FINANCE
BY DAVID ELLIS , CORPORATE FINANCE DIRECTOR , AZETS , MAIDSTONE
Climate Concerns Fall Behind for SMEs
AS A REPORT SHOWS THAT ESG HAS BEEN DOWNGRADED AS A PRIORITY BY SMEs , DAVID ELLIS DISCUSSES THE IMPORTANCE OF THE PATH TO NET ZERO .
The latest Azets SME Barometer Spring 2022 , which surveyed 1,093 SMEs from all sectors in the UK , Denmark , Finland , Norway , and Sweden , revealed that Environmental , Social and Governance ( ESG ) is on most company radars but specific action lacks urgency , with sharper focus on people , technology and cost , amid economic turbulence . Almost three quarters ( 71 %) of SME businesses are not currently acting to reduce their carbon emissions , as ESG performance is downgraded and digitalisation , employee wellbeing , cost inflation , and recruitment take priority .
The SME Barometer shows that many businesses want to focus on ESG and sustainability to a far greater extent than before . But it also highlights an alarming number that do not currently have clear records to monitor their performance in this regard . There is a clear focus on digitalisation , cyber security , wellbeing , and costs , leading to a downgrading of ESG as a priority . This is the result of instability in the market forcing companies to prioritise differently than just a year ago .
For some SMEs rooted in their local community , ESG appears as common sense . For others it poses challenges in terms of cost and the expertise and resources required to implement it . Given current pressures on SMEs , a basic challenge can simply be finding the time to bring ESG to the fore when there are more pressing matters to deal with .
However , ESG represents a great potential and opportunity for SMEs . Legislation is coming down the track for EU SMEs on sustainable products and government policy is encouraging lenders to increasingly consider sustainability and ESG policies as a condition of lending , making ESG an increasingly important theme and potentially a key differentiator . In addition , acquirers are more commonly considering ESG as a specific transaction driver and due diligence issue . Businesses should therefore be thinking ahead and taking specialist advice .
Over half of SMEs agree they have a good understanding of what ESG means ( 57 %) and have the skills and competencies in the business to address it ( 52 %). However , 53 % do not think ESG will have a big impact on their business in the next two years . On reducing carbon emissions specifically , 71 % are not currently acting and 85 % are not currently measuring the carbon footprint of their business . Meanwhile , over half ( 54 %) of SMEs say they will increase digitalisation in the year ahead , while employee wellbeing has risen to be SMEs ’ second highest priority , after securing their financial health , which is unsurprising in the current challenging labour and recruitment market .
Moving forward , one stand out way to prioritise ESG is to review the type and amount of energy used through procurement processes and efficiency , including consideration of the type and amount of other raw materials used . SMEs could also potentially claim tax reliefs available when researching the use of new products in manufacturing .
We know that cost inflation and recruitment are SMEs ’ biggest day-to-day challenges , with knock-on effects on cash flow and the time spent on administrative work . Almost twothirds ( 64 %) of SMEs are struggling to recruit talent with the right skills . Sadly , all of this leaves little bandwidth and urgency for ESG but with the right support , there can be commercial and financial benefits to focusing in this area .
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