How to implement an ESG policy for a small business

Committing to an Environmental, Social, Governance (ESG) strategy is gaining importance for smaller businesses as investors, stakeholders, and customers place ESG practices under the spotlight.

ESG is a collective term for measuring a business's impact on social and environmental issues and its governance beyond simply generating revenue or making a profit.

While traditionally, companies have focused on measuring performance indicators such as turnover, costs, and other financially related measures, today's businesses are adopting measures that show their impact on the environment, local communities, and topics such as diversity and employee wellbeing.

The reasons why businesses consider implementing ESG are wide-ranging.

Investors may use ESG measures as an indicator of how a business is managing risks in the longer term.

Customers may be more willing to buy from companies that invest in greener products or display ethical approaches to issues such as inclusivity.

Research by social network LinkedIn in 2018 found that 71% of professionals say they would be willing to take a pay cut to work for a company that has shared values, while 39% would leave their current job if their employer were to ask them to do something they have an ethical or moral conflict with.

Implementing ESG practices and activities in a smaller business is a two-part process.

Part one is to measure and understand how your business impacts ESG topics such as carbon emissions today and set goals to improve from this baseline.

Part two is to roll out an ESG programme that changes how your business operates to improve your ESG baseline.

Read part one of our guide on implementing ESG for smaller businesses to learn how to measure and set goals for your ESG strategy.

How to implement an ESG policy for a small business – deployment

Once you've established the baseline for your existing ESG policies and set goals for improving, such as reducing energy usage or improving employee wellbeing scores you need to develop a programme of activities designed to meet those goals.

While the programme you create will be unique to your business setup, there are several steps you can take to help ensure your implementation is as effective as possible.

Some of these examples are more appropriate to companies with more than ten employees but these tips can be scaled down for the smaller business.

1. Create an ESG team

From becoming a more sustainable business, to developing community outreach programmes, it can pay to assemble a team of employees to own the ESG programme.

Look for employees who are passionate about change, effective communicators, and in positions in your organisation where they can bring about changes.

Give the team accountability for ESG targets and access to resources to be able to meet ESG goals.

2. Invest in ESG

One of the risks of an ESG strategy failing to take-off can be a lack of resources.

While ESG might seem like a costly activity, it can lead to cost savings such as lower energy bills or reduced recruitment costs and even increased turnover due to more sales.

Calculate where resources can have the most impact on ESG goals and work out where these improvements can either save your business money, or have the potential to grow cash.

You can use these calculations to help determine how much resource to allocate and to which parts of your ESG programme.

3. Involve employees

Everyone in your business could have a role to play in making your ESG strategy a success.

Leaders, managers, and supervisors can play a role in positively supporting the programme, such as embedding it in employee feedback and rewarding success.

Your workforce can make small changes, such as actively recycling waste or more rigorously assessing suppliers.

Use internal communications channels to communicate the importance of ESG and what your business is doing and consider regularly updating staff on progress and encouraging good behaviours with reward and recognition.

4. Don't forget your supply chain

Involve procurement staff in your ESG strategy and share company values that you'd also expect from suppliers.

A critical part of ESG is governance, so encourage employees to regularly vet, assess, and monitor suppliers to ensure they meet your ethical, social, and environmental goals.

Consider putting policies and contracts in place for new suppliers that commit to providing evidence of good practices, such as minimum thresholds for employee working conditions or only using sustainable materials.

5. Keep measuring

You'll need to audit your organisation's performance regularly.

It can be worth using your ESG team to periodically gather data, such as annual pay reviews benchmarked against workforce demographics and updating data against your key performance indicators.

Aim to get into a routine of measuring performance to see the effect of initiatives.

6. Communicate progress

Transparency and openness are at the heart of ESG, so ensure you regularly update stakeholders, customers, and employees on progress.

Progress should be honestly communicated rather than poor performing areas glossed over and by demonstrating accountability for areas that still need improvement can show openness in addressing outstanding issues.

Consider adding ESG progress to your annual report, share updates in staff newsletters or intranets, and use social media platforms to update customers on how you're performing and the initiates you're running.