Small Business, Big Impact: The Role of ESG in Small Companies 

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By ESG Analyst Isabelle Cote

Analyzing changes and effects in ESG for various companies is valuable as our world and economy change. Like small businesses, emerging companies may need help establishing their ESG rating. Establishing ESG scores is essential for any company to improve the investments they are receiving, bring in business, and help maintain a sustainable outlook for the business trajectory.  

Key Principles of ESG  

ESG evaluates three sectors that businesses should follow to run smoothly. It evaluates environmental, social, and governance.  

  • Environmental evaluates the sustainability of a company, with a focus on carbon footprint, emissions, and energy use.  
  • Social focuses on ethics, workplace culture, employee engagement, and the company’s impact on society. 
  • Governance can include the director’s independence, succession planning, and operational procedures.  

A company uses this scale to view its performance in three vastly different but interconnected aspects. To investors, this scale is essential for evaluating a company’s longevity and performance.  

Small Changes, Big Impact 

As companies emerge and build up their business, ESG should be a system of evaluations that is kept in mind as they establish and grow. For growing businesses, investments help establish a stronger market presence. Environmentally conscious investors will assess ESG scores and company strategies to maintain and improve their sustainability performance. As these companies scale, they must also be agile in their operations to remain competitive. Small businesses have the advantage of adaptability, allowing them to respond to market changes quickly. 

Given that these are emerging companies and figuring out how to navigate, they can quickly adapt to markets because there is less to manage, and they can make quick decisions. Though these businesses are small, they account for about 90% of all firms in the United States, and it should be important that they report their ESG performance, given that there are so many of them. Having such a vast presence can have an impact on the environment and social issues. Making sustainable changes for small businesses can benefit them by cutting their expenses. Companies can go paperless or use recycled products and packaging. Many people are inclined to buy products labeled eco-friendly or support sustainable initiatives. Following the COVID-19 pandemic, consumers have become more aware of brands and their environmental presence, with 32% of adult consumers stating that they will pay more for environmentally responsible brands. However, not only did consumers become more aware, but investors did, too. Many risks were revealed when the pandemic hit, giving investors more incentive to look at the future possibilities of their portfolios. Companies that attempt to make a difference by focusing on going carbon neutral and diversifying supply chains can have better stability and outlook than those that do not, making them more appealing to investors.  

Strategies for Growth 

Small and emerging businesses can thrive by keeping ESG policies at the forefront of their operations. Sustainability efforts have been shown to increase clientele and keep current customers loyal to companies. Using ESG can provide an advantage to a company and expand opportunities. To put these concepts into play, companies can focus on small ways to be sustainable, such as being energy efficient, like auto light shutoff, and lowering waste. Companies should also hire employees who care about their standards and are passionate about these topics. It has been shown that 32% of small businesses and enterprises have had an easier time recruiting and retaining their employees. Companies can also focus on diversity and inclusion; this makes the workplace much more vibrant and creates opportunities for underrepresented groups. Overall, using the ESG scale is essential for large companies and companies of all sizes. It helps companies understand the impact they have on the environment and society and the changes they can make to stay on a more sustainable path. 

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