Is ESG Killing small and mediuim sized businesses?
The ascendancy of Environmental, Social and Governance (ESG) criteria in the evaluation of investment opportunities has been praised by many as a move towards engendering a more accountable business world. Whilst it's indisputable that ESG does foster sustainable practices, the heightened focus on these metrics has concurrently introduced a myriad of challenges for small businesses seeking funding or support. The convoluted nature, vagueness and the escalating politicisation of ESG standards may be inadvertently creating an environment that is stifling small business growth.
The financial implications of adhering to ESG standards can pose a substantial burden for small businesses. A central issue here is that, unlike their larger corporate counterparts, small businesses often lack the means to invest in the necessary tools, technologies, or personnel to meet these standards. This, as a consequence, can put them at a disadvantage when attempting to secure investments or loans, as investors and lenders are increasingly prioritising ESG-compliant businesses.
In addition to the costs, the ambiguity surrounding ESG standards can be a significant hurdle for small businesses. In the absence of clear, universally accepted criteria delineating what constitutes ESG compliance, businesses can find themselves uncertain of what is required to meet these standards. This lack of clarity can result in businesses misdirecting time and money into areas that may not necessarily improve ESG ratings, thereby diverting vital resources from their central operations.
In North America, the politicisation of ESG presents another considerable obstacle. The growing polarisation of the ESG debate implies that businesses prioritising ESG could face opposition from certain quarters, whilst businesses neglecting these standards may find themselves ostracised by potential investors or customers for whom ESG is a significant factor in their decision-making process.
At the core of these challenges is the unfortunate reality that the ESG push is often more top-down than bottom-up. Large businesses and investors are driving the ESG movement, while small businesses are expected to conform without necessarily possessing the resources or support to do so. The result is a scenario where small businesses can feel overlooked, struggling to keep pace with the shifting landscape of business standards and expectations.
So, is ESG killing small businesses?
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Not necessarily.
But there's no doubt that the current ESG landscape poses considerable challenges for small businesses. Policymakers, investors, and industry leaders must acknowledge these hurdles and strive to create a more equitable environment where ESG standards are clear, achievable, and universally applied. The ambition to make businesses more responsible is a commendable one, but it should not come at the expense of stifling the growth and development of small businesses. ESG ought to be a tool for business improvement, not a hindrance to their success.
Ian Wright is the CEO and Founder of Virtualnonexecs.com - the largest board advisor and non-executive director platform in the UK. Members advise over 30,000 boardrooms.
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BC Sales Consultant SME | LS Retail and Hospitality
1yI had taken AXA Pulsar Policy and now HSBC has taken over AXA. The Agent has cheated me and sold the Policy for 30 years. I am a foreigner in Singapore. How a Agent can sell a Policy to a Foreigner for 30 years. I am asking for surrendering and give me my remaining amount S$36000 back but HSBC is refusing it. Be aware of this type of Scams HSBC Agents are doing it. Please spread this as much as possible. @HSBC Life Singapore.
Founder at Greenify – the world’s greenest eco-cred
1yIan Wright I’m a bit late to this thread… For SMEs focussed on their core biz, sustainability can be a nightmare. Greenify has built a platform to make it super-easy – so small businesses can gain an evidence-backed eco-credential they’ll want to shout about. Happy to share info.
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1yYes. My client lost a huge deal because ESG was worth 45 points in the tender. The client has a worse service from the new provider & a solid, long term relationship has been lost. The provider who lost is a local employer, has a superb culture, looks after their staff really well, recruits from socially deprived populations etc that’s proper sustainability. It doesn’t appear in a tick box exercise though.
Banking Partner specialising in Real Estate Finance at Hill Dickinson LLP
1yJonathan Nwosu worth a read?
Managing Director
1yWhen done well, great. And allows organisations to flourish. But it needs to be appropriate on what the SME does. Done badly it becomes an exercise in corporate 'big government ', yet more overhead and conveyor belt of virtue signalling and telling people what to do and what to think.