In recent times large scale businesses have significantly increased the resources that they allocate towards Environmental, Social and Governance (ESG) improvements. This can be seen in their marketing, as more business strive to demonstrate an ethical stance to their customers. As ESG can also contribute positively to tendering outcomes, we felt a blog, breaking down ESG jargon, and what it means for small businesses, would be useful.
Considering your business through an ESG lens enables you to understand the broader impacts of your business and demonstrate positive impacts to clients and potential customers.
It seems, ESG is here to stay particularly through ethical and moral decision making and purchasing choices. We are operating in a time where purchasers and prospective clients are increasingly likely to prioritise purpose-driven brands that can demonstrate ethical sustainability. To help with tender wins, ESG should be fully considered. In tendering terms, ESG has a strong alliance with the topics of environment, sustainability and social value, which all arise in the majority of tenders that we work upon.
What does ESG stand for?
ESG stands for environmental, social and governance.
Environmental: impact(s) on the natural environment and how risks are managed e.g. direct and indirect greenhouse gas emission mitigation, use of natural resources like water, how resilient the business is to climate risk (e.g. flooding). It includes factors like energy usage, waste management, pollution, and natural resource conservation.
Social: relationships with stakeholders which can be measured against human metrics such as fair wage, employee engagement etc. It also includes the impact on communities as well as taking responsibility for the actions/inactions of supply chain partners. Such relationships include those with employees, suppliers, customers, and communities.
Governance: how firms are managed and whether this leadership is in alignment with stakeholders, including shareholder, expectations. Therefore, promoting leadership transparency and accountability of actions. It involves the processes and structures used to make decisions, ensure compliance, and manage risks.
Why is ESG important?
Engagement with ESG factors helps stakeholders understand how businesses manage opportunities and risks relating to ESG criteria. Understanding environmental risk and impact is a big part of the ESG concept of sustainability but ESG also recognises that sustainability extends beyond environmental concerns.
How business capital is allocated, access to sustainability themed funds, and financial decisions should be influenced by ESG. A sustainable approach is significant also for those buying into products/services. There is an incentive to improve on performance against ESG measures so that chances of being awarded a tender are enhanced. A lack of action on working ESG into your business model can risk gifting the competition a head-start in the race for ongoing business success.
By giving credence to ESG, your bid submissions are enhanced in their quality for ESG-considerate buyers. Where everyone strives for improvement in ESG’s three core areas, progress and improvements in business results and society can benefit.
What should businesses be doing?
As a minimum, businesses should demonstrate their commitment (making business intent clear to stakeholders), address external vulnerabilities, report against baseline standards (and meet these), consider the reactivity of the business to trends affecting its industry, mitigate risks, and donate resources (voluntary work, financial, in-kind).
It is common practice for businesses to extend their efforts beyond core business operations by engaging with stakeholders to ascertain what matters. Businesses can use such feedback to inform their approach. These businesses typically have a sustainability policy that is comprehensive and known strengths that are utilised to offer increased value against ESG goals and metrics, as well as demonstrating compliance to industry standards (often with above average performance).
The intention of ESG should be fully integrated into both business strategy and business operations. In doing so, businesses have a more significant impact, driving innovation, providing customer choice and demonstrating social influence.
ESG to do list:
- Understand the strengths and gaps of the business and where it can ‘make-a-difference’.
- Identify any vulnerabilities that stakeholders will expect you to address.
- Consider stakeholders: including whether your employees are engaged and intrinsically motivated to recommend the business; and whether your business is purpose-driven (does it promote ethical practise, equality, focus on the environment etc.) promoting engagement.
- Regularly implement appropriate benchmarking procedures so you can develop clear and ongoing goals, which you can measure your ESG progress against.
- Think about next steps actions: what is within reach, what would be challenging to achieve that your business might not yet be ready for or that requires more time, research and/or innovation.
- Compare your business performance against significant criteria (such as: reaching Net Zero emissions, providing a living wage, promoting diversity and inclusion etc.) and consider how you measure and assess your performance against expectations.
- Measure that which is significant (including ESG factors) against your strategic goals, important milestones and targeted KPIs and ensure assessment is robust.
- Embed ESG within business operations by using engagement with ESG to inform strategic decisions for instance providing reminders and celebrating when employees/teams deliver against ESG expectations.
In summary:
For small businesses, embracing ESG is not just about meeting regulatory requirements or following a trend; it’s about building a sustainable, responsible, and profitable business.
By integrating ESG into your core operations, you can enhance your competitive edge, reduce costs, attract investment, and ensure long-term success. Start small, but think big – your commitment to ESG can have a significant impact on your business, the world around you and contribute to future tender success!