in turn be applying huge importance on ESG factors. Remember it starts with the big corporates and filters down across their supply chains; what they have to comply with in terms of investor demands will impact your business in the short and mid-term.
Raymond at FinnCap is clear there are some key steps your company can take to get on the ESG ladder and will make you a better company from an investors point of view and future employees:
- Obtain key environmental data points – energy consumption, CO2 production, water consumption and waste production.
- Prepare and apply the most important policies – sustainability policy, discrimination policy, ethics policy and discrimination policy.
- Address diversity in the boardroom.
The next step is to look at how your business can contribute to the UN’s Sustainable Development Goals. To start with, chose two to three you can contribute towards. Then track your progress with the help of some key ESG standards and metrics. There is a plethora to choose from, for example TCFD, GRI, WEF metrics – understand what they are, work out which ones apply to your business – which ones you need to comply with and which you would like to comply with.